'What the UK Is Doing Is the Envy of People in Washington'

'What the UK is doing is the envy of people in Washington' ; THE SUNDAY INTERVIEW WPP's Sir Martin Sorrell believes the Coalition's austerity cuts... [Sunday Telegraph (UK)]


From Sunday Telegraph (UK) (December 19, 2010)

 


‘What the UK is doing is the envy of people in Washington’ ; THE SUNDAY INTERVIEW WPP’s Sir Martin Sorrell believes the Coalition’s austerity cuts are doing the UK a power of good. Here he outlines the big opportunities for 2011.

In recent decades, a visit to America might have left a British chief executive boarding their return flight to Heathrow feeling a touch of envy. The country’s effective copyright on the word "entrepreneur" turned it into the world’s biggest economy. However, Sir Martin Sorrell, founder of WPP, the world’s largest advertising company, wasn’t feeling too down as he left New York after a visit to the US this month.

With 2011 coming into focus, Sir Martin believes that "for the first time in a long time you can feel bullish about the UK in the medium term". He adds: "What the UK is doing is the envy of people in Washington."

He’s talking, of course, about David Cameron’s austerity programme, outlined in October’s Budget and promised before the general election as a revolt by bond investors over UK debt loomed.

"The Coalition’s economic policy has a lot going for it," Sir Martin says. "They’ve done the tough stuff and they’re dealing with the deficit."

The tough stuff is far less swingeing than the medicine that voters in Ireland, Greece and Portugal are being forced to stomach. Once inflation is factored in, spending in the UK is set to decline by about 3.7pc over the next four years to Pounds 671bn.

The cuts, though, are real enough and, as the protests over the increase in university tuition fees showed, will not be easy to deliver. The programme has been enough to win the backing of much of UK plc which, with the public sector having to find reverse gear for the first time in more than a decade, will be tasked with fuelling the recovery next year. Sir Martin’s support echoes that of Justin King, the chief executive of supermarket J Sainsbury, Sir Stuart Rose, the outgoing chairman of Marks & Spencer, and retail entrepreneur Sir Philip Green, who was hired to help find savings across Whitehall’s shambolic procurement processes.

The backing comes with a price. The WPP boss says that lower corporate and income taxes will eventually be needed to support the recovery. "In the medium term you chop the tax rates - both personal and corporate - and you lay the emphasis on the strategic development of the country," he says.

WPP moved its tax base to Ireland in September 2008 in protest at changes in taxes levied on profits made overseas, a move that has saved WPP up to Pounds 80m. Sir Martin’s optimism is usually reserved for the so-called BRIC countries - Brazil, Russia, India and China - but Britain is where WPP’s own story began during the middle of Margaret Thatcher’s second term.

Through buying the listed company Wire & Plastic Products, the WPP chief took that shell and used it to build an advertising company with 140,000 employees. The UK, which accounts for just over 12pc of WPP’s revenues and is home to its businesses including advertising agency Ogilvy & Mather and public relations firm Finsbury, saw revenues climb 7.4pc in the third quarter of the year.

Numbers for November were "very strong", Sir Martin says. But while deficit reduction may deliver Britain a lasting prize, there’s likely to be some pain for the advertising industry to endure next year, according to Enders Analysis. The media research house is forecasting that advertising spend in the UK will slide 1.1pc to Pounds 14.86bn after enjoying a strong rebound this year from 2009’s collapse.

Even if pessimism is unusually thick on the ground in America at the moment, Sir Martin isn’t writing the country off. After all, some of America’s biggest companies - Pfizer, American Express and Ford - helped generate Pounds 1.6bn of WPP’s revenues in the first half of 2010, making it the group’s biggest market.

"Never underestimate the Americans," says Sir Martin, who roughly splits his time between London and New York. "In the 1980s, people thought the Japanese would take over, but along came Ronald Reagan on his horse."

WPP enjoyed revenue growth in the US of 9.9pc in the third quarter compared with the same period in 2009, as newspaper and television advertising rebounded sharply. Many more companies believed that, unlike last year, they would survive to see the end of this one, which played to the strengths of newspapers.

"People in 2010 were less concerned about the world coming to an end," Sir Martin explains, so companies turned to newspapers and television to invest in brands they still expected to be around.

There remains for some, he says, "a concern that the web is just about price and deals". Apple’s iPad, for example, has changed his life but he detects some scepticism among media owners about how they are going to turn it into the cash cow many still hope it will become.

While he doesn’t expect the US advertising rebound to continue at the current pace in 2011, he says that by the end of the year the prospect of the 2012 presidential election will help the market by driving political spending.

Though troubled by high unemployment and political paralysis over how to tackle its $1.3 trillion (Pounds 830bn) deficit, the US has a clear lead in another race - the radical reshaping of the media and how companies use it to reach their customers.

That internet advertising is outstripping the growth of other media has been true for several years. Indeed, research group Magna Global expects the web to eclipse newspapers as the second-biggest advertising market after television by 2013.

Less clear is how well both companies and traditional media organisations are adapting to the change. Drilling deeper into the phrase "online advertising" opens up a dizzying array of choice for companies - whether you’re a food producer like Unilever or a fashion brand such as Gap - on how to promote products.

There’s Google, Facebook and Twitter for starters. As you might expect, Sir Martin insists this is good news for advertising behemoths like WPP, whose main global competitors are Omnicom and InterPublic Group, both based in New York. Then there’s also France’s Publicis.

"What’s exciting right now is the opportunity for mobile and the development of smartphones," he explains. "That, of course, fragments the media market, but as an independent third party actually makes us more important to our clients."

But what appears to most excite Sir Martin, whom The Sunday Telegraph caught up with again while he was en route to Mexico, is the increasing importance of data to an industry that has historically been associated with the brilliance, as well as the tantrums, of the creatives who dream up winning advertising campaigns.

"It’s about understanding the importance of data," he explains. "At Pounds 4.5bn to Pounds 5bn, consumer insight is a big part of our revenues." In this case, it’s data on what the world’s shoppers are buying, whether they are British, American, Russian or Indian. It carries echoes of a change in the newspaper industry, where the advent of the web has allowed editors and journalists to see for the first time which specific articles and subjects are most popular with readers.

"There’s been a broad trend within advertising to be more targeted when it comes to consumers," explains Alexia Quadrani, who covers the advertising industry for JP Morgan Chase in New York. "To do that effectively you need the data."

For WPP, it drove the company’s five-month battle for Taylor Nelson, a consumer research firm that was listed on the London Stock Exchange. WPP eventually secured the prize with a Pounds 1.2bn offer, knocking out rival suitor GfK and forcing Taylor Nelson to wave the white flag less than a month after the collapse of investment bank Lehman Brothers in the autumn of 2008. It’s also behind one of WPP’s most recent acquisitions - November’s purchase of a Colorado-based company called I-Behavior. The 83-person strong business collects data on consumers’ shopping habits and then uses it to model their future behaviour. Mad Men this is not.

As well as data, the WPP boss is driven by deals. The company’s history is shaped by acquisitions, starting in 1987 with the $566m purchase of advertising agency J Walter Thompson. An $864m swoop for the Ogilvy Group followed two years later. Sir Martin says he often used to speak to his father, who ran a retail business and has been his son’s main inspiration, up to three to four times a day when working on takeovers.

Speculation has resurfaced recently that WPP is eyeing UK rival Aegis, which it tried unsuccessfully to buy in 2005. Sir Martin says that smaller and medium-sized acquisitions are more likely to be on the menu, an approach that analysts at Barclays Capital welcome. WPP is likely to annnounce two or three smaller acquisitions this week.

Indeed, the 65 year-old acknowledges that the central challenge faced by the WPP empire is melding people into teams that can win new business and keep existing customers. "The biggest enemy to our company is within, not without," he reflects. "Ideally, each of our 140,000 employees would know what the other 139,999 were doing."

And if there are going to be deals, it’s a safe bet that they will be designed to increase WPP’s exposure to the BRICS, the rest of Asia and Latin America. Asia, Latin America and the Middle East accounted for about 26pc of WPP’s revenues in the first half of 2010, which is why Sir Martin makes between five and six trips to China a year.

It may also be why WPP has decided to invest in Global Counsel, a new advisory business established by Lord Mandelson, the former Labour minister, last month to help companies expand overseas. Sir Martin is well known for musing aloud on where the world’s centre of economic gravity is.

For the past decade at least, he’s located that centre of gravity in those fast-growing countries that people used to call emerging, and which Sir Martin puts firmly in the economic equivalent of the Premier League. Despite feeling more optimistic about the UK than for a long time, he’s sticking to the script. "The world still moves at three speeds," Sir Martin says. "There’s the BRICS and the Next 11, then there’s America and Germany, and then there’s the rest of Western Europe."

The coalition Government’s deficit reduction could give Britain a chance to move up a gear, he says. But for those running global businesses, the bigger prizes are moving faster still.

FACTS

140,000 number of WWP employees

2,400 number of offices

107 number of countries in which WPP operates

354 number of companies in the Fortune Global 500 WWP works with

Clients include Johnson & Johnson, Ford, HSBC, Vodafone and Shell

Major networks include MediaCom, Burston-Marsteller, Cohn & Wolfe and Ogilvy & Mather

SIR MARTIN SORRELL CV

Education University of Cambridge, Harvard University

First job Working for Mark McCormack, founder of IMG

Family Three adult sons, married for second time in 1985

Hobbies Skiing, cricket

 

Posted: December 2010


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