Paths toward global growth

With the increasing demand for global service, agencies are discovering which roads to international growth suit them best.

With the increasing demand for global service, agencies are discovering which roads to international growth suit them best.

The PR industry has, for years, been a growing global one. For both owned and independent firms, worldwide expansion is a key factor in keeping agencies competitive for the biggest corporate accounts.

But the topic of best practices for expansion generates some debate. While many firms have steadily pursued an account-driven strategy of affiliate relationships and acquisitions in order to service business without overextending themselves economically, others have rejected that approach in favor of a pure organic growth model, arguing that it is the only way to promote true quality work.

This fundamental dichotomy - a more cautious, but quickly operable affiliate program versus a financially burdensome, but organic expansion of wholly owned offices - is certainly not a clear-cut either/or proposition. Affiliates are utilized by everyone at one time or another, and even the most reticent agencies won't hesitate to build in a market that is clearly booming. But the philosophical divide does exist, and time will tell if one approach is even preferable to another on the global stage.

1: Growth via partnerships

When Mark Hass took over as MS&L CEO, he inherited one of the most extensive affiliate networks in the industry. The lengthy list bolsters MS&L's wholly owned offices, allowing it to reach into markets as diverse as Paraguay, Pakistan, and Portugal. Europe's financial and cultural centers, for the most part, are well served by most multinational agencies, but Hass cites the so-called BRIC nations (Brazil, Russia, India, and China) as the future of global growth.

Affiliates are "a lot more flexible" than any alternative arrangement, Hass points out, allowing an agency to service accounts at any time, in any market, without an ongoing financial commitment. But he rejects the "dating period" approach to affiliates, in which an agency tests out a firm for a certain period of time in anticipation of purchasing it. Instead, MS&L plans acquisitions for markets that possess strong long-term growth potential and uses its affiliate network to navigate through tricky situations, such as having partners in both Dubai and Israel to serve clients on both sides of the tense Middle Eastern political divide.

David Brain, president and CEO of Edelman in Europe, says simply that "our clients determine where we need to be." Edelman signs exclusive affiliate relationships with certain agencies because, Brain says, "There's more of a commitment by them to do quality work for our clients if they know there's a regular revenue stream coming through."

When affiliates have proven themselves over the years and occupy a hot market - a category Brain says includes not only China and India, but also such Eastern European countries as Poland - Edelman often acquires them, in part or in whole. But the agency puts a lot of effort into making sure its acquisitions can measure up on the quality scale.

"In the smaller markets... you've got smaller offices, and candidly it can be more difficult to get the sort of quality you want," Brain says. To boost that quality, Edelman "bring[s] our affiliates into us," holding regular management meetings, providing access to Web-based training, and hammering home the firm's code of conduct in an attempt to ensure that service is not tainted by loose local practices that could reflect poorly on large clients.

Tips for growth

Push managers in foreign markets to always keep their eyes and ears open for capable firms with whom to form affiliate relationships

If a firm anticipates a steady flow of business, push for an exclusive affiliate relationship. If the business is not steady, case-by-case contracts are appropriate

Exert constant control, supervision, and billing oversight of accounts handled by far-flung affiliates

Use clients, agency peers, and your own experiences as indicators of the quality of an affiliate's work. Consider acquiring good ones, particularly in growing markets like India and China

2: Growth from the ground up

Text 100, a global tech specialist, believes strongly that the only way to build a seamless network is to start from scratch. Says CEO Aedhmar Hynes (pictured), "The ability to be able to provide a consistent approach worldwide, and provide [consistency] in the methodology and the people, have all been critical in our decision to go organic, as opposed to [growing] through acquisition."

She feels that opening new Text 100 offices in important markets, and exacting total control over their operations, is the only reliable way to ensure service that doesn't vary according to the whims of varying global cultures and business environments.

"If you build an agency organically, you are immediately going to hire, train, and grow your own people under exactly the same culture and value structure as the agency," Hynes says. "What we have seen happen with many of our competitors is, through acquisition, you can often get a very patchy infrastructure. If the client is buying consistency, that's not going to deliver it."

Indeed, to some agencies, the lengthy quality-control process that goes along with affiliations and acquisitions is simply not worth the work. Lou Hoffman, CEO of the Hoffman Agency, says that he started his firm's overseas expansion into Asia in 1996 with the idea of using a "hub model," with one central office in Singapore supported by several affiliates in the region. But as the agency began to compete for business, Hoffman found that the hub model was unpersuasive for clients.

"In terms of agency reviews, having your own 'dots on the map' are the ante to play the game," he says. "The smaller accounts, the names that aren't well-known, those end up being the accounts that you can compete for with affiliate models. So it kind of relegates you to the low end."

So Hoffman went in a different direction. Since 1998, the agency's global expansion, particularly in Asia, has been driven by building new offices from the ground up. Hoffman acknowledges that such a strategy is "incredibly expensive," but says the firm was able to do it on the strength of large, long-term global tech accounts, like Hewlett-Packard. The payoff, he says, has been the firm's ability to remain independent and still compete for worldwide business with much larger, holding company-owned agencies.

Tips for growth

Be exceedingly cautious when selecting markets to expand into organically. The cost of failure can be a death blow to an agency's finances

Market and promote your organic growth model to clients as evidence of more consistent quality of work n Invest early. Leveraging large accounts in foreign markets into new offices can pay off well when those markets continue to boom

Carefully identify and vet US staffers who can work on the ground in the new region to help translate the agency's values and practices

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