How are SG agency heads planning ahead for the looming recession?

Earlier this month, the head of the International Monetary Fund (IMF) shared that the global economy had "darkened significantly". With a possible global recession looming, IMF managing director Kristalina Georgieva  told Reuters the fund would downgrade its 2022 forecast for 3.6% for the third time this year, and at the time of writing, the numbers were still being finalised.

Yet closer to home, a more optimistic picture presented itself when Minister of State for Trade and Industry Alvin Tan said Singapore does not expect its economy to slip into recession or stagflation.  While policy makers expect growth to moderate further, minister Tan said that the nation does not “expect a recession or stagflation” despite the global headwinds. Nonetheless, with the nation being a small and open economy, it would be naive to expect businesses in Singapore to remain completely insulated despite the challenging developments occurring across the globe.

Generally, when a recession hits, the decline in customer confidence often results in organisations being more careful in their investments. With most companies reducing their spends amidst recession, marketing items often find themselves on the chopping block. This then results in a ripple effect on the ad industry. While agency heads in Singapore were split on the impacts of the upcoming recession on marketing budgets, what they did agree on was the need to be “prudent”.

“Prudence is always wise, in both good times and bad. Well-planned, educated decision-making are key fundamentals to survival,” said Ara Hampartsoumian, CEO of TBWA\ Singapore. Addressing the question on marketing spends seeing a dip, Hampartsoumian said the answer depends on where and who the clients are spending their money with. He said:

Overall, we’re witnessing a drop in budgets given the uncertainty surrounding the current global situation. That goes without saying. However, there is also a shift in budget allocations moving to different areas.

These areas include data, tech, digital, innovation, and the likes. What that means is that while traditional marketing spend may see a shrink, clients are investing in other areas to find new growth.

The shrinking of marketing budgets isn’t a completely new phenomenon given that many agency heads feel that marketing budgets have been on the decline for some time, as the availability of media inventory has grown, and the prices have come down. David Mayo, CEO of ADNA explains that while some main-media markets such as India and France are in growth, on the whole, marketers expect the same or more, for less. "This is bad for agencies that count money and profitability as their success measure but good for agencies that take pride in the quality and effectiveness of the work they produce," said Mayo

Richard Bleasdale, CEO of Construct Digital was of the opinion that marketing budgets have yet to recover to pre-COVID levels and through the COVID-19 experience, many marketers just learned the detrimental effects of cutting budgets in a downturn.  

“Some marketers may cut budgets, but they are not the marketers we are focused on working with,” said Bleasdale. He added that Construct Digital is continually having mid-term conversations with its clients – and across the industry, agencies have been pushed to become very short-term/next quarter in their thinking.

“We are talking with our clients about Q1 2023, we like to be constantly looking six months ahead. This sort of focus allows us to be constantly well-prepared for what’s coming down the line – so when it arrives, we are ready,” he added.

For independent agency Goodstuph founder Pat Law, it is hard to establish a pattern based on the last two quarters. Quoting the words of Paul A. Freund, she shares that agency heads cannot be

 Influenced by the weather of the day, but need to make decisions based on the climate of the era.

“Deglobalisation. US-China trade wars. COVID-19 pandemic. Russia-Ukraine war. Inflation. With all that’s happening right now, I do think it’s just a matter of time before recession hits. But is a recession necessarily a bad thing? It is, if you’ve been running an agency influenced by the weather of the day,” Law shared. She added that the steps agency heads now need to prioritise lay in conserving cash, trim fats, and always make decisions on a long-term basis.

Bracing for impact

With rising costs and inflation everywhere, supply shortages and disruption, changing business models, there is bound to be uncertainty. Amidst all of these changes, it will only be expected that marketing budgets may be put aside and released with flexibility, explained Jacqui Lim, CEO of Havas Media.

“As agency leaders, our biggest question will be whether or not what we are spending on will it be an investment in the future. Be it the talent we bring in, or tools we invest in, we need to ask if the investment will be critical to keeping us ahead of the game,” said Lim, adding:

Overall as an industry, the mentality needs to be of ‘being prudent' versus ‘making cut backs’.

Moreover, agencies must work at understanding the wider impact of what's happening in the world through the clients’ business lens as not all entities will feel the impact at the same time.

Adding to the conversation, Chloe Neo, CEO of Omnicom Media  Group said that OMG has been closely monitoring the global macro-economic environment, including regional and national policies and how certain events might have an impact on its portfolio and business priorities.  

“As a result of maintaining a well-hedged client portfolio, we are still experiencing economic expansion on the back of a post-pandemic business recovery. That said, we are cognizant of the possible deceleration in growth due to global headwinds,” said Neo. With change being a constant and business conditions being cyclical, business leaders have to remain nimble as they navigate the VUCA environment, constantly seeking to strengthen business positions and to pre-emptively reset and rejuvenate for future growth. She added:

The truth is, a pandemic or a global recession will not be the last crisis we face. We must stay vigilant, resourceful, reset if need be, and continuously innovate and learn as we look to turn challenges into opportunities.

In any part of the economic cycle, agencies need to make sure they have the flexibility to manage cost base and the foundations of what sets an agency apart firmly in place, said ADNA's Mayo. "It really is less about bracing. You always have to be prepared all the time for any situation," he added. 

Ways to stay prepared

For social agency DSTNCT’s MD Matthew Zeng, defensibility has always been a key theme - especially in areas such as reputation, revenue and relationships. “As they say, you stay ready so you don’t have to get ready. Defensibility is not really something that we can handle just as a reactive measure, but it’s something that we need to do consistently from day one - in ensuring good cash flow and finances, in hiring the right people, in setting your agency culture, in being a valued partner,” he said.

Breaking down the three Rs further, Zeng said:

• Reputation: What are you known for? Are you a valued partner or are you a vendor that clients appoint to do things they don’t want to do?
• Revenue: It’s always important to diversify your clientele and your revenue streams. If 75% of your revenue stream comes from one single client/brand, that spells trouble.
• Relationships: Both internally and externally. Do you have a battle-tested relationship with your people? Do you have clients who are willing to fight for you? Do you surround yourself with industry partners who will support each other through highs and lows?

“If there’s one precautionary step I can share - wealth is what you don’t see. Spending money to show people how much money you have, is the fastest way to have less money,” he added.

Given that over the last decade there have been many unforeseen events that impacted the economy, TBWA\Singapore CEO Hampartsoumian said his consistent approach to managing through is to always be informed, ask questions and to plan-ahead. As such, it is imperative for agency leaders to be strong communicators, and transparency is key to ensuring stability amongst teams. He added:

Leaders need to understand the temperature of the agency, and what’s driving this, so they can make better decisions for themselves and the business.

Moreover, leadership – across all industries - should ensure their businesses remain agile from talent, to capabilities, and to products. “At TBWA\ we’ve long held the belief that we operate in beta, which enables us to adapt, adjust and move quickly, to respond to market shifts. We continue to invest in new capabilities, including launching our Data Accelerator offering, which brings data to the core of our entire Global Collective. We’ve also invested in training to ensure data intelligence is pervasive across the entire agency,” he added. 

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