Marcomms Down Under: on the up?
I had the pleasure of writing this article from Australia (where I was for the last couple of weeks of the year), whilst absorbing myself in the marketing culture of this fine country.
As everyone knows, Australia is not only vast, but a long way away. However, it's not vast in population terms at 23.4 million (Australian Bureau of Statistics estimate); which, astonishingly, is just over one-third of what we have in the UK (62 million). Of Australia's population, 7.3 million people (32 per cent) live in New South Wales (incorporating Sydney); 5.7 million (25 per cent) are in Victoria (which includes Melbourne); 4.6 million (20 per cent) are in Queensland (including Brisbane); 2.5 million (11 per cent) live in Western Australia (whose biggest city is Perth); and 1.7 million (7 per cent) are in South Australia (incorporating Adelaide).
Australasia's largest listed marcomms group by some measure is Sydney-based STW Group, which operates 80 companies across Australia, New Zealand, North America and South East Asia, with its little toe dipped in Europe. Focussed on digital and insight alongside its traditional advertising and PR operations, and employing over 4,000 staff, STW's revenues exceed AUD500m (£280m) and it delivers a very healthy operating margin of 23 per cent. It is listed on the Australian Stock Exchange with a market capitalisation of AUD576m (£320m).
The STW story is an interesting one. As opposed to Enero (previously Photon) – which expanded rapidly via acquisition in 2007/08 acquiring Naked, Corporate Edge, Hotwire, Frank PR and Sledge in the UK amongst others, before nearly imploding during the 2007/8 global financial crisis – STW has built itself more slowly, and sustainably.
STW prefers acquisitions that make proper strategic sense, and to which it can add value through subsequent organic growth, rather than dashing for scale. It seems that this strategy has won out. Year on year, STW's revenue and profit keeps increasing and its share price didn't bomb during the financial crisis – although it did fall – but its share price has risen by 26 per cent in the last year and, at AUD1.46 (at time of writing) shares are over twice that of their pre-recession price.
Interestingly STW has a number of cross-shareholdings with WPP agencies – 11 of them, including JWT, Maxus, Mindshare, Added Value and Ogilvy; in fact, Australia/New Zealand is a rare example of a market where WPP does not control the Ogilvy brand. The agency the eponymous David founded back in 1948, the largest agency group in the region, is controlled 67 per cent by STW, with WPP holding the remaining 33 per cent. Of the other WPP brands STW partners on, STW generally holds around 49 per cent. However, WPP doesn't partner on everything in this region, and holds 100 per cent of many of its other agencies down here including Young & Rubicam and Grey.
WPP also holds 18% per cent of the shares in STW Group. This doesn't give Sir Martin Sorrell control, but it may make a takeover of STW by any other group less attractive. An interesting parallel is WPP's slightly higher stake in the UK's Chime Communications plc, and that hasn't had much of an impact on the share price of that business.
STW is currently focussed on growing its business "offshore", with an initial focus on the South East Asia markets, which it sees as "local". Europe is still of interest, but SE Asia and North America remain prime targets. This makes absolute sense as the Australasian market is pretty much sewn up and growth has to come from somewhere else. Singapore is in the same time zone as Perth, and only three hours different to Sydney, so doing business in these regions is much easier than the UK (London has 10 or 11 hours' time difference from Sydney, depending on the time of year).
Indeed, I was speaking with someone in Perth earlier this week who is setting up a new marcomms offer and basing it in Singapore for this very reason. Local time zone, easy to get to and a great hub for Asia. Compare this to the UK agencies and, whilst we will see similarities in the Asian target market, there is a hell of a difference in time zones.
Omnicom operates its Australian and New Zealand businesses through Clemenger Group – in which it owns 74 per cent through BBDO Worldwide – with the remaining 26 per cent held by management and staff. This is another sizeable business with normalised revenues of AUD216m (AUD283m if associates are included) for 2012 and operating profit margins again at a healthy 23 per cent.
Clemenger operates the Omnicom brands BBDO, OMD, PHD, Porter Novelli and Proximity amongst others across the region. It's interesting that out here the big groups tend to work far more in conjunction with local talent – WPP with STW; Omnicom through Clemenger, which has a decent chunk of staff investment. I think this is an indication of how difficult it is to control operations so far afield if significant 'local' investment is not present. However, as with WPP, some of Omnicom's other advertising assets – including DDB and TBWA – are operated separately from the Clemenger group.
So, if Australasia could be considered largely tied up by a less than a handful of big listed groups, what of the independents?
Let's start with UK indies that operate in this region – and surprisingly there are quite a few of them. Elmwood, Epiphany, Precedent, Reading Room all have subsidiaries over here, as do Steak and Naked (both set up in Aus pre-sale). As far as I am aware these businesses are all doing well, but I get the feeling it is hard to drive scale.
Most of the indies I have come across out here consider getting to 40 staff "large". In the UK, by way of comparison, a big indie is really 100+ staff. Note also that the focus of the UK companies out here is digital, and this is the area with most opportunity.
I have to say the digital marketing I have seen in Australia so far has not been ground-breaking, but much of this may be driven by the slower broadband speeds compared to Europe and the US, as the geography is just so vast. It just seems that Australasia is still behind Europe and the US in terms of digital marketing depth – less so in the major cities of Sydney and Melbourne, but very much so in Perth and Adelaide. But then again, with such a small target market outside of Sydney and Melbourne (where most of the big brands are located), does it matter?
The other thing is that, aside from a few big brands, many Australian regions outside the three major cities are characterised by lots of SMEs. These are businesses that want to grow, but will not have the marketing big bucks to spend on significant campaigns.
Thus, there are a large number of small (under 20 staff) independent agencies that service these local needs. Some of the larger ones have been hoovered up by the likes of STW as part of their coverage strategy for Australasia – and I don't doubt that many more will be in due course – but aside from the growth areas of digital and insight, I would be surprised if most groups out here have not covered their bases in the majority of the more traditional marketing areas.
So, an interesting trip, and please be aware that these are simply first impressions from a short visit. There remains a great deal of opportunity for marketers in this part of the world but, notwithstanding the scale of the country, the market is much smaller. I firmly believe there is room for increased sophistication in the digital offer (particularly insight driven digital marketing), although this will increasingly be covered by the STWs (through their own and via the WPP joint ventures), the Clemengers and Eneros of this continent.
It must be said, Australia is a fantastic place to be in January and thoroughly recommended. Saying goodbye to the 30 degree sunshine and heading back to Blighty was very tough indeed!