Sunday, December 9, 2012

Look to Mexico and India for seasonal cheer

Third, there is the continuing Middle East crisis, with the Arab Spring morphing into an Arab Winter and waves of violence in Gaza and Syria adding to the stormy seas in Tunisia, Egypt and Lebanon. There remain fears that Jordan and Saudi Arabia will be affected too. And then there is the threat of an Israeli attack on Iranian nuclear installations. These complex situations are extremely difficult to plan for and the uncertainty is considerable.

Finally, to mix my metaphors, there is the elephant in the room: the US fiscal cliff, the fiscal deficit and $16 trillion (?10 trillion) of US debt. Many believe that we will go over the fiscal cliff and there is a particularly cynical view gaining momentum, namely that the Democrats would like to see a failure to reach agreement. The consequential rebasing of the US economy in 2013 would be followed by a continual improvement in 2014 and 2015 towards a US Presidential election in 2016, when Democrat Hillary Clinton would defeat Republican Jed Bush. Clearly that is too cynical a view.

All these concerns come as the average CEO lasts four and a half years in America or three years around the world, and the average chief marketing officer lasts two years in the US. Add the fact that US-based multinationals sit with $2 trillion in excess cash and relatively ungeared balance sheets, and the curse of Lehman and stricter corporate governance, and the result is inaction in uncertain times.

Despite this gloom and uncertainty, there are bright spots where chairmen and chief executives can find the delta ? top line like-for-like growth ? and following my recent visits to India and Mexico, I came back smiling.

Although there are considerable concerns in New Delhi and Mumbai about political confrontation and government stasis, the quality of our 12,000 people in our Indian businesses across the board never fails to impress me, along with our almost half a billion dollars of revenue. If our businesses outside India were as good as inside, I could retire quickly.

Closer examination of the Indian economy gives rise to even greater enthusiasm. Whilst there may be concerns in Delhi and Mumbai, economic activity in Tier 2 and Tier 3 cities and beyond continues to grow significantly.

Simply put, as Piyush Pandey, chairman of Ogilvy in India, said, new consumers are trading in two-wheelers for four-wheelers and there is optimism and increased consumerism. Indian GDP will grow 5pc this year and our businesses will grow 10pc like-for-like.

This is a phenomenon I first witnessed in the UK in the 1970s, when the UK itself was a fast-growing market. In earlier stages of economic growth, advertising and marketing services spending seems to grow at twice the rate of GDP growth, as faster growing countries usually are under-branded and under-marketed.

This is certainly the case in India, where there is tremendous scope for communication services expansion as multinational companies and national companies increasingly understand the consumers? need for brands and branding ? and as domestic Indian companies led by people like Ratan Tata, Mukesh Ambani, Anil Ambani, Anand Mahindra and Sunil Mittal expand globally. Next year it looks as though Indian GDP will also grow at 5pc and my colleagues in India are budgeting 10pc organic like-for-like growth again.

I also visited Mexico City recently ? at the same time as the new president, Enrique Pena Nieto, held his inauguration and made his inauguration speech. Kennedy-like Pena Nieto launched a 13-point directive in that speech, covering areas such as education, technology, infrastructure, social security, pensions and the opening up of telephony and television markets ? in effect a real economic growth plan which the UK coalition Government should note.

The revamping of Mexican state-owned petroleum company Pemex may be another crucial move in the liberalisation and development of the new Mexico. Again, our businesses, which are, like India, excellent in all areas, showed double-digit growth this year and will show double-digit growth next year, according to my colleagues? budgets, with 2,500 people generating $200m of revenue. Their belief is that they will double this within the Pena Nieto six-year presidency.

GDP growth is galloping along at 5pc and will do so again next year, and 5pc inflation should ensure our revenues grow by the mid teens ? again we see the faster-growing market phenomenon of advertising growing twice as fast as GDP.

There is always the risk of excessive optimism around a new and attractive president ? just think back to Washington DC in January 2009. However, the return of the PRI party after a 12-year exile seems to signal change for the better.

There is also one other important factor that bodes very well for the future, particularly of Mexico. The National Intelligence Council (NIC), effectively an offshoot of the CIA, prepares a Global Trends report for the new or re-elected US President every four years.

Basically the report answers the question, ?What will America look like in 20 years? time?? This time around the NIC believes that the prospects for the US are very good for two important reasons, amongst others.

First, America will be the world?s biggest energy producer by 2017 and, more importantly, will be energy self-sufficient. In other words, Saudi Arabia will be China and India?s problem in 20 years? time, not America?s.

In addition, America?s manufacturing competitiveness will improve as faster growth markets become more expensive in labour costs and as technology-based improvements in manufacturing are implemented more aggressively ? as in the digital economy and in environmental advances.

Silicon Valley has originated advanced manufacturing technologies like 3D printing that will revolutionise manufacturing and reduce comparative costs significantly.

As a result of these two trends, among others identified by the NIC report, America may well regain its momentum and indeed maintain its industrial leadership. As in the 1980s, it never pays to underestimate America?s prowess or resources ? both human and natural. Mexico, which depends for 70pc or so of its exports on its northern neighbours, may well find yet again the benefits of its NAFTA relationship.

Thank goodness for India, for Mexico and perhaps in the longer term for the United States of America. God bless them all.

Sir Martin Sorrell is CEO of WPP

Source: http://telegraph.feedsportal.com/c/32726/f/569146/s/2666ef23/l/0L0Stelegraph0O0Cfinance0Ccomment0C9730A70A90CLook0Eto0EMexico0Eand0EIndia0Efor0Eseasonal0Echeer0Bhtml/story01.htm

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