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Global ad agencies on buying spree in India

Last updated on: December 19, 2005 21:11 IST

The ad business has had a long-standing love affair with India. Since the mid-1990s, global ad agencies have been steadily buying up local shops, and today the four giant conglomerates that dominate world advertising also control 96 per cent of India's ad market.

So that should mean their buying spree is over, right? Wrong. Lately all four have been prowling the streets of Mumbai and Delhi for ancillary businesses that will help them boost their portfolios in India.

Why advertisers are sold on India

The reason for their interest is simple: India, with its 1 billion citizens, growing middle class, and exploding economy has a potential matched only by China. The country's $2.7 billion ad biz is growing at 13 per cent annually. There are 250-odd TV channels, up from 100 five years ago, while scores of new newspapers, magazines, and Web sites present fresh opportunities.

"These are exciting times for the Indian ad industry," says Meenakshi Madhvani, partner with Spatial Access Solutions, a Mumbai media consultancy.

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Indian companies are taking increasing advantage of those new outlets. Conglomerates such as Reliance, Tata, and Bharti are spending more to buff their images and get their products noticed. And sectors that barely existed a few years ago -- telecommunications, retail, and financial services -- are booming.

Telecom alone accounts for 7 per cent of India's domestic ad spending, up from half that two years ago, and financial services account for 5 per cent, up from 3 per cent in 2003. "The growth of Indian multinationals is heartening," says Martin Sorrell, chairman of WPP Group PLC. "They are the companies of the future."

India's new export: video games

Dealmaking is certainly picking up. The latest agreement closed on Nov 22, when France's Publicis Groupe took a 60 per cent stake in Delhi-based Solutions Integrated Marketing Services, which does promotions and market research.

"Their quality of people is fantastic, our marketing services business is growing fast worldwide, and Solutions will help us grow in India and in Southeast Asia," says Publicis chairman Maurice Levy.

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In October, Omnicom Group Inc entered into an alliance with Mumbai-based Hungama, a Web site that does marketing via games, contests, quizzes, and more. Omnicom is now scouting for a direct-marketing business as well.

Another area multinationals are looking into is public relations. Since 2001, WPP's Burson-Marsteller has had an alliance with Genesis, a 180-person PR firm based in Delhi.

India's first video game export

Now the others are looking for local PR partners too, says Prema Sagar, CEO of Genesis, though the agencies wouldn't confirm such talks. The big players "begin with a tieup, and with increasing comfort, that gradually results in equity investment and a final sellout," Sagar says

Race to diversity

The move by global giants into sidelines lets them offer more services to clients -- and boost profits. Traditionally, Indian agencies survived on a 15 per cent commission for both dreaming up ad campaigns and placing the spots in publications and on the air.

But that is changing in India and elsewhere as margins have fallen as low as 8 per cent in recent years. Services such as PR and market research are usually purchased à la carte, rather than as a percentage of commission, and offer margins as high as 20 per cent.

"The way to grow is building up your client base by offering them a range of activities," says Shashi Sinha, executive director of FCB-Ulka, an ad agency owned by Interpublic.

And in that, India lags behind most developed markets. Worldwide, ancillary services account for 54 per cent of WPP's sales, but in India they're only 33 per cent, though the company hopes to expand that to 44 per cent within five years.

At Publicis, non-ad business represents 22 per cent of revenues, but in India that figure is next to nothing, though the Solutions acquisition will lift it to about 15 per cent.

As Publicis buys more marketing-related shops, that portion should grow to 25 per cent by 2010, says Ashok Kurien, chairman of Publicis India.

"Communication is incomplete without integrating marketing services into advertising," Kurien says. "That's why we are looking at more such businesses." So don't expect the deal flow to dry up anytime soon.

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Nandini Lakshman, BusinessWeek