How does the UK fit into Europe?

Media agencies operate in a brave new world of multinational networks, where the challenge is to balance local, regional and global interests.

Let's talk about the good old days. Put on your rose-tinted spectacles and cast your mind back 10 years, to the time when UK media agencies bestrode the world with their dynamic thinking.

Those days when multiple meetings were needed to get different countries to agree to use the same letterhead and when agency networks were just a patchwork of personal fiefdoms, each in charge of its own destiny. But that was then and this is now.

The transformation has been dramatic. Driven by client centralisation, media owner consolidation and the rise and rise of technology, particularly digital media, those days are gone forever.

Agency search and selection experts suggest that up to 70% of an agency's business can now come from the network. And that creates challenges for UK agencies in the way they manage and approach both their current business and the way they pitch for new billings.

The first new fact of life: just as agencies can gain business from the network, they can lose it as well.

For example, Universal McCann's recently appointed EMEA president, Graham Duff, reflects: "This company - and I can say it from a position of no bias - had performed fantastically well in the vast majority of, if not all, markets for both L'Oreal and Nestle and yet lost out.

"It can be frustrating when you've done a terrific job in a market to find out that, centrally, you've lost out for whatever reason."

In such circumstances, the network needs to invest the time and energy to let the office return to form, says Scott Nelson, account director at MPG Intelligence. "You have to help that agency to invest and build themselves back up. That's something that our Catalan bosses have been well aware of," he says.

The second new fact of life: the global or European team might want to pitch for business that conflicts with a valued client.

"Sometimes if your network is looking to go for a network piece of business, but you're locally conflicted, that may be quite testing," says Jerry Hill, EMEA boss at Initiative. "I haven't had this experience, but it will come."

The third new fact of life: terms and conditions could be negotiated centrally, making it harder to manage the local office.

"UK agencies have books to manage - that's both their deal books as well as their financial books. They have to manage these books to keep all their clients and their bosses happy," says Graham Brown, managing director of EMM International. "The big issue for UK companies by and large is they do not control their own business."

However, Kelly Clark, European chief executive at Group M, says this may be less of a problem for the UK than for other markets. "The UK remains a hugely important market for the majority of regional and global clients, so often the UK should be at the table when these deals are negotiated," he points out.

Client confusion

The fourth new fact of life: not all clients are actually ready to work in this way.

"The reason network business is sometimes difficult to manage is that the client itself doesn't quite know who it is, because many central management teams of business do not have the power or autonomy to manage the business from the centre," says Initiative's Hill. "If the client hasn't got itself organised, it can make multinational business not particularly profitable for agencies. Some clients are well organised in that way and some are transparently not. To be fair, it's difficult in a pitch to find out who is and who isn't."

The challenge for regional centres in dealing with this brave new world is to balance the pressures of regional and global versus local. "Successful regional leaders have deep commercial and client experience in a local market where the work gets delivered and the money gets made," says Group M's Clark. "And that need not be UK experience - it can be Germany, France, China or wherever. If you have that perspective, you're better placed to balance the requirements of both sides."

But UK agency staff will also need to learn new skills to cope with the new environment. First up will be the ability to appeal to a broader range of clients.

"You have to be a multinationalist, even if you're only operating in the UK," says EMM's Brown. "Pitching for international business out of the UK requires big EU diplomacy to get your network to deliver on a multinational pitch. It's hard work."

Part of this process of change is also about recognising that the UK no longer - if it ever did - leads the world when it comes to media thinking.

"Only a minority genuinely believe the UK is superior to other markets and they are Neanderthals. Most people know that great work is coming from all corners of the world, fuelled in part by the trends of globalisation and consolidation," says Clark.

Gerry Boyle, UK managing director for ZenithOptimedia, agrees. "Agencies in the UK continue to produce some stunning work, but equally, other offices are producing work of a similar standard. The days of the UK always being seen as the lead agency are over."

That shift from lead agency to delivery shop will become increasingly common as network business shifts away from the UK.

"The UK is still a hub, but less so than it was - the situation is much more fluid because a lot of requests for proposals are led from markets outside the UK," says Nick Daly, EMEA operations director at Starcom. "We are starting to see (international) business coming out of Russia and Poland and that just continues to evolve. It's really based around where the client's home markets are or where they're based for tax purposes. Switzerland has become more important."

Starcom's strategy in adapting to the new world features three key changes: firstly, ensuring staff have the opportunity to work in different markets; secondly, ensuring tools are common in all offices so they can be efficient from day one and, finally, since last autumn, giving client managers more obvious seniority.

"We're making people more financially accountable, so they go through a rigorous budgeting process to ensure that respect exists," says Daly. "These roles have real decision-making authority. To be able to do that we have to create an opportunity for them to be seen at the same level as a country role."

Over at ZenithOptimedia, the rush of pitches is giving middle-ranking and higher staff a taste of the new business climate.

"Quite simply, more and more business director-level people have worked on a pan-European pitch in the past three years," says Boyle. "They sit in the pitch meeting with 20 people from other markets, hear different local markets questioning how things might be relevant in their local market. I guess it's learning by experience."

But however comfortable the UK office and its staff may feel with the new climate, strategic changes in the European economy suggest it could be on the receiving end of some harsh decisions.

"The UK has higher overheads when it comes to making a return. Property rents and salary levels are higher on one side of the equation. Despite all the suspicion over kickbacks and volume discounts, many of the markets outside of the UK have more malleable possibilities to boost profits from this area. You can do business for 0% in some countries and make a profit. Unless it is a decent-sized piece of business, 2 to 2.5% return can mean minuscule margins or cutting corners on the service and skills needed," says Mark Palmer of consultancy Maverick Planet.

From the client side too, some of these markets may be able to make a better case for media investment.

Growth markets

"I would argue that if you're managing Eastern Europe and the CIS region, you've more right to be there or as much right to be there at the (decision-making) table as France and the UK, because from a client's perspective, those are the growth markets," says EMM's Brown. "Clients want to make sure they're getting the resources and the quality of the agency in these markets, because these are going to drive bottom-line growth for many, many multinationals - not the UK, France and Germany where they are going to be in a share fight."

Cynical observers say network business is all about buying in the business, that the numbers are so huge bosses simply say "let's get the business no matter the cost and we'll work out how to deliver it later".

But while agency bosses admit that was once the case, they insist it's no longer so. "Historically, that's where the poor deals have been done and my perception is that's less and less the case these days. There's more detail by market required in this process generally," says Duff.

Critics of the traditional network model also claim a regional appointment, by definition, has to involve a compromise.

"Centralised decision-making is really only based on a limited number of markets - often the UK will be one of those," says Kate Williams, international manager at UK independent BLM. "However, in some of the smaller ones that the client may not have reviewed, you stand the risk of getting a mediocre service."

Sceptics also claim coverage of specialist skills such as digital and econometrics remains patchy and that, in particular, agencies have cut costs to such a degree that some big accounts don't get the strategic resources they need.

Global projects

"Certain clients are global business. They are now looking for an outside global strategic perspective on strategy," says Palmer. "They want bigger vision, ideas and a direction.

"They may have an international media agency, but they have ended up seeing the media network's role to be, in large part, that of an international post office for communications. They are not asked for, they don't structure for and they commonly don't serve up breakthrough global strategy.

"That's why the likes of Naked have found it so easy to go international. From a client's perspective, they have a network delivering the mail on time and at competitive rates. They can then add the upstream pixie dust of what to send from somewhere else."

EMM's research in this area points out that central teams have struggled to show how they add value. "It's the most difficult area for agencies to prove that they add value," says Brown. "Ask any agency: they would not say it's unproven, but it's not easy to quantify."

However, those involved in network business argue that benefits of being part of a big agency group are massive. "Media is an ideas business and powerful ideas can and do come from any and all markets within the OMD network," says Steve Williams, managing director at OMD UK.

"It's a healthy competitive environment. We are all out to prove - locally - that we're the best, with the biggest and smallest markets pitting wits against each other in external and internal awards ceremonies."

That's a view backed up by MPG's Nelson. "Never underestimate competition," he warns. "If the German team is getting a pat on the back, you can bet your arse the British team will want to get back up there."

Add in the ability to pass on best practice between offices and team up to build new offering - OMD UK is currently working with its German and Belgian counterparts to see how it can develop its buying systems - and, says Williams: "What's not to like about being a strong local media agency in a credible, consistent and powerful media network?"

And the good news for UK agencies is that at the core of the network proposition is the ability to deliver on the ground. However the business is won, it will have to be serviced in the UK.

"While there may be a trend towards more pan-regional appointments in every instance, there are very powerful local clients," says Duff. "That UK marketing director will undoubtedly demand the best from his media communications appointment.

"They may not have been involved in the overall appointment, but they are fundamentally the client."

REGIONAL and GLOBAL: THE PRESSURES

CLIENT REORGANISATION:

Agency life is about mirroring your clients' behaviour to deliver the kind of communications they demand. As advertisers focus their marketing resources in regional hubs, unify their brands across regions and appoint regional marketing bosses, it makes sense that they seek to replicate this structure in their agency advisers. In some cases, a regional media agency appointment can be a way for the central marketing function to exert more control over local operations.

COST CUTTING:

If you can't grow your business, then the best way to improve profitability is to cut costs. Agencies will usually be willing to service regional or global business at a lower fee than on a country-by-country basis. Using the same agency can also deliver efficiency gains as every market uses data in the same format, allowing performance and prospects to be assessed on a like-for-like basis.

TECHNOLOGY:

Computers, e-mail and the internet make it possible to oversee a marketing function in many markets. There is still a need for personal contacts, but on a day-to-day basis, many issues can now be managed from afar.

MEDIA OWNER CONSOLIDATION:

The rise of pan-European media owners with market-focused products has encouraged clients to deal with the likes of Metro, Sky, JCDecaux and Clear Channel on a regional level. It is arguable that both media agency and owner consolidation have been driven by the demands of big advertisers, but all three trends reinforce each other.

DIGITAL MEDIA:

The rise of mobile and online has added a new level of complexity to the media landscape. Media agencies have invested millions in understanding both these new offerings and the changes they bring to overall media consumption. Developing this understanding on a regional level reduces duplication and cuts costs.

RECENT REGIONAL WINNERS

April 2006:

Revlon names Starcom to handle its £10m pan-European planning and buying account.

FEBRUARY 2006:

Initiative picks up the pan-European account for Louvre Hotels, Europe's second-largest hotel chain. The company operates about 900 hotels across the world.

FEBRUARY 2006:

TNT delivers a £15m win to ZenithOptimedia. The company is preparing to take on Royal Mail in the UK.

JANUARY 2006:

Creative Labs extends its relationship with Media Planning Group by giving the Havas firm its pan-European account.

NOVEMBER 2005:

Sara Lee names OMD as its new media partner. The account is reported to be worth £170m across Europe.

NOVEMBER 2005:

MindShare lands the Motorola business for Europe. The agency also works on the account in Asia-Pacific, while Carat handles it in North America.

JULY 2005:

L'Oreal handed its business worth approximately £100m in the UK to ZenithOptimedia. The deal does not cover France and Italy where the company buys its own media.

APRIL 2005:

Carlsberg committed itself to OMD having previously awarded its business on a market-by-market basis.

NOVEMBER 2004:

Unilever brings the most complex pitch in media history to an end by announcing that MindShare has picked up the £555m prize.

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