International ad agencies make their presence felt
International ad agencies make their presence felt
By S. Vaidyanathan
JAKARTA (JP): I have always said that if just once we do business with them we help to bring down our domestic advertising sector," Nuradi, the pioneer of the Indonesian ad industry and founder of InterVista Advertising, which ranked third in billings in the 80s, said in an interview, which appeared in the September 1992 issue of Jakarta-Jakarta.
However, this sentiment does not seem to be very widespread anymore, in these days of borderless trading. In Indonesia today, international ad agencies have a highly visible presence. Among the top 10 agencies by billings in 1994, nine agencies, barring Metro, have alliances. These are with Lintas, BBDO, JWT, O&M, Dentzu, DMB&B, Grey, McCann-Erickson and DDBNeedham. Four of the next nine, follow suit with Ball, Leo Burnett, Haku Hodo, and Lintas (its second in Indonesia). Not figuring in this list are other well known names such as Saatchi & Saatchi, Bates International, Bozell and, Young & Rubicam who also have a presence here.
Some of the current tie-ups were forged in the recent past -- Matari with BBDO in 1993, Fortune with DDBNeedham in 1991 and Ad Force with JWT in 1992. Indo Ad's alliance with O&M began at the time of its founding.
At a time when forging alliances is the order of the day, agencies sans arrangements also dot the Indonesian advertising scene. Metro, ranked seventh with ad billings of Rp27.4 billion in 1994 is one. Komunika, which ranks 14, Binamark 15, Cipta Citra 16, Wahana Admedia 18 and Strategy Ad 19, are some of the others.
The number of agencies, which are smaller in size and have yet to gain much recognition, could be as high as 800.
Clearly, the proliferation of ad agencies is keeping pace with economic development and the expansion of the print and electronic media.
The growth in TV's share of the advertising expenditure since 1989, when the ban imposed in 1981 on TV advertisements was lifted, has been tremendous -- from an 8 percent share in 1990 to 46.5 percent in 1994. Media Scene projects ad spending in 1995 as Rp 3113 billion. Ad spending is expected to expand even further in the future. Business is booming and competition for the growing ad spending cake is intense.
Although competition is keen, local agencies without tie-ups are able to successfully compete with the established, bigger agencies with tie-ups. Some of the medium-sized agencies even have MNCs as clients, while the smaller ones continue to hang on.
Coping
Local agencies, especially those smaller in size to their rivals, are sometimes preferred because of this very difference in size. Clients looking for personalized services prefer these agencies, where they are assured of being served by the owner himself.
Most of the bigger agencies look for a long-term relationship with their clients. There are exceptions. Sometimes, they prefer clients who are willing to commit advertising budgets of a particular size over a certain period.
Paul Karmadi of Matari says that his company prefers "clients who can appreciate talent and who can see that it costs a lot to have that talent." However, this very requirement of a long-term commitment sometimes turns away clients who do not wish to be bound in such a manner.
Smaller agencies seldom make such demands. They stress flexibility as being one of their enduring appeals. A leading Indonesian textile manufacturing company settled for a smaller agency after trying three bigger agencies for this reason. Their size and the inherent advantages that go with it enable smaller agencies to cut costs, and this gives them a decided advantage over the bigger rivals. Some among the smaller agencies are also known to under-cut their bigger rivals to get a share of the business.
Indra Abidin of Fortune Indonesia says that agency-client disagreements are often over cost considerations rather than creative matters. When this happens, smaller agencies may gain a client. Smaller agencies also strive to give quality professional services on par with the bigger agencies.
Without tie-ups
Binamark Advertising is a medium-sized agency without tie-ups at present. Established in 1980, it had earlier had an alliance with Grey, which was terminated because of a policy change at Grey headquarters. Since 1992, the agency has been on its own. It counts Heineken, a global brand, among its many of well known clients. Koes Pudjianto, its chairman, says that many of them have been loyal clients of the agency from the days before the tie-up. He is confident that more and more MNC clients will come to prefer agencies such as his.
Agencies without tie-ups also sometimes employ expatriates to beef up the creative department. The technical advisory section of the creative department at Binamark has been headed by an expatriate for the last two years. As Pudjianto explains, the urgency hopes to gain a better vision from expatriate staff because "they are exposed to the progress outside ... and one of their functions ... is to teach our people too."
He is certain that even though the trend may be to forge tie- ups, it is possible to stay wholly Indonesian, as long as professional services are on par with those of the international agencies.
Although he admits that local agencies do find it difficult to pitch for multinational clients, he points to the growing local client market which is in need of advertising services. He believes that in view of commonality of language, culture and custom, the future lies in cultivating this market. Long-term strategy for growth also includes keeping abreast of technological advancements by investments in computers and trans- national link-ups via Internet.
Ken Sudarto of Matari concurs with Eleanor S. Modesto of Lintas that there will always be room for ad agencies of different denominations because each has its own positioning in the market -- "Different strokes, different spokes," to quote Modesto.
All this does not mean that international ad agencies do not have a future in Indonesia. Sudarto believes that sooner or later agencies will have to go global and it is better to be sooner than later. He reasons that when Indonesian clients like Aqua, Konimex, IndoFood and Teh Sosro expand their markets overseas, they need to be served abroad. There is every danger of their going over to an agency which has a tie-up. This could eventually erode the domestic client base. He also thinks the local agencies have an inherent handicap in pitching for MNCs. Finally, the rush to open agencies by conglomerates threatens to reduce the size of the ad spending cake. However he does not think that local agencies have to completely depend on or surrender their identity to, a alliance partner. Rather, they should try and benefit from the arrangement.
Why alliances?
International agencies are uniformly perceived to be providers of direct access to the latest in advertising techniques, skills, knowledge and above all, creative vision. Forging an alliance promises to throw open the doors to complete marketing communications services on a global basis backed by the ability to manage and draw from worldwide resources in an optimum manner. Not the least of these advantages is the obvious one of enabling expansion of the client base.
Matari's client portfolio has grown to include Knorr, Oral-B, Pizza Hut and Sara Lee since the alliance with BBDO was forged. As long as conflicting client interests are resolved, local agencies are willing to forge alliances.
For example, Karmadi says that while client servicing is reciprocal, his agency will never take on a pharmaceuticals client of BBDO because Matari's biggest client is itself an Indonesian pharmaceuticals company.
Image-building, as a possible spin-off, is one of the lesser reasons for wanting to forge alliances.
Why be here?
The reasons for the international agencies' continued interest in Indonesia, despite the ban on ownership, are not difficult to discover.
Indonesia is strategically located in a growth area. Together with China, Thailand and India, Indonesia is ranked as the most strategic of markets in Asia. Analysts predict that the Asia- Pacific will become an even more important market because of its rapid economic growth and huge population.
Despite the shadow of economic gloom in some regions of the world, global ad spend continues to expand. It is estimated to exceed US$200 billion over 56 countries, according to NTC, a UK- based forecaster. JWT International is estimated to bring a third of its income from Asia alone. In 1994, JWT's income from Asia was higher than that from Europe. In three years it expects to make more in Asia than in the United States.
Indonesia, as the fifth largest consumer market in the world, is bound to attract more and more global players.
MNCs look for professional client service from an international agency as part of a global campaign. Coke was the reason for McCann-Erickson's coming to Indonesia. Steven Brown, the technical advisor for Bates Indonesia, explains that this is because of global agreements. Further, he reasons that because MNCs are used to a high level of professional service elsewhere, they expect the same wherever they go.
Support services
International agencies also believe that they can fulfill long-term training needs because of their easy access to worldwide resources and support services.
The Kadin Indonesia Business File, Special Edition, September 1995 reports that the Indonesian Association of Advertising Agencies (PPPI) has appealed to the government to allow foreign investors to enter the business. Ricky Subrata, president of Komunika, is reported to have said that foreign investments have a positive impact on the development of advertising.
However, opinion in the industry is divided. Opponents of the idea feel that direct foreign investment curbs should continue. However, they think that foreign agencies should be allowed to service their MNC clients through alliances with the stronger among the local agencies, to ensure a "win-win" situation.
As more and more agencies strive to excel in providing comprehensive and modern marketing services to their clients, the globalization of the industry seems inevitable.
In this context, it seems pertinent to quote Nuradi again: "If they come here, we should be guiding them. Globalization must mean that they are facing in this direction. Our populace constitutes a huge market."