The architect who created one of the world's largest marketing services group is putting strategies in place that will better insulate the communications giant in the event of a future advertising recession.
Sir Martin Sorrell, WPP chief executive officer, wants the key markets of North America, Europe and Asia-Pacific, plus Latin America, the Middle East and Africa, to contribute an equal 33 per cent to the group's revenues within the next 10 years.
At the moment, North America contributes the lion's share of WPP's global revenue at 44 per cent, followed by Europe at 39 per cent. Asia-Pacific's share at about 15 per cent pales in comparison; however, Sorrell believes that the figure would be around 22 per cent in 10 years' time.
"The objective is that we should be a third, a third, a third - the reason being that by 2014, about two-thirds of the world's population will be in Asia-Pacific.
"We've already got a third in two countries: China and India," he says.
Which is why Sorrell is increasingly focusing his gaze on the region.
However, his vision doesn't come without its difficulties.
Japan, he readily admits, is a market that WPP has yet to crack, mainly because of the dominant position held by Dentsu and Hakuhodo, which now control more than 40 per cent of marketing communications dollars.
"My sense is that it is even more 'Fortress Japan' than it has been and that is probably due to the move by Hakuhodo to combine with Daiko and Yomiko, creating two operations (including Dentsu) that, between them, have 80 per cent of primetime television hours," Sorrell says.
"It's natural for Japanese agencies to coalesce and protect their own domestic market."
The challenges he faces in Japan are rought into sharp focus by DY&R - formed by a partnership between WPP's Young & Rubicam and Dentsu.
There is speculation that WPP and Dentsu don't quite see eye-to-eye on a number of issues affecting the joint-venture.
Sorrell, however, would only say: "It (the partnership) continues. We have lofty ambitions for it. The question is whether they (Dentsu) share those ambitions."
He stresses that the precedent for cooperation in joint-ventures in Japan is not good, mainly because of cultural issues.
In China, WPP companies generate about US$100 million in revenue, making the group the dominant force in the country.
However, Sorrell believes the fastest-growing market in the world is showing signs of overheating and could be due for a correction, because "you cannot have double-digit or high single-digit growth forever".
But he stresses that China's difficulties will not likely be financial in the near term, as its current foreign exchange reserves total $380 billion, but will be more about the Government taking a longer-term view and getting the balance right.
"They (Beijing) worry about the coastal plain becoming much more advanced, with significant gaps opening up between those areas and the poorer western regions. So they are trying to encourage internal investments in other, poorer parts of the country."
The upside for China is that it is among the top five markets in the world in terms of advertising spend and that by 2008 when the Beijing Olympics are scheduled to be held, it will have overtaken Japan to claim second place, Sorrell says, although he notes that most other predictions put the year at 2010.
However, he notes that his view of Asia-Pacific isn't limited to just Japan and China. "We've had a huge focus on the region as a whole. China has suddenly become voguish and trendy, but we've been operating in China for more than 10 years," he says.
He points to the fact that WPP is among the top three groups in all the key markets of Asia, including China with a 15 per cent share, India at a third and South Korea at a quarter.
Sorrell says that WPP also has other objectives to achieve in order to create shareholder value on an annual basis into the foreseeable future.
One is to restructure the group's business contribution to reflect the global shift from above-the-line to below-the-line, mainly because of the rising cost of major media options, television in particular, and a growing number of alternatives such as pay-TV, cable and satellite, outdoor, radio and the internet.
"In the US, it was thought that costs would go up seven to 10 per cent in terms of cost per thousand, but it went up by 15 to 22 per cent... Clients are not very happy about that and they are looking for alternatives," Sorrell says.
He adds that below-the-line currently accounts for 53 per cent of WPP's worldwide revenue of US$6.5 billion and that within 10 years that figure would rise to about two-thirds.
The trend will be the same for Asia: "Five years ago, 79 per cent used to be advertising. Now it's 73 per cent... Advertising's share is declining by about one per cent a year. Asia is no different, except that network television plays a more important role in developing markets, compared with their more mature counterparts.
"I think you could develop a model where television plays a greater role in the early stages of a market's development. But as the economy matures, other things become more important," Sorrell says.
As Asia-Pacific assumes a stronger position in the group's overall global plans, there is speculation that structural changes are in the works, including the appointment of a WPP regional head. Industry sources have long tipped Ogilvy & Mather Asia chairman Miles Young as a frontrunner for the post.
Sorrell confirms the speculation, but adds: "It's something I have thought about, but I haven't made a decision on whether we should or shouldn't.
Regional management is a tough job. Miles Young does a brilliant job in the context of Asia-Pacific. But it's a tough job and you need to be an exceptional person."
He also says that cost factors have to be taken into account, as global management overheads eat up 6.7 per cent of revenue, with 1.5 per cent accounted for by WPP overheads. That's against margins of about 14 per cent.
"So that's half our margins. The value of regional overheads is something we have got to think about very carefully, particularly because technology has made life easier and knowledge shifts are moving much more quickly.
"It used to be a fact that the only person who knew what was going on in an organisation was the person at the top of it. Now, it's the reverse.
So we ought to think about that more."
Sorrell adds that on-the-ground effectiveness is another issue.
"Who knows about recruiting a creative director in Barcelona. Someone sitting in London or New York? Obviously, it's the people in Barcelona.
It's a localisation/globalisation issue."
GLOBAL COMMUNICATIONS SERVICES EXPENDITURE: BELOW-THE-LINE DOMINATES
Advert- Market Public relations Specialist
ising research & public affairs communications Total
US 148.8 6.8 2.4 406.6 564.6
UK 14.5 1.7 0.8 59.4 76.4
France 8.7 1.2 0.1 22.1 32.1
Germany 16.0 1.4 0.2 33.6 51.2
Japan 35.8 1.1 0.1 43.4 80.4
Rest of
the world 88.0 4.2 0.1 138.3 230.6
Total 311.8 16.4 3.7 703.4 1,035.3
Sources: Zenith Media, ESOMAR, Veronis Suhler, Council of Public
Relations, WPP estimates and various other trade sources