WONG: The last two years had been atrocious for the advertising industry. You mentioned in your 2002 annual report that you expect the world's advertising industry to report flat earnings for 2003, some growth in 2004 and strong growth in 2005. Are those views still valid?
Sorrell: What worries me in 2005 and what will happen in the United States when either Bush is re-elected or a Democrat is returned is that government spending has been so strong. The government has been pump-priming the economy for the elections next year; so you have very heavy government spending in the US; fiscal deficit spending in the US. My concern is we are seeing commodity prices rise; we are seeing gold prices rise; we are seeing the long end of the bond market yields rising prices falling; so I am a little concern about inflation.
I feel pretty good about 2004. We'll see 3% to 4% growth in the industry worldwide. You have four big events that will propel advertising spending: the US presidential elections; the Athens Olympic Games, while nowhere near the Beijing Olympics which will be a phenomenal event. Then you got the European football and political advertising. So all that will help 2004. I feel pretty good about post-2004, but there is one note of caution: we had monetary policies in the 90's which kept economies very tight. The central banks were Friedmanites; now we've returned to Keynesian and government spending.
Wong: Taking your point about the Beijing Olympics in 2008. You are very bullish about prospects in China.
Sorrell: I am very excited about China. Not only China but Asia as a whole. Our business in Malaysia is very strong. Our agencies here ... Thompson, Ogilvy & Mather, DYR, Bates, Batey are all doing very well. Our media planning and buying business ... MindShare, Media CIA are all doing very well.
We are benefiting clients by consolidating our media planning and buying. We got a very strong position in the Malaysian market. So what I am saying about Asia applies to Malaysia. The four major engines of Asia are obviously Japan, although it had very slow growth in the last decade, South Korea where we have a 24% market share, China where we have 15% of the market (we are 50% bigger than any other group. The Government has permitted us to buy directly into a local advertising agency, Shanghai Advertising Corp in addition to our joint ventures), and finally India where we have about a third of the market.
So we have very strong positions in all the Asian markets, in particular the four big Asian markets. I am very bullish about it because it's inevitable that Asia will grow. Half the world's population is in Asia-Pacific; by 2014 two-thirds of the world's population will be in Asia-Pacific. I know China is not one big market, but it is four times the US (in population). I don't think the Americans understand the size of China.
China is changing so rapidly; so is India in the longer term.
Currently Asia, Latin America, Africa and the Middle East and Central Eastern Europe account for 20% of our business. We want them to account for one-third of our business in next five to 10 years.
Goldman Sachs recently came up with an interesting document called BRICs – stands for Brazil, Russia, India and China. Those countries account for 6% or 7% of our revenues. If you take those percentages, and you extrapolate them forward at the growth that Goldman Sachs say they will be growing ... we don't get more market share, but we just grow, then Asia-Pacific and Latin America will be a third of our business by 2015 without any acquisitions.
Wong: Are you applying your acquisition template which has served you so well in Europe and America to your plans to Asia?
Sorrell: It's very difficult. There aren’t so many opportunities in Asia. In Japan there are plenty of opportunities, but Japan is reluctant to allow you to buy. I think organic growth will probably play a bigger role. Now it may change, but I think we'll stress on organic growth. There are major opportunities with Malaysia-based multinationals, India-based multinationals, China-based multinationals, to go along with the Korean chaebols and Japanese multinationals. Of our top 40 clients, only one is based in Asia (Japan). In five to 10 years, I would say five, six, seven, eight will be based in Asia.
Wong: And are these likely to be Chinese or Japanese?
Sorrell: I think they likely to be mainly Chinese. You already got Haier, Legend, China Mobile, Unicom ... all these are going to be very big companies. You got Samsung, LG, Hyundai in Korea; you got the Japanese multinationals. And there will be increasing opportunities in Malaysia, India, the Philippines, Singapore.
Wong: I don't know whether it's a fair question to ask since you have been here for less than 24 hours. Since you talk so enthusiastically about Malaysia, what do you see are the prospects for Malaysia following the transition of power this Friday?
Sorrell: Ya, it's an unfair question (laughter all round). How long has (Prime Minister Datuk Seri) Dr Mahathir Mohamad been a leader - 22 years. I have been to Malaysia five or six times of not more than two days (each). So how can I be an expert on Malaysia? All I would say is if I ask people here: what is the thing that worries you? All they seem to be worried about are external shocks. They don't seem to be worried about the prospects of Malaysia, political, economic or social. They seem to be very optimistic about the prospects of the country; the issue is: would there be external shocks or external instability that disrupts.
Wong: In your last trip here three years ago, you mentioned that to be a global player, a company must have a strong foothold in the US, because it's the world's biggest market. Do you still hold to that view?
Sorrell: It's a very interesting question. You talk about globalisation ... we call it Americanisation. I think China will surpass Japan as the second biggest advertising market by 2008. I don't know when it would surpass the US. I think in time it would because it's four times bigger. In time, having a base in China will be sufficient to establish companies as major multinationals. It still will not undermine the proposition they still have to have a base in the US.
If you and I were to have unlimited funds to start a multinational, where would we focus our attention? I think we would want to have a base in the US and Asia, maybe US and China. People might argue about it, but I think the invasion of Iraq probably marked, historically, the peak of American hegemony.
If you look at history, there always has to be countervailing forces. A vacuum has to be filled. In this case, I think China will fill it. There's a shift in power from the West to the East.
Since I have been on my trip, “Brand China” has been everywhere. You have the “taikonaut”. The Beijing Games will have a similar impact. The Beijing Olympics is not only about sports, it will be a political, economic turning point.
Wong: In your third quarter results just released, you made a point about the Asia-Pacific having its own engine of growth apart from the US.
Sorrell: China is that engine of growth. If you look at the statistics now, what's driving commodity prices is China. I saw a graph in the Financial Times about “dry freight charges”. I don't know what's dry freight charges. For many years, dry freight charges have gone like that (his hand indicating flatness), then whoosh ? they went through the sky. That's because of demand from China. Asia-Pacific seems to have been independent, to some extent, of the US. It used to be if the US grew, Asia-Pacific will grow, and if the US is in trouble, Asia-Pacific will be in trouble maybe 12 months later. Asia is developing its own engine.
Wong: So Asia is de-coupling from the US?
Wong: You run a company with nearly 70,000 employees in 100 countries. How many kilometres have you clocked?
Sorrell: I don't know. I shudder to think. My wife is complaining. More than half my time is now spent out of London. I go to America once or twice a month for at least a week. I have been away from London for three, 3½ weeks; then I go to America for two weeks and come back to Asia for two weeks to visit India, Australia and Thailand.
It's very exciting out here and our people are enthusiastic. The pie is expanding. Too much of Europe is a cake that is stagnant and everybody is trying to grab a bigger piece. Here, the cake is growing bigger and everybody can benefit by having a slice.
Wong: I know you don't get very much of it, but what would be your perfect weekend?
Sorrell: A perfect weekend? Well, I like to be at home. I have three boys who are grown up and working now. So it's nice to see them at the weekend. I like to ski a bit in the winter. I like to play cricket in summer. A terrible thing to admit, the Americans can't understand how you could play a game for the whole day and not have a result. And you have lunch and tea as well. (laughter). I like the theatre a bit.
Wong: Who would you say was the most influential person in your life?
Sorrell: My father. He was my best advisor, although we never started a business together. He gave me an education. I was privileged enough to go to a good school, a good university. He never had the opportunity that I had. He had to leave school at 13, and had to work. He was one of six siblings from a relatively poor family. His father came from Central Europe. He loved music, a very good violinist. He got a scholarship to go to music school but could not afford to take it up. He loved Shakespeare. He could quote him at the drop of a hat. Unbelievable! He was an exceptional man.
Wong: Are you a good violinist as well?
Sorrell: Not as good as he was. I am not a good fiddler. (big laughter).
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