In this section we explore the opportunities and tensions in the relationship between senior practitioners in the in-house and agency sectors. We also examine the prospects for consultancies operating in Asia Pacific
6.1. Working With Agencies
The agency market in Asia Pacific is highly competitive, with a raft of new boutique and international entrants now competing for business alongside the established names. Agencies report rapid growth in staffing levels, revenues and profits. They have also invested in a significant build-out in service offerings to include digital, analytics, corporate citizenship and “shared value” expertise.
One Hong Kong-based senior agency head responsible for business development says competition between large networked agencies and the new breed of independent consulting firms is intensifying. “The agency sector has always been competitive. But the competitive set is increasing in terms of numbers and it is also increasingly diverse: local independent players are getting stronger; agencies on the periphery of communications services now have a communications offering,” he says.
For many clients, agencies are an essential extension of the corporate communications and government relations function – seen as long-term trusted advisers and partners. But for many others, agencies are viewed as a short-term fix to a capacity problem.
One regional agency CEO said: “We have some clients who are very, very practically focused who view what we do very differently. They just want a quick solution. Then we have others who will commit the budget and time to develop the relationship strategically.”
Reflecting on what he believes are the strengths of the agency offering, he said his colleagues “are very, very good at getting things done”. “They understand the brand and they understand what you need to do for those brands in local geographies,” he says.
The increased importance of the services that agencies provide is underlined not only by their significant growth figures but also by their influence within their client organisations. “A few years ago we would have to report to the Head of PR. Now it’s the CEO, the CMO and even the Chief Procurement Officer. There are more touch points and they’re higher up,” says one agency head.
But there is a mismatch in expectations and understanding. At the heart of the current relationship between clients and agencies is a disconnect in attitudes about how the partnership should function. As they invest significantly in upskilling their talent and expanding their service offerings, agencies want to develop long-term relationships and be viewed as trusted strategic advisers. Yet many clients still appear to believe their agencies are on hand just to provide “arms and legs” when spikes in activity arise, be that when a major business announcement is made, during a crisis or when clients encounter short-term capacity problems.
One senior agency figure who specialises in financial communications says: “On the financial transaction side it’s always challenging. Clients bring us in too late.”
Another agency leader says it’s difficult to generalise the dynamic between clients and their agencies, but he observed that “there is more pressure on us to add value”.
The head of one of the privately owned agencies says understanding changing patterns of client demand can be very important, both for revenue and in addressing the needs of clients. He cited the case of a contract for speechwriting for an Australian CEO that morphed into a creative video project worth US$150,000. “Those of us that get the right specialist resources and capabilities will find that our corporate affairs, public affairs and financial communications clients can be very eager buyers,” he says.
6.2. The Right Approach
But one former agency staffer who heads up communications for a major US firm says he is often shocked at the approach some of the world’s largest agencies adopt.
“There are two types of agencies. Some of them are trusted advisers – they send one person to a meeting who will actually be doing the work and it is these agencies which can become true strategic advisers. They roll out the best people for us and they have deep, deep knowledge. Then there are the other types. They roll out the founder, the regional CEO, people with all sorts of different titles. Then at the next meeting they turn up with a dozen 20-somethings, most of whom say nothing. Why don’t they just give us the three people who will actually do the work?”
One senior practitioner says the trend towards upskilling in-house communications teams is actually reducing the need to employ agencies as strategic counsel. “We end up using agencies as arms and legs. I don’t think an agency can ever know our business as well as we do. We have had to move our relationship away from strategy to planning, media relations or channel management.”
One leading agency-side practitioner says client appetite and understanding has become more sophisticated – but he points out that some companies require internal reprogramming or restructuring in order to capitalise on it. “Clients are now far more aware of what services are available from an organisation which might otherwise be perceived as a public relations or public affairs-type agency. The structural, service-orientated and operational challenge therefore becomes, on one hand, the building and integration of these services and, on the other, ensuring that clients understand those services and what they mean. Sometimes their own business structures are not capable of benefitting from these shifts.”
6.3. Deepen to Reap Dividends
Despite this, one senior agency figure stresses that a successful client-agency relationship is one where the points of contact go deeper into the business. “Our clients think of us as advisers not vendors. We have strong relationships into the C-Suite. Senior advisers who sit alongside other senior advisers – that’s how we want the client relationship to be. We will get to know their bankers and lawyers,” she says.
And where things do fall short, many practitioners believe that is often the result of client-side weaknesses. “I firmly believe that the agency can only ever be as good as the person managing them. When I see a ‘failing’ agency, I look at the PR manager first, then the agency,” says the head of a large in-house team.
The President of one global agency believes the agency and client relationship is stronger than many people credit. “We have some very, very strong relationships with our clients. I don’t deny that there are some clients that can be abusive. But we work very hard to change that. You cannot keep people in this business if they are serving abusive clients. I work very hard to get those relationships right,” he adds.
One Hong Kong-based industry veteran offers a blunt insight into the client and agency dynamic: “Client contacts seem to fall into two types: (A) those who think that agencies are to be kicked around at all hours of the day and night and used for pure execution, and (B) those who recognise that an agency can bring broad-based experience and value-adding insights that require a collaborative approach if success is to be achieved in often difficult situations. I refuse to do work for the former type – they demoralise staff and are poison to an agency, however much they pay.”
6.4. Value for Money
Opinion is divided on whether agencies represent a good investment compared with spending the money in-house. Some senior in-house professionals say securing external perspective is a strong reason for committing budget beyond their core teams. Others say the return on investment is highly dependent on “the tools they are given” – stressing that the onus is on the client to ensure they get the results they are seeking.
Another respondent said that agency value for money is good at a regional level but mixed at the in-country level. However, when agency support is needed to assist in-country functions, particularly in the absence of a dedicated in-house person, some directors said they had no option but to go down the agency route, even when they believed they were not necessarily securing value for money.
One agency head also pointed to “stresses” generated by changing clients’ attitudes to the value of digital services as opposed to strategic advice. “What people are prepared to pay does differ. It’s different when it comes to digital, it’s different when it comes to social, and it’s different when it comes to public affairs. For public affairs, for example, clients are prepared to pay more.”
One key change to client attitudes, believes another agency CEO, is the need for “much more predictability around return on investment”. “We have always striven for evaluation. But now that so much communication is digital and online, you can track it so much better. Clients are placing much more emphasis and budget on targeting communications and evaluating what the ROI has been – not just on mass communications but also on more strategic corporate and public affairs work,” he contends.
6.5. Agency Growth
Despite these ongoing problems, many of which could be resolved through greater dialogue between senior practitioners on both sides, there is scope for significant agency growth in the Asia Pacific region. The move towards an integrated communications offering is something one agency head believes will require a keen eye over the next few years. “The coming together of marketing and communications services is a big challenge which is creating uncertainty for public relations and public affairs professionals,” he adds. “I am trying to go up the value stream to get smarter and more valuable people.”
One regional agency leader reported that revenues had tripled over the past five years. Another agency lead says every office in the region has recorded year-on-year growth, with specialisms such as crisis communications having grown by over 1,000%. Service offerings which are in high demand include digital, public affairs, crisis communications and opinion research.
Another director, representing one of the leading globally recognised agency networks, says net revenue in Asia Pacific has grown by three times since 2009. “There has been a huge change in terms of the size of the business and the revenues we are generating. That is a consequence of a lot of factors but the end result is that we are dealing with a much bigger business and a much more complex business with 900-plus people across the region and a greater need to integrate with the global business.”
The Chinese market appears to be a particular focus of growth and strength for many agencies – accounting for over 44% of the Asia Pacific regional revenues generated by one of the largest global operators interviewed. As Japan opens up, this is becoming a target market, and many agencies also believe India and Indonesia have significant room for growth.
India, which currently has very low internet penetration, will become a mass market for digital providing the government’s broadband strategy can be implemented effectively. Several agencies are aligning their business interests, for example by buying out joint-venture partners, to prepare for this shift when it occurs.
One senior agency manager predicts that recent growth momentum can be maintained despite the recent cooling-off in markets such as China. “There’s a lot of growth still left in APAC as the region’s highly diverse markets mature. Digital is the great disruptor in the industry today. There will always be an agency sector but the service boundaries that define them or categorise them are undergoing a period of significant change,” he says.
For agencies this has meant a significant investment in building existing teams and developing new service specialisms. “The biggest change of the last five years is the diversity of talents an agency needs. Different talents and a different demographic. We now have a much bigger range of specialists working for us,” says the Asia Pacific head of one of the largest global firms.
Despite a raft of smaller agencies entering the market and greater competition among medium-sized players, the head of one ambitious new start-up sees potential in tapping into higher-margin business streams. “It is important to build brand awareness and to distinguish your company from the competition at the low-fee, value-add companies. We want to see a move towards more value charging which will really identify the agencies which actually deliver.”
Others believe that pressure on in-house resources means that many companies are encouraged to outsource work and use agencies during spikes in activity. The shifting pattern of communications towards content creation is creating opportunities for the agency sector. The need to generate a large volume of high quality content at relatively low cost is also creating an era of opportunity. One in-house professional said: “We are increasingly looking for assistance from agencies outside our organisation because often we have restrictions on hiring direct staff. New audiences, new delivery models and the changing definition of what the media is have changed our business. It is not just about writing a press release and expecting coverage. Now content is king and it has to be meaningful content that people want to consume.”
Another agency leader says the biggest change in the past five years has clearly been “digital, digital, digital” but, he adds, there is also a “growing realisation of the importance of employee communications and change communications as part of best practice in corporate brand building”.
One Hong Kong-based agency chief believes a significant proportion of the growth will be driven by the greater acceptance of the need for strategic communications in Asia Pacific. Asia will continue to provide huge growth opportunities. “Much of Asia still hasn’t realised the true value-add of strategic communications advice: many companies and organisations are still stuck at the ‘event’ management end of the spectrum. Those companies will also need to think smarter when they go overseas to acquire companies or do business,” he says.
The heads of large agencies interviewed expressed confidence in the future of their own business – despite the increased competition and clients’ budgetary pressures. Says the CEO of one of the most prominent agencies in the region: “The big agencies will continue to expand. Small specialist boutique agencies will successfully operate in-country, successfully occupying niches.” But, he warns, “the mid-sized networks and mid-sized agencies operating in individual markets will face more difficulties.”
The head of one of the world’s most prominent agencies says service offerings must effectively mirror the changing pattern of clients’ needs. “We plan to put more emphasis on the role of research and build out a robust analytics capability. Developing a central hub to monitor, manage and participate in conversation and engage in e-commerce is going to be standard operating procedure for most companies to respond to the pace and volume of the communications,” she said.
One senior Australian-based consultancy leader says PR agencies need to start thinking more like ad agencies. “We now have studio functions where we house social. We talk in terms of ad spend, analytics and so on. This now cascades down to the rest of the business,” he says.
Another agency CEO said he is confident about the prospects for his agency over the coming five years. “If we get the dynamics right, we can lead in this digital mash-up of disciplines. We understand the role of content. That’s been the driver of the market. We can be very relevant. We just need to hone some of our technical skills and get the digital and social bit right.”