When a media agency sells a majority share to an international company, it is considered a huge accomplishment. But is the high long-lived? Peta Krost Maunder investigates just how having a global partner impacts on local business.
“I simply can’t take working for those internationals anymore. They have no idea how things work here and they simply suck us dry,” was the muttering of a highly successful media agency type who went solo last year.
This person – who asked to remain anonymous to retain professional relationships – admitted to being at breaking point in his dealings with “the internationals” when he resigned. He says: “I am not alone in this and if anyone tells you they are happy working with these guys, they aren’t telling the truth. They are just trying to keep the peace.”
He might be bitter but he is not completely wrong. On the record, most people praised their global bosses or partners but those who asked to speak anonymously (not the same people), didn’t. All of them are well-respected senior agency executives.
In South Africa, very few agencies are still locally owned. Most are internationally owned or have global partners with a majority, or close to majority, share.
Media agency expert, Gordon Muller, says South African companies “had a free ride and did what they wanted to do” during the apartheid years because overseas partners were precluded (by choice) from taking local equity. “After the 1990s, global groups realised their right to take a stake here and a lot of local companies sold. It was the price of joining the world,” says Muller. He explains that the more recent mergers and acquisitions were about the local guys wanting to play in the big league. “But instead they found themselves becoming the local or regional office of this global group,” says Muller
He insists this is not a problem unique to South Africa. The smaller markets around the world experience the same thing. He attributes it to the vastly different margins and scales of global accounts. “These margins are way too much for us because there is only x-amount of work here,” says Muller. He says that in trying to keep up, “what happens is the local guys go into a spiral of lower salaries and no training – the vicious cycle of mediocrity”.
Enver Groenewald, Avusa’s former general manager for advertising revenue and strategic communications, says this is a typical problem for any local subsidiary owned by a multinational. “The pressure is inordinate because the demands of internationals from developed and mature economies are from their perspective. It is always a battle to demonstrate that you are dealing with two different universes and the way they want to work just doesn’t work in our market.”
He explains that the “permanent performance pressure” is exacerbated with the mature markets now being in an economic depression.
“There is a dichotomy at play because they tend to expect the same or a relative level of performance from developing markets but it hobbles the local economy by putting developed economy strictures on it – which means we have to perform at the developed economy rate.”
Groenewald explains that the multinationals are based on a “uniformity of operation” and they can’t abide by “little countries in the tropics doing things differently”. But, he adds, “South Africa simply can’t operate in the universal manner because it simply doesn’t work here. Things just work differently here.”
Groenewald says he understands why the local agencies are frustrated. “It is a misinformed perception that the whole world operates the way the developed countries do. It is arrogant and so the local industry is hampered by expectations.”
He says becoming part of a global group looked attractive and even romantic. “But many of those who did it are wondering if it was worth it,” he says. “When the going is good, it’s fine, but when it is bad, there is little money left in the pot because it is all going offshore and there is nothing left to invest in improving what you have here.”
A local Johannesburg senior media agency executive says Groenewald is right. “It is difficult to rationalise going into a global company because all they do is poke their nose into our business and we get nothing back.” He also speaks of the global agencies’ one-size-fits-all operations policy as simply not being workable in South Africa. “The market’s nuances are not taken into account. Our global company doesn’t take time to find out the nuances of this market and simply applies their universal rules.”
So, while the local company makes every effort to get business, its budgets and spending power is set by the global parent company. “So, if we need to upgrade our IT systems, we have to get their approval and so often they simply say ‘no’ although we are making good money,” says this executive. “We are lumbered with the problems of all the other countries in the company.”
Another executive says the only benefit he can see from being part of his global group is being able to pitch for certain jobs. “And from there on, we are on our own. We get no help but they take the credit if we get it,” he says.
Another complained that the global company criticised their fee structure and how they make their money. “The local guys are being pushed into the kickback system because that is what works overseas but it is not how we work. It simply can’t work their way. It doesn’t work here.”
Ian Manning, who after a decade working in various agencies in Europe, returned to South Africa as the CEO of MediaCom in 2010, says this whole debate is a “non-issue”. He says: “It is a global economy and we are all interlinked. A well-run company is a well-run business. People are not used to operating in this way because of a historical localised way of doing things. Stop moaning and get used to it. Work around it.”
Manning says he can understand why this has come up because he hears people moaning but it is “naïve to think it can be resolved”.
He says: “It is true the internationals don’t understand how we work but we don’t understand how they work and there is mistrust between the two camps when there shouldn’t be. It comes down to how we communicate with them.”
MEC Group CEO Michelle Meyjes says her experience of working within a global group has been positive. Her global group has made an effort to understand this market over the years. “There has been a consistency in management and so they have got to know the local market,” she says. “Our international guys understand that unless we invest in the local businesses, they can’t be sustainable. If they were not understanding and behind us, I would not still be in this position.”
She insists that being a part of a global company means being exposed to “the best thinking and minds in the business”.
“If we have a problem, the global partner shows concern and interest in helping us. Damn, we are different and if they didn’t understand us, we would be in trouble.”
Jupiter Drawing Room was one of the most recent South African advertising agency to take on an international partnership. In 2009, it sold a 49% share of the company to WPP. CEO of the Jupiter Drawing Room (Johannesburg), Alison Deeb, agrees that when an independent agency sells, the world for that agency is forever changed. She says there is a dilution of the local executives’ power that complicates decision-making. But she believes her experience has been great because the global agency doesn’t have a majority share. “The day it becomes 51% shareholder, I will be singing a different tune,” she says. “I speak to them on a daily basis to glean quality insight and support. These guys overseas are willingly working their butts off for us. But you have to stand your ground.”
Initiative Media CEO Marc Taback believes that local agencies that are part of global organisations are more efficient business operations with the ability to transfer best practices from one market to another, thereby enhancing the capabilities of the entire network. “They invest millions of dollars annually to improve their networks’ ability to generate better results for its clients,” he says. “Sophisticated media optimisation tools and huge single source research panels that seamlessly integrate with each other are just two examples of solutions that are just not a reality outside of a big global organisation.”
Taback insists that global agencies are developing better support structures to improve network efficiency and these problems are a thing of the past. “A better understanding of market maturity, differences in sophistication, as well as client needs have resulted in many networks re-engineering their internal structures to address these exact issues,” he says.
So, while Taback, Meyjes and others are happy with their lot, there are way too many unhappy executives to ignore this problem.
PHOTO: Alison Deeb, Jupiter Drawing Room
This story was first published in The Media magazine.