Interview: Sir Martin Sorrell, ceo WPP

Q. What is the outlook for the global advertising industry in 2003 and the following years?

A. This year is going to be difficult. But better than 2002, which in turn was slightly better than 2001. I think the recessionary forces we have seen will continue, although maybe slightly less.

The US is obviously under pressure; the UK is under pressure. France, Germany, Italy and Spain are experiencing difficulties. Central and Eastern Europe and Russia were a little bit better in 2002. Asia has been difficult, with the exception of China and South Korea. Japan remains difficult, obviously. Latin America has been very difficult, starting off with Argentina and then expanding into Brazil when there were election concerns about Lula and what he would or would not do.

Generally, I think 2003 is going to continue to be a difficult year. We don't see any significant signs of a change in client attitude towards spending or advertising investment. We think it's totally the wrong approach. We think they should be spending in difficult times, but human nature being what it is and CEOs only lasting on average for four years, it is difficult. 2004 will be different.

I should say that obviously an Iraqi invasion or hostilities, or the length of those hostilities, would have an impact on 2003. If the conflict is short and sharp, which many commentators believe it will be, maybe that would reduce levels of uncertainty, but obviously the uncertainty surrounding the Gulf is causing a lot of concern.

Longer term, it is not just concern about the conflict itself, but what happens afterwards. It is an issue of 'hearts and minds' rather than military conflict. So I think those are the prospects, or lack of them, for 2003. I think 2004 will be better.

The American presidential election and the fact that George Bush will seek or want to be re-elected for a second term; the fact that political advertising tends to squeeze the media markets and drive prices higher; the fact that we will have an Olympic Games in Athens, albeit not as powerful as the Olympic Games in Beijing in 2008. If you want to have a boom, let's wait for that one with the Chinese government investing or committing $45 billion to infrastructure investment alone.

I think the general environment in 2004 will be better. These are what we call quadrennial factors, which affect our business every four years. Every four years, we have an Olympic Games, we have a presidential election, and no president wants to go to the country without the economy in decent shape.

Q. What are the prospects for WPP?

A. I think we are very much dependent upon forthcoming events. Now, having said that, people still tend to think of us as being an advertising business, but we aren't. We are more outside advertising than inside. Outside advertising means public relations and public affairs. It means information and consultancy, which is basically market research.

It also means direct and interactives for specialist communications: healthcare communications; branding and identity, things like that. Our strategic objectives are very much to increase that part of our business by two-thirds.

The second objective is to increase the role of Asia Pacific, Latin America, Africa and the Middle East from about 22 percent of our business to about one-third. The US currently makes up 45 percent of our business, which we foresee dropping to one-third. Europe is about 35 percent, and we see it remaining at about that level. The third strategic objective is to increase what we call the quantifiable or measurable parts of our business, such as research.

Q. The media world is becoming fragmented. There is an oversupply of media, new channels, new print media, new technology. The audience is also fragmented. What does this mean for the future of the ad industry? Can huge companies, like yours, adapt to that?

A. We are not one huge, amorphous, elephantine company. I look at our business as being at least 15 companies. Others, looking from the outside in, would say we have about 80 companies. We have a collection of tribes. It is a constellation. If you looked at our annual report, for example, or our website, you would see a balloon with as many as 80 or 90 brand names. So we are a collection.

But I have to say that think that there is a dis-economy of scale in our business, not in media buying, where there are economies of scale, but dis-economy in the creative processes which means that you have to keep the tribes small.

I guess our biggest tribe is the Ogilvy tribe, which would be about 11,000-12,000 people. We have the another tribe, which is a kids advertising company in New York with about 30-40 people. It varies enormously. We have a total of 65,000 people around the world. So we try and adapt.

Now, on the fragmentation issue, that is a major opportunity for us. That is really good news because it makes the media planning and investment/buying decision a much more complex decision. It is rather like the financial markets - the greater the alternatives, the more alternatives there are for our clients, and therefore the more they rely on us as the middleman to be the purveyor of alternatives.

Q. But don't you feel that the business is changing, that existing agencies must either totally change the way they do business or face extinction?

A. We have been banging on about that. If you read our annual reports, I do this long note about changes in the industry. We have been banging on about this for about 11-12 years.

The three strategic objectives that I gave you: the move into Asia, Latin America, Africa, the Middle East; the greater move into non-advertising services across two-thirds of our business; the move into non-traditional media. Network television is never going to die, but cable and satellite are becoming more important; radio, outdoor, direct, interactive and Internet are becoming more important.

The smaller companies will always attack the bigger companies, but in their hearts, they know they need the resources. The bigger companies will always attack the smaller companies because they are the ones with the resources, but they will always be jealous of the creativity within smaller companies.

There is absolutely no doubt that the bigger you get, the tougher it is to do business. It is like in your business: if your editorial department doubles in size, it is probably three or four times more difficult to manage.

Q. Let's talk about the so-called clash of civilizations.

A. We are getting into dangerous territory because I am simply an advertising man. But I would not really call it a clash of civilizations. I do think one of the fundamental problems for us in the West - and I would include not just the US and the UK but also France, Germany, Italy and Spain, all of who have made very little attempt to understand the Muslim way of thinking - is that we have automatically assumed that their value and belief systems are the same as ours, which is not the case. Their objectives may be totally different. But we have made little attempt to understand this.

I see the current prospects of conflict in Iraq as being a continuation of the Kuwaiti war, the oil price crisis in the 1970s - you can even go back to Suez, in a sense, and say that this is actually a progression. The power of Asia is going to be very significant; the power of Africa, probably in the longer term; the Middle East; and Latin America.

There are simple factors to take into account: two-thirds of the world's population will be in Asia by 2014. I think there are 1 billion Muslims in the world already out of a world population of 6 billion. I don't know what the projection is for the year 2014, but it is going to be a much more substantial number. Birth rates tend to be higher in the so-called developing world than in the developed world.

Therefore, this whole issue is a hearts and minds issue, and not dissimilar to what we have seen in other conflicts. Military force, technological superiority, economic superiority are not the answers. What has to be done is a more fundamental evaluation of what people think; how they think; what they want; and what they don't want.

Q. So it is about hearts and minds.

A. Sorry, just one more thing.If you went back 20 years, Theodore Levitt wrote an article in the Harvard Business Review in 1983 that said that we would all buy the same things everywhere in the same way.

Now, the interesting thing is, if you look at it 20 years on, that is not the case. I would say that 10-15 percent of our business is of that nature. The other 85 percent is really determined by local preference and local taste.

We have swung too far toward global approaches, and what we may have to do - I am talking from a commercial perspective - is spend more time thinking about what local tastes are. Structures of companies are going to change. Local management is going to become more important. Expatriates are going to become less important. That whole balance is going to shift.

Q. The image that the Arab world has been projecting throughout the Western world has been poorly received - Arabs have been perhaps poorly managing this image. What is your comment on that issue?

A. I think it is a very difficult issue. It is very easy to sit on the sidelines and criticize. Ironically, one of our people, Charlotte De Beers, used to run Ogilvy and was chairman of J.Walter Thompson, and was hired by Colin Powell to be Under Secretary of Public Diplomacy and Public Affairs.

This was actually before 9/11, but the confirmation process took some time. She was charged with addressing this issue and developing an advertising campaign. I think it is very difficult to prescribe or give an answer from the outside. One has to get in and analyze it.

All I would say is that, over recent times, we have not been very successful in doing what we are talking about. It needs a lot of thought, a lot of examining, a lot of research.

Q. If you were an Arab head of state, what would you do?

A. I'll duck that one! Seriously, though, in relation to what?

Q. In relation to the media and advertising. How would you go about changing the perception and the image of some Arab countries?

A. I'm not the person to talk about this in relation to Arab countries. That is a very unfair question. I am rooted totally in Western culture, or the lack of it.

Q. Let's take a different approach. If you were the prime minister of Britain, how would you go about changing the perception of your country?

A. I think the key issue, and it may sound a bit trite, is communication - and that probably includes political communication, too. But let's talk about it from a commercial perspective.

The thing that bugs people is a lack of willingness to engage. In other words, if somebody is going to write a bad article about WPP, or do a program about WPP (which they frequently do), it will be a minus-10 if you fail to communicate with them or you fail to open up a channel; it will always be a minus-10. By communicating, even if the journalist has a different point of view, you can make it a minus-9, minus-8 or a minus-7.

I think in relation to what we are seeing going on at the moment, in relation to the American, and to some extent the British, approach in Iraq, it has to do with communication or lack of it; the effectiveness of communication or the lack or effectiveness of communication; and explaining the case, demonstrating what the evidence is in a coherent and balanced way - not in an isolationist way.

What tends to happen is that people get frightened. They tend not to communicate. CEOs tend to surround themselves with large staffs of people, which build barriers to communication. I think the thing that most frustrates the press, and you know this better than I do, is an inability to get hold of somebody or an ill-ability of somebody who is involved in what you want to talk to them about.

You speak to an agency, or you speak to a communications director, and there is a barrier. I think the biggest lesson is that direct communication - one to one, interactive communication - works very much more effectively than trying to work through layers of bureaucracy. I think that is the key issue.

Definitely. It's very difficult for me to say, because my knowledge is very limited. What is the best way for Charlotte De Beers to deal with this? How could she approach this kind of thing? You've got to study it. You've got to spend a lot of time on it. But it is very easy to criticize from the sidelines.