JWT MENA works with powerhouse clients such as Nokia, HSBC, Unilever and Nestle. A founding father of the regional industry, JWT Chairman Roy Haddad sat down with Executive to tell us which sectors he will be looking to for future profits.

• Which sectors will be upping their spending in 2011?

It’s not about upping or downing. It’s about market dynamics. We all live by the market dynamics. Take the car industry, which was doing very badly in 2008, 2009 and 2010. If there is a recovery the car industry will go up again. There isn’t a formula for that. The financial services sector is growing because it was quite immature before and now it is reaching maturity. Telecoms will continue because it is still a competitive environment, but you can never predetermine.

• The spend per capita in the region is lower than in other markets. Why is that? Do you think there is any sign that this is changing?

Volatility might be one reason; it is still quite a volatile region. In the [Gulf Cooperation Council], the spend is at the right level. It is the rest [of the region] that brings it down. When you do the [Middle East and North Africa] average it goes down. But the [United Arab Emirates] spend is very high. Kuwait is very high per capita.

Marketing works best in the long-term. You invest to buy 10 years down the road. In the Arab world, very few will dare to have an outlook 10 years down the road, Egypt being a perfect example of that.

• Do you think that the idea of advertising and brand building as an investment is well understood?

It is picking up a lot. I think there is a belief in that more and more now and I think it will continue. Markets live through maturity stages. We all forget that the Middle East as we know it today came to be in the 1970s. We have 60 years of catching up to do. There is a lot of catching up to do [regarding] the maturity of people appreciating advertising and how they can use it for their own business interests and use it as an investment. From my point of view, we have caught up quite quickly.

• Do you think the Middle East is considered a growth market right now for multinational companies?

Let’s define the Middle East. If you talk about the MENA region, there are 350 million consumers in this region. There is no doubt that the [gross domestic product] growth is around 4 to 4.5 percent year-on-year, which means that these markets are growing. There are very few markets around the world that grow at this healthy rate. Europe is coming into the recovery, but very slowly, so the Middle East is of interest to anyone who is looking for growth — but, against that interest there is always this volatility factor.

• What happened to the local clientele in the UAE, many of whom dropped their entire advertising budgets at the onset of the crisis?

We didn’t witness this kind of phenomenon ourselves, even though I would say that our portfolio is split 60 percent local, 40 percent multinational. Any serious player will understand that it’s not a haphazard kind of activity. Successful marketing has to be sustainable. And serious players will sustain their presence.

• What reaction to the crisis did you see?

The whole investment level dropped between 80 and 90 percent, which started slowly but surely to pick up in 2010. 2011 looked good, until the Tunisian and the Egyptian crises came in. But I think in the long term we have a young population that is coming to the consumer market. [The region is] growing in wealth and there is no reason why the ad industry should not follow.

“The Middle East is of interest to anyone who is looking for growth”

There is a special bathtub in Dubai. You find it in a place that could compete for the honor of being the spiffiest office in the Arab world’s most posh business quarter — but this plain bathtub’s absolute simplicity is antithetical to any luxury. Its host is visibly proud of it, because it is, of course, a symbol.

Its belongs to Ramzi Raad, chairman and chief executive officer of the agency TBWA Raad. Being one of the Middle East’s advertising fathers and a steward for 43 years of the regional industry’s narrative, he fondly explains the bathtub’s raison d’être as a reminder that creativity, even when under monumental pressures, sometimes requires one to step out and relax. As a gift of TBWA Worldwide, the tub also has other implications. Here on the sixth floor of this Dubai advertising hub it is a reminder of how the regional advertising agencies are anchored to global corporations.

This question of ownership is on a lot of industry minds these days, following the onset of a global takeover through which the big multinational advertising groups are cementing control of regional agencies.

As Raad tells it, ownership of the regional agencies follows a straightforward logic. “Today, most of us have become majority-owned by the multinationals,” long-established agencies that command the rules of the game, he says. “They allow you the privilege of having majority at the beginning but then the roles are reversed because it is part of their global policy. They own the work that they want you to develop. It is their brand that you are operating under and so on. It’s a fair deal at the end of the day.”

Fair as it may be, Raad has misgivings regarding multinationals’ record in the slow delivering of, and low investment in, nurturing local talent. For the future, however, he and other heads of regional agencies share much optimism on the rise of regional talent, as evidenced by the industry accolades won in recent years outside the region.  

As Chuck Brymer, president and CEO of DDB Worldwide Communications, tells Executive, “the creative product here in the Middle East is good but I think it’s going to get a lot better. We’re investing in our people, in cross-pollination and in training.”

The global aspirations of Middle East and North African firms, while in deference to the obligations toward the holding companies, actually seem to exceed what is easily granted by the multinationals.

“I want this whole network to feel as part of one family, and I’d like to build collaboration between our agency and [our international partner] agencies,” exclaims Tarek Miknas, CEO of creative agency Fortune Promoseven. In his perception of the work in the Middle East, “I think that the state of the entire industry right now is a level playing field and we could come up with the greatest innovation, greatest work, and we could challenge the rest of the globe by doing greater things than they can do.”

One area in which the presence of the multinationals has contributed to improvements in the region is in transparency.

Many industry representatives (off the record, naturally) have told Executive that “grey” areas of financial misconduct — read ‘forgetting’ to tell clients about discounts the agencies received from media as volume rebates, faking invoices, fraudulent accounting, illicit kickbacks and bribery, etc. — persisted in the darker annals of MENA advertising. Several agency leaders who sat down with Executive openly compared the industry with prostitution, if only in jest.  

But this wickedness is on the way out, they say, in large part due to the global stakeholders who are pushing transparency into the system because of financial and reputational risk.

Still, transparency is a term that a high number of industry leaders tell Executive is overused and has been abused. “I had to smile when you used this word,” was the comment of more than one agency manager during our research.

In terms of the perception of the industry, transparency is required in any agency-client relationship and profits the enterprise in its interaction with market partners. You cannot own 100 percent of the market, says Pierre Choueiri, CEO of Choueiri Group. “That doesn’t exist. You gain whatever you deserve by how serious you are, how transparent you are and how devoted to your media. This is how you gain your market share.”

Given that these monumental improvements were made essentially under pressure from the parent companies, it begs the question of whether such reforms and progress could be made on a local level. For this to occur, strong and disciplined leadership is a must. Especially so in an industry that values its own integrity, sophistication and creativity as its prime assets — but whose reputation is at the same time tarnished by perceptions of being a primal trade of cheap favors.

Mohan Nambiar, CEO of MEC MENA, says, “We should not be blaming the industry if we cannot add any value into it. The only way you can blame it is if you don’t want to lead it. People who want to lead it have to make it change.”

Executive talked with Ramzi Raad, group chairman and chief executive officer of TBWA Raad, about stake holding by multinational groups, succession and new creative hubs.

• What does the acquisition by global agencies mean for Lebanese advertising entrepreneurs in this region?

When I went into partnership with TBWA in 2000 they were very clear and said ‘we want to run agencies that we have majority stake in. If we don’t agree to that at this stage, it has to be gradual.’ [Eventually], Omnicom [majority owners of TBWA] wants full ownership wherever they go.

They allow you the privilege of having majority at the beginning but then the roles are reversed because it is part of their global policy. They own the work that they want you to develop. It is their brand that you are operating under and so on. It’s a fair deal at the end of the day.

• What is the trade-off for you? What is the down and upside of giving up ownership?

It is a global game and these are the rules… Multinationals now own the whole communications industry. It is not only advertising — it is PR, relationship marketing, everything. You have options to remain independent. Independents are brilliant and growing but even the independents are catching a price and they are happy to sell.

• What is in it for you?

It all depends on your age and what your aspirations in life are. From the beginning I said, even if I sell, by the totality of my stay I would like to have reached an active role in the management of TBWA Global and I keep striving toward that goal. If I don’t [achieve] it myself, I hope that one of my people will be able to do that. Because I know that we have enough talent, I know that we can play a valuable, active role.

• As multinationals are increasing their stakes in the Middle East’s advertising industry, what will happen to its founders?

We did not see any of the multinationals send in an expat to manage a Middle Eastern group in the top position yet. Sooner or later this might happen. I answer the question in relation to myself. I know that I sooner or later will have to retire to let the younger generation take over. They need to do that. [However,] I don’t want to rest at this stage.

• Does it keep you young to be in the fast-changing industry of advertising?

Surely. My wealth is not the success story; it is the campaigns that I have done. I love to talk about them and overhear the clients talking about all the successes and the campaigns that [I] have done. 

• [The company’s new motto is ‘Disruption’.] How good is disruption and how disruptive is good?

It has worked. We adapted that concept here and tried to make a difference in the Middle East. We are being successful in that. You can’t say that all you need is disruption but we are very convinced that disruption is helping. You can’t be rigid in a world of communication like ours, where everything is changing, you have to continue changing.

• How will your new creative hub in Abu Dhabi fit with this?

Four years ago, the government of Abu Dhabi made a commitment that it wanted to modernize and started launching a lot of projects. Those projects needed support. We had Etihad [Airlines] as a client; they were a door opener to the government departments and we picked up a lot of business. With a surge in business in Abu Dhabi, we felt that [it] deserves to have high-caliber creative talent. The fact that we had super-creative directors managing the Etihad business for the past four or five years, proved that it is worth the investment.

“My wealth is not the success story; it is the campaigns that I have done”

Edmond Moutran is chairman and chief executive officer of Memac Ogilvy for the Middle East and North Africa. Considered one of the godfathers of the regional advertising industry, he sat down with Executive to discuss its future.

• Are there any drawbacks to falling under the jurisdiction of international conglomerates such as WPP?

One example would be the situation where the international agency wants to run a world-wide campaign for a brand that will not be coherent with our market. It hasn’t happened with Ogilvy, but it has happened before with other agencies I have worked with; somebody in London or New York says ‘this is a worldwide campaign,’ you look at it and know that this is not going to work in the Arab world. I would not allow my client to waste money on a campaign that is not designed to succeed in this region because it’s not going to work. I have had some very heated arguments with some of the biggest, toughest agencies in the world because they tried to impose campaigns on the Middle East.

So yes, there are disadvantages. If you’re looking after a client and you have a great relationship and they take on a similar client somewhere else in the world — a big one — and you have to drop this small client because your head office has taken on a client with similar interests and they require exclusivity, that is a drawback.

But, to have an international name is vital for two reasons. First, clients like it. Second, young people like it. Young people coming out of universities want to work for the Leo Burnetts, the JWTs, the BBDOs. They don’t want to work for a small agency that’s not associated with an international one — it’s not sexy.

• In the last 10 years we have seen an increased financial stake from the international names in the regional agencies. What do you say to people who don’t want to see you sell your shares?

This is a very interesting conversation — especially [given] the timing. I am on the verge of selling majority. It’s how you sell and it’s how involved you remain [that matters]. Today you have four giants in the world. Luckily for us, WPP is the biggest. That gives us clout. These companies will probably, within the next 10 years, own 90 percent of the [advertising] business in the world. These are huge companies that look after huge clients, which demand that these conglomerates have control. Why? The laws are changing. You have all sorts of regulations that these companies have to commit to the client that we will abide by worldwide. And then you come to a very important and vibrant place like the Middle East and these companies do not control the local companies. That is no longer acceptable to the international clients.

• So now is the right time?

It’s not a matter of selling at the right time. [The international agencies] are under tremendous pressure. It is my understanding of that that made me accept to discuss giving Ogilvy the majority… I must allow my friends that I have served for 37 years to benefit from our success because without them I wouldn’t have had the success. Life is give and take. You can’t just take, take, take and then when your international friends need you you’re not there to give. This is not the Arab way of doing things.

This is why all of us — my generation — have discussed and agreed to sell majority.

There will be a lot more control. A lot more changes [will be] coming up, because all of a sudden it will be exactly the way [the international agencies] would like it, whether I like it or not… I honestly don’t think a network without an international name can survive, not against all the internationals.

“[Four] companies will probably, within the next 10 years, own 90 percent of the [advertising] business in the world”

The global advertising industry had what public relations writers might call a “stellar year.”  Nothing astral or astrophysical was involved, but the industry leaders’ 2010 results broadly outperformed expectations, validating the ad sector’s recovery from the tough year of 2009, which saw global ad spend contract by about $50 billion.

WPP, Omnicom, Publicis and Interpublic, the quartet of holding companies with the leading stakes in advertising both globally and in the Middle East and North Africa, have all gained according to key performance parameters (see results box) as the global advertising market last year increased 4.9 percent to an adspend of $450 billion, according to estimates by media agency ZenithOptimedia.

ZenithOptimedia, which is part of the Publicis Group, predicts in its current Advertising Expenditures Forecast that global advertising will reach $470 billion this year and exceed $520 billion in 2013. A similar research report by WPP-member company, GroupM, predicted in December that measured advertising expenditure worldwide will break the $500 billion mark in 2011. Advertisers in the Middle East confirm that the sector has rebounded across the region from the beating it took following the economic crisis of 2008 — which came at a time when the regional advertising industry was actually at the tail end of an overheating phase of nearly three years, during which expanding client demand had been driving agencies to fill staff positions with minimal considerations of long-term viability.

“When you grow that fast, you tend to stumble a little bit and make a few mistakes,” explained Tarek Miknas, chief executive officer of agency Fortune Promoseven. “You hire very quickly, you fill gaps very quickly, you need to run off to the next big thing.”

Cleansed by the crisis

The pendulum swung the other way in 2009, as the fallout of the economic crisis was reflected in global and regional advertisers’ slashed budgets. adspend took a dive across the Gulf Cooperation Council as things deteriorated to the point of wiping out the spending power of some real estate developers in Dubai. Sources in the industry told Executive that several agencies are still waiting for settlement of their accounts by certain developers.

Agencies had to restructure, said Dani Richa, CEO of Impact BBDO MENA, and agencies shifted staff to offices with growth, making 2009 “the rationalization and restructuring year.” During separate interviews at the MENA Cristal Festival in Lebanon in February, Richa and Miknas both confirmed that the industry saw layoffs and cost-cutting in 2009.

As Miknas described it, rationalization was a positive transformational step for the advertising sector. “You start thinking, how can I stretch my dollar the furthest? What is available for me to exploit and keep my margins healthy?” he said. Hiring decisions are today taken under less pressure, he added, “but we retain our best talent and are constantly trolling for the best you can get. Probably all agencies are.” According to Richa, the turnaround was swift, noting 2010 was a “good year.”

“We have gained new business and Dubai is bouncing back beautifully,” he said.

Dubai-based decision makers in the regional advertising industry share the view that the industry has experienced an important learning curve. Mohan Nambiar, CEO of MEC MENA, told Executive that managerial prudence suffered during the boom years but has returned. “I think we have all learned bitter lessons,” he said. “A lot of checks that were supposed to have been done were not done because we were all busy accumulating volume. There won’t be a repeat performance because we all learned from it.”

According to agency leaders and media rep companies, the rebound of 2010 has shown that advertising in the Middle East has become a resilient industry. 

However, the bottom line performance of the ad companies across the region cannot be easily gauged, at least not directly. Any local firm affiliated with one of the global advertising communications groups — and that is almost any firm of regional weight — is firmly committed to a “don’t-ask don’t-tell” approach with the public when it comes to actual advertising spend and industry performance in the region.

Global advertising industry growth projections by ZenithOptimedia say that the adspend in the Middle East over a five-year span will be part of a 24 percent increase across a collection of advertising markets. This respectable total increase, according to the research publication, will outperform increases of adspend in developed markets over the same period by between 14 and 19 percentage points.

Murky figures

One should note, however, that the adspend in the Middle East is based on gross estimates and not adjusted for inflation. Rather than being a Middle East and North Africa projection, the forecasted 24 percent spend increase is, moreover, for a potpourri of markets that include, beyond Arab MENA, Israel and 22 countries as socially diverse and as geographically distant as Luxembourg, Zimbabwe, Iceland and Myanmar.

From a local forecasting perspective for the MENA region, this grouping does not lend itself to what can be considered a meaningful frame of projections.

Regional forecasts for the Middle East — aside from having to be considered in light of economic and security risks related to the region’s latest experiences with popular political demands — are not as strong as ZenithOptimedia’s advertising growth forecasts for Latin America (26 percent), Central and Eastern Europe (31 percent) and Asia (36 percent — excluding Japan). By this projection, all regions other than developed markets are expected to best Middle Eastern growth in the next three years. 

But this does not mean the growth in Arab markets will be something to scoff at if companies here make things happen. Philip Jabbour, Starcom MediaVest MENA CEO, told Executive: “We are a service industry. Apart from always trying to invest in improving quality and getting more measurability, if we collectively focus on being able to drive value — offering a service and being remunerated for that — rather than making this a commodities business, then the industry will flourish.”