July 25, 2003

By Olivia Toth

As 2003 heralded signs of a return to economic stability, Sars struck and threw the region into chaos. Is this the final nail in the coffin for the PR industry?

By the time the World Health Organization Travel Advisory was lifted from Hong Kong on April 23a, Severe Acute Respiratory Syndrome (Sars) had ravaged not only thousands of lives, but derailed the business community in the Special Administrative Region, and practically shut down bordering superpower China, impacting how business was – and will be – conducted across the region for time to come.

For many, Sars has been the nail in the coffin of the region’s economic recovery.

Whatever discreet signs there had been of a modest uptick in consumer spending and renewed foreign investor confidence quickly disappeared as local and global tourists withheld travel spend and executives postponed visits to the region.

The Iraq war may not have lasted long enough for the effects on Asian business to be fully realised, but terrorist attacks such as last October’s Bali bombing have left the region reeling, and wearily poised for further crises and threats to national, corporate, and personal security.

Inevitably, body blows to the PR industry have been felt – notably delaying the bounceback of client confidence (and budgets) as regional corporates, too, have been guarding their own dented performance in the face of anti-US sentiment and boycotts of global brands like Coca-Cola in religiously sensitive markets such as Indonesia and the Philippines.

This, and Sars, has translated into unrepentant and looming threats to corporate and brand security.

And all this at a time when the industry was working to rebuild itself following the aftermath of 2001’s tech meltdown and September 11.

For many industry players, 2002 proved to be a year of taking stock, consolidation, reviewing client relationships and rethinking operational structure.

If ‘leaner and meaner’ was the swan song of 2002, this has spawned the universal rally cry of working smarter, harder and adding value to the client mix in 2003.

What has emerged, however, is that amid the fallout, the relevance of tailored practice areas addressing corporate concerns such as crisis and issues management and corporate social responsibility, have come to the fore.

The role of the communicator as a senior-level manager of highly-specialised, frequently thorny, issues has created value and relevance for the industry and its clients – thrust into turbulent times.

“Sars, activism in Asia and corporate governance have led to this profession getting more seriously involved in corporate issues and giving serious advice,” says Ogilvy PR chief executive, Asia-Pacific and EMAEA, Matthew Anderson.

“There were some professionals who made themselves incredibly relevant during these difficult times (and) if you were only doing marketing, PR and product launches – in the follow-on from September 11 and Sars – things would have been really difficult.”

Topping the rankings with 2002 regional revenues of US$10.9 million was maverick independent Edelman, which spent the past two years radically remodeling its Asia-Pacific operations to focus on ubiquitous ‘cross-border, cross-practice’ capabilities.

“The 2002 calendar year for us was about getting our act together,” says Asia-Pacific president, Alan VanderMolen.

“We changed seven general managers and opened one new office (Melbourne), and we named a regional MD for health-care in addition to cleaning house.”

Being “back in the black” for the first time since revenues plummeted 21 per cent in 2002, VanderMolen is bullish on Edelman’s six per cent regional revenue increase from January to May this year, and anticipates further growth.

“We’re finally in the black from March 2003 to the end of June for the first time since 1999 – corporate and stakeholder relations and healthcare are on fire, and in the healthcare business we’re seeing growth in Korea, Taiwan, China and Singapore, where the regional client headquarters sit.”

Across the board, consultancies and networks have had to prove continued relevance to clients by making communications measurable and directly accountable to the bottom line, says Fleishman-Hillard regional director, executive vice-president and senior partner, Asia-Pacific, Lynne Anne Stevenson.

“The protracted economic slowdown has placed a great deal of pressure on companies to show measurable results in every aspect of their business – and the emphasis is singularly focused on driving sales,” she says.

“To be successful, consultancies must be prepared to prove outcomes and link them directly to a performance impact on the company,”

According the Burson-Marsteller Asia-Pacific president and CEO, Bill Rylance, this has been most visible as the nature and origin of client decision-making at pitch level has undergone a fundamental shift: a tendency to drive PR appointments through the client’s procurement department – and changing the way agencies compete, and clients make decisions.

“This raises hugely significant issues for agencies. The imperative is to carve out a clear and compelling vision and strategy (for the client),” Rylance says.

But the legacy of clients – global and local – in this part of the world traditionally investing less in PR and more in visible marketing mediums like advertising, continues to dog industry development.

“It (2002) was a soft year for the industry, and one of the main reasons for this has been that in general, you’ve still got PR operating in a fairly immature way in this part of the world,” says Weber Shandwick president, Asia-Pacific, Andrew Pirie.

“Now, because of the downturn, there’s a level of pressure by clients to shave down the ‘excess’ – which PR is seen as.”

For larger global clients such as Ogilvy PR client DHL, Text 100 client IBM and HP tied to Porter Novelli and B-M, regular global reviews of the PR function and the agencies servicing the accounts have become part-and-parcel of the value-seek.

It’s a double-edged sword for the global consultancy groups who, given their proportionally high operational and talent costs, have traditionally supplied counsel at a higher margin; versus the local players that purport valuable grass-roots knowledge, often at a cost of retinal reach for the global clients that need it.

Despite their co-existence, the residual tension between the local and global players continues in markets such as China and India, where price undercutting is rife and the trend for larger homegrown consultancies to upgrade their offering and compete head-to-head for business continues.

Markets that are delivering

If there’s one market where agencies are fighting for critical mass, it’s China. With GDP growth forecast to hold at seven per cent amid continued foreign investment, China is the regional bright spot that has by turns been criticised for its mishandling of the Sars epidemic and a lack of transparency at Government level.

The opportunities are there, but it was never going to be an easy ride, claims Ketchum Newscan partner and chief executive, Kenneth Chu.

“Sars has impacted the industry tremendously, with clients holding back spending due to project cancellations.”

The good news is that despite the threat of Sars reappearing, the impact on media-facing business may have only been short-term – although revenue targets for 2003 remain leveled with those of 2002.

Hot spots such as investor relations, IPO activity for PRC companies seeking to list on the Hong Kong stock exchange, and brand marketing, are areas Chu sees client commitment.

Pirie believes that, despite healthcare’s nascent potential, it is still originating from a low market base.

At MS&L Greater China, business has been bolstered by healthcare and financial; with brand, consumer and issues management evolving as the agency’s stock-in-trade.

“Our consolidated income grew by 43 per cent in 2001 and 32 per cent in 2002, (and) we expect double digit growth in 2003,” says MS&L Greater China MD, and Asia-Pacific director, Fiona Cohen.

With pharma companies expanding R&D manufacturing facilities in China, and consumer trust in traditional Chinese medicine waning, Cohen believes the opportunities for Western pharmaceuticals are significant.

At Ruder-Finn, which notched up fourth place in the rankings and exhibited 25 per cent growth over 2001 – of its US$4.1 million 2002 fee-based revenue, a sizable 29 per cent of this was credited to healthcare. And China is proving the agency’s true growth market.

Interestingly, while healthcare is still nascent in the PRC, the automotive industry is proving its mettle, with more room for growth as incomes rise alongside consumer spending.

“In April, at the height of the Sars epidemic, local car production was 84 per cent higher than the same period last year,” comments executive vice-president and MD, Asia-Pacific, Louise Harris.

And it is not only global corporates that are leading the client charge.

For Fleishman-Hillard, engineering its business to appeal to a local multinational client base, as well as the global client backbone, has been keenly exploited by MD and PRC national Li Hong.

However, while obstacles such as RMB billing and local perception of PR as a commodity remain very real concerns, finding balance between local and global client servicing seems to be what agencies are currently grappling with, and becoming valuable at a local level are where the real challenges, and future rewards, lie.

“Our strength in Greater China will be stepping up our efforts to explore business opportunities in the Chinese enterprises, which are becoming increasingly aware the need to build a positive corporate image through effective communications and corporate governance,” says Ketchum’s Chu.

According to Elite PR Group CEO, Eliza Chen – a group which encompasses Taiwan-based trio K-Concepts Communications Consultants, Apex Communications and Elite PR, all of which made it into the Top 10 this year – there remains little doubt that local-facing market competence is key to future growth.

“Though the (Taiwan) PR market is not mature there are plenty of new business sectors to be pioneered, (and) competition among PR agencies remains fierce.”

Changes to public education, advertising restrictions on healthcare-related advertising and biotech advancements in Taiwan, signal a rising demands for healthcare expertise, along with sustained IT sector performance and growth in financial communications, according to Chen.

If zeroing in on a consultancy to handle your PR in India sounds like a daunting task, there’s a good reason behind that. Those largely home-grown players that have the challenging task of reaching “one billion people across 32,87,263 sq km, covering 28 states and seven Union Territories with 18 official languages (plus innumerable dialects) and hugely varying socio-economic categories, have cornered a market in which global consultancies have largely been cautious to approach.

There are the words of PR Consultants Association of India (PRCAI) founding president, and founder of B-M India affiliate Genesis PR, Prema Sagar.

Nevertheless, India remains an anomaly.

Despite its geographical immensity, cultural complexities, market size – in which upwards of 17 English-language newspapers are published daily – nationwide, the entire Indian PR market is valued at 1.5 billion rupees (US$32.4 million) in comparison to its advertising cousin, which is worth a healthier 100 billion rupees (US$2.16 billion).

Working with Ruder Finn and MS&L in India, Hanmer & Partners MD Sunil Gautam states: “In advertising, any big global brand you can think of operates in India under its own brand and is known. This awareness has not happened in PR and, conversely, these global PR players do not know the size of – or what’s going on in – the Indian PR market.”

The ‘dot-on-the-map’ strategy is more common, with Ogilvy PR one of the few wholly-owned exceptions.

However, as the market experiences sustained growth in business outsourcing, healthcare, advancements in biotech and sustained IT development out of Bangalore, it’s no wonder networks like Edelman are eyeing a slice of the pie.

According to Sagar, the potential is considerable, and moving forward, the growing need for activist communications remains a challenge: “IT will continue to be the flagship knowledge industry for India – which will sustain GDP growth – (however) the rising population and growing menace of diseases such as AIDS and Hepatitis will exert immense social pressure, resulting in a desperate need for social communications across India.”

In a PR market that boasts the accolade of being Asia-Pacific’s most mature, 2002 was not the easiest year for consultancies in Australia. While public affairs was a driver – out of Australian Capital Territory Canberra – global players had a difficult time staying relevant to clients amid the sea of specialist, nimble, high-end boutiques.

Restructuring and paring down had been the buzzword for networks. Edelman’s recent strategic overhaul – opening a Melbourne office off the back of Weber Shandwick’s withdrawal in 2001, and in Sydney re-modeling itself on the high-end boutiques in a bid to stay profitable – the market is proving hazardous.

Says VanderMolen: “Al the multinational agencies operating in Australia are in trouble, and it’s a symptom of caution among the corporate (clients) there.”

The story of dwindling client communications spend is a familiar one, even in New Zealand.

According to PR Institute of New Zealand (PRINZ) president Tim Marshall, the rising New Zealand dollar against the greenback has led to reduced income for exporters and waning confidence in the business sector overall. Activity in the government sector is a high-point, driven by public demand for transparency and governance.

With GDP growth at four per cent in 2002, MD of B-M affiliate The Accumen Group, Michael Dunlop believes the trend for businesses to move to Auckland has led to relative market growth.

“Relative investment in communications by companies has remained much the same over the two years – but client expectations of performance has increased considerably.”

Given the technology meltdown and its impact on markets like Singapore, tech is re-emerging a s a force to be reckoned with as global corporates such as Lexmark seek traction in the China market, and Adulent, HP and Chinese computer manufacturer Legend expand market reach by enlisting agencies with regional, and global, reach to provide both regional strategy and local execution.

At sixth ranking technology specialists The Hoffman Agency, Asia-Pacific MD Whitney Small claims that despite the challenges for global launches, ironically technology bridged the gap when travel to the region shriveled up during Sars.

“They (clients) weren’t going to wait for Hong Kong or Shanghai to pick up to do their global launch, and we had to be very creative with webcasts and online presentations,” she says.

Small also equates tough times with smarter client investment: “When the economy is leaner (clients) get more focused, disciplined and follow expert counsel more closely.”

Pirie tips further global account wins to come from the tech space.

“In the last six months we’ve seen a notable change with the impact of US-based global clients that are looking to do business in Asia with a view to Greater China and India,” he says.

“Tech companies have been through tough times in the past three years and have moved away from having a PR person in each market, to selecting agencies that can represent them.”

Touting tech as a “bedrock” of the PR industry in Asia-Pacific, Anderson flags brand protection through CSR as a key developer into and beyond 2003.

“We felt that there were a limited number of companies that understood CSR (in Asia) – Ford, BP, Coca-Cola and Nokia – we’re not out to convince companies to ‘get the ROI from CSR’.”

The onus on much of the industry, then, has been to add value to long-term client relationships, and translate project wins into compelling retainer business.

“This has not been a boom year,” admits Anderson, “But a time of more focus on major relationships and internal issues”

As regional economies such as China plough more resources into public health, pharma has emerged as one space where all players are hedging their bets.

Honing healthcare in readiness for market take-of has become a necessary weapon in regional strategy, says Brodeur Worldwide regional MD, Asia-Pacific, Teresa Christenson: “The hot spot is healthcare. Our agencies in Asia-Pacific are developing expertise in this area leveraging our existing practice specialties in other parts of the world.”

While consultancy heads all but wrote-off 2002’s IPO market as ‘dead’ – hitting financial hubs Singapore and Hong Kong hardest – large corporations did list, and the world’s fourth largest IPO in 2002, Singapore Post, was a mandate handled by Weber Shandwick.

According to Richard Tsang, MD of Strategic Financial Relations, Hong Kong – which ranked an impressive third place overall – deteriorating market conditions, stock market fluctuation, Sars and regulatory body changes in Hong Kong and the PRC were overshadowed by the greater industry threat of a price-cutting war.

“Clients are more cost-cautious and because of the poor economy and fierce competition in the market, fees are substantially lower than in the past. However, listed companies realise the importance of investor relations,” Tsang says.

It’s little surprise, then, that the industry prognosis mobbing into 2004 is a mix of dampened optimism with prudent caution.

“My answer in January may have been very different from my answer now,” asserts Christenson.

In January I would have dared say I was ‘cautiously optimistic’. Now, though, I think we won’t really understand the impact of Sars for some time, except that it threw our early plans for a loop.”

Pointing to regional polarisation that will see the larger networks seeking to redefine themselves and provide greater value to a smaller group of discerning clients, with other competing on solely prices, Rylance meters out cautionary advice: “Those caught in the middle will struggle.”

*Unaudited
‡ SOCOM commenced trading in July 2001, the figures reflected represent the calendar year ending December 31, 2002
† For Professional Public RElations, the Asia-Pacific region includes subsidiaries: Phoenix PPR (Brisbane), Professional Public Relations (Canberra, Melbourne and Sydney), PPR Asia (Hong Kong) and PPR New Zealand. 'Asia-Pacific' for The Hoffman Agency is denoted by subsidiaries/offices in Beijing, Hong Kong, Shanghai, Singapore and Tokyo, while Ruder Finn's regional footprint consists of offices/subsidiaries in Beijing, Hong Kong, Shanghai, Singapore and Sydney
-All figures relate to the calendar year ending December 31, 2002 and are reported in US dollars
Fee income reported = PR fees plus mark-up for 'the Asia-Pacific region' including Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand and Vietnam
- As a result of the Sarbanes-Oxley Act in the US, PR companies owned by Omnicom, Interpublic, WPP, Grey, Havas and Publicis have not entered the league tables this year. The following consutancies, which appeared in last year's rankings, were affected: Brodeur Worldwide, Burson-Marsteller, Fleishman-Hillard, Golin/Harris International, Grayling, Hill & Knowlton, Ketchum, Manning Selvage & Lee, Ogilvy PR Worldwide and Weber Shandwick
-Australian technology agency Macro Consulting did not make it into the Top 10 Consultancy Rankings, but posted unaudited fee income of US$350,000 for the year ending December 31, 2002

All figures relate to the calendar year ending December 31, 2002 and are reported in US dollars.
Fee income reported = PR fees plus mark-up for 'the Asia-Pacific region' including Australia, China, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand and Vietnam

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