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Why Sorrell remains ‘bullish’ on Asia in East-West battle for supremacy

The industry and global economy are experiencing a shift towards Asia, amidst the battle for supremacy between China and the US, said executive chairman of S4 Capital Sir Martin Sorrell (pictured right). As such, he is “bullish” about Asian countries such as Vietnam, China and India.

“I have always been very bullish on Vietnam and even when I was at WPP, its market share of Vietnam was at a state of approximately 70% to 85%,” he said at the recent Innovfest Unbound 2019. India is also a market Sorrell and his team at S4 Capital are betting big on given it is set to be “the most populous country” on the planet in due course. To realise its ambitions, S4 Capital hired industry veteran Poran Malani, founder of marketing and advertising consultancy Fair Fern, to build up its India base. Malani has worked at Ogilvy and McCann, and worked with brands such as Coca Cola.

Commenting on the domination of Google and Facebook in marketing, Sorrell said, he doesn’t see the two as a threat, but rather as “frenemies”. Other companies, that fall into the category include Amazon, Tencent and Alibaba. These companies, he explained, are players that the industry can develop very strong partnerships with rather than competitors.

On the other hand, consultancies such as Accenture Interactive, Boston Consulting Group, Deloitte, Capgemini and Cognizant still have an advantage because they are able to initiate contact with the C-suite, Sorrell said.

“The consultancies go inside clients at the top level. They will go in at the C-suite, at the CEO, CMO, CTO, CIO level, and they sell their services,” he explained.

When it comes to clients, according to the former WPP chief, there are two main assemblies – legacy and digital – with the former facing the pressure to change their business model quickly to meet the digital model. “The traditional parts of the industry are wrestling with these trends and changes, and it’s difficult for them to move too quickly particularly if they are listed,” he added.

Sorrell said that when he started S4 Capital a year ago, the decision to go purely digital was simple and it is very focused on an iterative model. According to him, S4 Capital’s model of “faster, better and cheaper” is really key and resonates with clients.

“We are much more tactical. At S4 Capital, I’m focused on three areas – digital advertising content, programmatic and first-party data. The fourth area which I find interesting is how we can develop with clients an understanding that we fully comprehend the strategic end of digital transformation,” Sorrell said.

Traditional agency holding companies must adapt

“For the traditional agency holding companies, the big six, it’s very difficult,” Sorrell said, adding that they need to “adapt or die”. This comes as US$200 billion out of the US$500 billion in industry media spend comes from digital, which is currently growing at 20%, he added.

“The old stuff is under pressure. Overall, digital is probably growing at 3% to 4%, so if digital is at US$200 billion and is growing at 20%, who knows what will really happen to traditional media?” Sorrell said.

While the holding companies based in the US – IPG and Omnicom – continue to do well, Sorrell said those based in Europe – WPP and Publicis, are “having a really tough time”. According to him, this is evident both on the lack of performance at awards and the exit of talent, with Publicis COO Nick Law heading to Apple and the exit of ECDs from one of WPP’s creative agencies, David Miami recently.

Meanwhile, he also shared that while Dentsu Aegis Network is a “great business” and is “well positioned” in digital, media and data with the acquisition of Merkle in 2016. However, he questioned the management’s current strategy in exercising control and the ousting of the recent leadership team in Asia, and added that it is a strategy that is “not working”. In a separate conversation with the media, Sorrell added “Havas has disappeared into Vivendi“.

“We will have to look at what Vivendi will do in the agency space and if they want to sell half of Universal Music Group, which is valued between US$20 million to US$30 million,” he added.

He also added that in recent years, the industry has seen three very expensive data deals – Dentsu with Merkle in 2016, IPG with Acxiom in 2018 and Publicis Groupe with Epsilon earlier this year. “Epsilon looks like the tired asset and the one that is least attractive,” Sorrell said. He added that Merkle is Dentsu’s best asset and the holding company has the best model with digital, data and first class assets.

The battle for supremacy

While it will take some time for China to eclipse the US, Sorrell said he remains “extremely concerned” about the Chinese-American relationship because it is about the battle for who is going to be top dog. The Chinese currency has risen sharply over the years and was also at its peak in the 19th century, Sorrell said. He added:

This, in a way, represents a 200-year swing that the Chinese, and I, believe is a long term swing. So what you are witnessing, is a battle really for supremacy.

The current trade tensions between the US and China are also paving the way for the rise of other emerging economies such as Indonesia, the Philippines, Vietnam and Bangladesh. Sorrell explained that the trade war is causing Chinese hardware manufacturers to outsource their manufacturing to emerging countries such as the Philippines, Bangladesh and Mexico, due to the increase in manufacturing cost and wages in China. According to Reuters, this is caused by the tariffs imposed on Chinese goods by the Trump administration.

Meanwhile on the Western Europe front, Sorrell said he remains bearish as the big five countries – the UK, France, Germany, Italy and Spain – all have major political issues such as Brexit, the succession of German Chancellor Angela Merkel and the coalition government in Italy.

With Brexit looming over the UK, Sorrell said the UK economy has to pivot. Instead of being dependent on France, Germany, Italy, Spain and the EU, the UK has to attract big technology companies such as Google, Facebook, Amazon, Tencent, Alibaba, Microsoft, Apple, as well as Adobe, Oracle and Salesforce. He added:

The UK has to become a tax-light and a regulation-light economy which is attractive for businesses.

When asked if this marks the end of an era for Europe in the modern economic climate, Sorrell said “it can never be the end” because there are five main economies in that region generating approximately US$2.5 trillion to 3.5 trillion dollars each.

“When combined, of course it is a very attractive market, but it is mature,” he explained.

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