Ranjan Kapur, country head-India of WPP, the world’s largest advertising agency, shares his views on a few issues concerning the industry in India, in a tetea-tete with Nirmal John. Excerpts:

On the WPP perspectives on India and China

From the WPP standpoint, both India and China are absolutely the most crucial markets to be in and growing.Therefore, we have focused our attention on these two markets. Fortunately for us, we have always had a very good representation in India.Through the strategic purchases that WPP has made globally of agencies like Ogilvy, JWT, Bates and Grey, we have a good representation in the top 10 agencies in the country. This is not the case in China. There you had to start from scratch. Nothing existed. Over the years there has been huge investment from WPP to get into joint ventures and set up base there. And WPP is now in a reasonably good position in China.

The Chinese advertising market is much larger compared with India. It is somewhere between $35-$40 billion and is the world’s third-largest advertising market. India may be the fifth-largest economy in the world, but it is nowhere near China in terms of the advertising market.We are somewhere between four and five billion dollars. China spends 2% of its GDP on advertising; India spends 0.04 % of its GDP on advertising.

There are many reasons for this. One is that the services industry, which accounts for 52% of the Indian GDP, grew up without the use of advertising. Take the example of IT and see how giants like Infosys and TCS grew. IT was exportoriented and they were not concentrating on the domestic economy and thus they never needed advertising.

The other reason is the share of manufacturing in the Indian GDP. It accounts for about 24% of the economy and about half of that is in infrastructure. The other 12% is consumer oriented manufacturing and it is this 12% that is supporting the advertising industry.

That is not the case in China. There the dominant contributor to the economy is manufacturing. While China has been hugely export oriented, it has the cushion of its huge market where they have a television penetration of 99.5%. You have white goods and brown goods penetration of over 90%.

(You have to believe these figures that they put out. Nobody ever questions the statistics in China!).

About 70% of India’s population lives on agriculture which contributes less than 23% of the GDP. Therefore, there is huge burden on the economy to sustain this 70%. This means that not many branded goods and services are being used by this section of the society. In a manufacturing context, this means that a large portion of people are still not using something like toothpastes. They may be using it once a week, but once a week is not penetration. All these factors contributed to the smaller size of the Indian advertising market.

In the early 90’s, the Chinese advertising market was smaller than India. But China had a CAGR of over 40% after that. India witnessed this kind of growth in the 1994 and 1995 but after that it started slowing down substantially. There was a bubble burst, the equities market went down. Also the figure of 200 million of middleclass probably did exist, but they didn’t want to spend. In those days, people who had the money were least inclined to spend it and those who didn’t have the money were most ready to spend. But now things are changing. People are now willing to spend. Now is the time when advertising will start to grow again. But it will still not grow at the magical rate that China is growing. This is because we still don’t have the big contri butors of the economy investing big to advertise.

On wooing the information technology industry

I met a guy who manages advertising for a very large IT brand. He said that they have a Rs 6 crore corporate campaign. What is six crore? When you have brands like LG, Maruti, HUL and each of the telecom brands spending Rs 150 to Rs 200 crores, what is six crores? When the IT industry wakes up, they will realise that they have under-spent on brand building. It is a $60 billion industry currently after all. This realisation will happen once there is pressure on them to look domestically —- which is starting to happen, with the American economy starting to show weakness.

Their margins, which were wafer thin anyway, are under a huge amount of stress. They are going to have to go domestic and suddenly they are going to have to look at branding themselves. They can learn from the telecommunications business, which showed that advertising can create brands fast.

But what is the advertising industry doing to build confidence of industries like IT in advertising? We spend all our time in petty squabbles about who’s scammed what and who has won and who has not. There is so much that the industry can do to grow the business.

Time to reorganise Indian advertising

There are 84,000 advertising agencies in China. Somebody has actually bothered to count them. There must be a few thousand in India. But we don’t count them;we only count the 100-odd agencies that belong in the AAAI. Does that mean there is no advertising going on in the small towns of India? You might not call them agencies. There was a time when I believed that Hindustan Lever had the No.1 brands in the country because of the width and depth of its distribution. But I later realised that in the top 24 towns, very few of their brands were No.1. There was always a Ghadi or a Nirma, which was No.1 in that town. Somebody is advertising these brands. You cannot say that they are not advertising agencies by our definition and so they don’t count.

AAAI has this definition by which digital agencies are not advertising agencies. Outdoor and activation agencies are not considered members by AAAI.

This is an issue. I think we need to be looking at organising our industry a little bit.We should be starting to recognise the new economy industries that are here. These are the digital industry, the activation industry and the offshore industry.

The opportunities in offshoring

Offshoring of artwork and production is already turning into a huge business. Millions of dollars are coming in for artwork production from multinational clients sitting in the UK and the US for artwork and production. It is over a couple of billion dollars worth of business opportunity. Somebody has got to come out with massive investment and tap this. Agencies have to wake up because the margins of traditional adverting are coming down. Let me assure you that the IT majors are beginning to look at outsourcing.

Studios have been set up by IT majors to take advantage of the off shoring of artwork and production. Outsourcing of film production and studio is another part of the opportunity that is going to be fairly big.

Source : DNA