The rewards of risk

Lebanese advertisers ride on the coat tails of the region's uprisings
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Rizkgroup, a Beirut-based communications and advertising holding, has played a high stakes game in recent years that few other firms have dared follow. Since 2007, the Rizkgroup has expanded in four markets: First, they opened in Damascus; then they plotted a course to Sanaa in 2008, and from there leapt into Khartoum the next year. To top off their lineup of new territories, they ventured in 2010 into Kabul. From 2010 onward, Rizkgroup has also launched a new group company, Rizk Public Relations (RPR) and this year, engaged into a corporate match-to-be-married with Havas, the French communications conglomerate that carries the name of the world’s oldest news agency and has major international interests in advertising, digital, and corporate communications services.    

Afghanistan, Sudan, Yemen, and Syria are among the most risky places a company can get into in this period of history. But while Syria’s implosion in 2011 was an unexpected setback for Rizkgroup’s business, the group achieved five-fold growth of its turnover in venturing into the peripheral markets on the advertising globe.   

“The higher the risk, the higher the reward,” said Alain Rizk, chief executive of the group which was founded by his father, Andre, in 1965. 

Rizkgroup declined to provide Executive with figures that would substantiate the growth claim, volunteering only that turnover increased from “a few million [dollars] to many millions.”

According to Mark Daou, chief operating officer for the group’s overseas business units, the company took a long-term view when it began international expansion in 2007 to transform itself from a mid-sized Lebanese agency into a global network. “In 2008 when everyone was locking down, we invested in emerging markets and we gained size and ability because of that,” he said. 

As Rizk explained it, the group’s base of clients in the Lebanese market is comprised of about 60 percent domestic companies, reflecting its corporate view that advertising has to be local. “The more local clients an agency has, the more sustainable it is.”

A number of these local clients, however, have far-flung market interests in the Arab world and Africa, and this was a factor in setting the direction of Rizkgroup’s path of territorial expansion.

“The reason why we go to Africa, or other ‘dangerous’ territories, is that our clients take us there,” Rizk said, adding that networking in these markets worked in favor of growth more than the Lebanese connection that opened the door. “One thing leads to another. The Lebanese connection perhaps gets you there and then you meet local clients and this is how you network.”

Changing dance partners

The regional expansion and shifting ambitions of the venture resulted in Rizkgroup reassessing its regional affiliation whereby it represented the global clients of the TBWA network in the Lebanese market — TBWA being an agency owned by the US-based Omnicom Group which in 2011 was the world’s second largest advertising conglomerate by turnover and profits. The affiliation also allowed Rizkgroup to access some of TBWA’s global resources such as training and client contacts. 

The Beirut partnership between TBWA and Rizkgroup had been in place from 2001 until the end of last year. As Rizkgroup managers implied in their conversations with Executive, synergies decreased during the latter part of the relationship and divergences of interest grew. The group and TBWA terminated the partnership on “fairly amicable terms” after Rizkgroup explored new affiliation opportunities and found what they were looking for in the Havas Group. Havas, which has been in expansion mode since 2011, is in the second size tier of global communications conglomerates, one notch down from the quartet of mega groups WPP, Omnicom, Publicis and Interpublic which all commanded annual revenues above $7 billion in 2011, whereas the second tier raked in a mere $1.7 billion to $3.8 billion. 

Rizk said the fit of client typologies and locations with Havas is to its advantage. The current affiliation was devised to sell an equity stake of no more than 51 percent to Havas if both sides are satisfied with the development of the relationship in the coming two years. For the time being, the affiliation, which involves fees and profit sharing aspects that Rizk did not want to explain in any detail, gives Rizkgroup access to offices and creative teams of Havas and spans markets in central Asia, the Middle East, and North and East Africa. 

According to Rizk, the affiliation with Havas will allow the Lebanese group to service its clients in Qatar via the offices of its new partner. On this trajectory, Rizkgroup could become more active in places where TBWA’s presence excluded expansion under the previous partnership. This could also mean that Rizkgroup may find itself competing against TBWA in Gulf and Levant markets. 

Although Havas did not publish a statement to news media on its rationale and target of the affiliation with Rizkgroup, growth in emerging markets and in digital communications seems to be the fit that makes the Lebanese group interesting to the French conglomerate. 

While, according to Havas’ March 1 announcement of 2011 results, more than 50 percent of the group’s 1.65 billion euros in revenue ($2.2 billion) were from Europe and only about 16 percent from emerging markets, growth last year was weakest in France and other European markets and strongest in emerging markets, led by Latin America. Highlights of 2011 in terms of newly established units, network takeovers and acquisition of new clients by Havas did not mention the Middle East and Africa regions. 

“We are still true to our original position that we are a local company but we are bringing in an international company. When I say local it means we work our clients locally in every country we are in.” Rizk said, adding: “When you own 49 percent of the company you still care for profits, you still wake up early every day and work for your clients.”

Daou, who is one of two non-family shareholders in Rizkgroup, expects business logic and ambitions of expansion to determine the details of any equity sale and shareholding agreement. 

He said that the company’s business doubled in Lebanon in the past five years but all other growth originated from its international operations. He also said that the advertising market in Lebanon is unlikely to expand in the near future and that growth prospects lie abroad, including long-term growth of the client base in Syria. 

In Yemen, the group is maintaining and servicing its clients while anticipating new business to emerge possibly from next year on. Advertising markets in Sudan are poised for growth in the nearer term and Rizkgroup is looking at setting up a presence in the young Republic of South Sudan, along with mulling expansions into North African markets in Egypt, Libya or other countries. 

Another geography on which the group has set its risk-friendly sights is the Horn of Africa. This region entails the countries of Ethiopia, Djibouti, Eritrea, and Somalia. Apart from this, Rizkgroup is pursuing diversification of its capabilities in the rising public relations side of the regional communications industry by investing in and expanding the PR offerings to all offices in the network.  

“In the public relations work, the growth rate is especially excellent and we are forecasting 80 to 90 percent growth,” said Daou. “We are looking at transferring the PR service properly to our entire network, developing new revenue streams in all those offices.”

Thus, for the moment the Rizkgroup seems to have no intention pulling out of the highs stakes game — whether the payoffs continues will likely depends on how well they can keep track of the wild cards.