Live Issue... Ogilvy leads agencies downstream

Amid the drama of 2008, one development was largely overlooked: the emergence of the Bangladeshi capital of Dhaka onto the region’s advertising map. Not only did Dell choose the city as the base for its WPP Enfatico unit, but Ogilvy’s fast-growing RedWorks operation also plumped for Dhaka as its new Asian production hub.

These developments provide a clue as to where ad agencies might be heading in 2009: downstream. With clients eager to cut costs, one area targeted by procurement departments is creative production. Unilever, for example, spends 10 per cent of its US$3 billion global ad budget on the everyday processes that deliver creative ideas to selected media across the globe.

Ogilvy is hoping that RedWorks, which began life in Asia before becoming a global unit run out of New York, will help clients meet this need. But others are considerably less convinced that creative agencies, which have spent recent years desperately trying to swim upstream toward a strategy role, should be getting their hands muddy in an area of the business that is increasingly the domain of independent production specialists like TAG or local budget shops.

Once upon a time, ad agencies made a lot of money from production. But over the past 25 years, as with media, production has gradually become low-margin work or is simply decoupled and sent to specialists. Ogilvy Group global CEO Miles Young believes there is an opportunity to bring it back. “Agencies should be concerned about this, because clients are interested in decoupled offers,” he explains. “There is a vast amount of business out there, which one would be myopic to ignore.”

On the other side are those who are concerned that venturing into lower-margin areas are, in the words of BBDO Asia-Pacific CEO Chris Thomas, “suicidal”. Young admits that going cheap in a recession would be fatal, and his solution almost sounds too good to be true: transform the business into a high-margin one by consolidating at a global level, and offshoring to cheaper centres like Dhaka.

This is Young’s goal for RedWorks, with the eventual target of becoming an overall WPP asset. The unit has won global production duties for Kodak, IBM and Unilever’s Dove, with Venetian also tipped to be on its client roster. It posted 40 per cent growth last year in Asia-Pacific. But the price of entry is not exactly cheap, capital investment is high, and finding talent that is both brand-literate and able to manage production processes is not easy.

Publicis global COO Richard Pinder believes agencies should be willing to consider the move. “Are we a consulting firm? No. Downstream is very interesting because I am able to charge the client well but still pay people well because I am not getting them to do the stuff that a Mac monkey can do.”

It is a point of view that is likely to gain traction in the year ahead, particularly if the current trend of pairing small creative boutiques with large international networks continues. But a note of caution is sounded by JWT international president Michael Maedel, who argues that agencies should not be sidetracked from their core specialism. He admits that including production within an agency is tempting from a financial perspective. “But is that necessarily the same team who can crack the most complex MNC brief?”

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