ET BureauWPP group CEO Sir Martin Sorrell spoke to Shephali Bhatt in Cannes on the impact of Brexit, prospects in the Indian market, and de-risking the business amidst the current scenario. Excerpts:
Did you anticipate Brexit will be voted in?
I forecast 53:47 and I was wrong. Our TNS (Taylor Nelson Sofres — market research and information firm) poll forecast said that 41will remain, 43 will leave, and 16 will be undecided. It seems they got it exactly right because the undecided were split equally
Do you think it’s going to vastly impact the world economy?
Do I think we’re going into recession? No. Do I think certain markets will go into recession? Yes. Russia, for instance. Brazil has gone into recession even before Brexit. Growth will slow a bit, but it’s already slowed to 3.5%. Inflation is virtually non-existent. There’s lack of pricing power, therefore more focus on cost. That makes it very difficult for our clients. Brexit is going to make it more difficult. Uncertainty is the enemy of growth.
How does it affect WPP directly and how do you plan to de-risk your business now?
Ironically, sterling falling means our reported revenues and profits rise because 90% of our business is in markets outside the UK. We don’t have currency exposure across borders so no immediate concerns other than the fact that value of the company in dollars falls. It fell in sterling as well but more so in dollars. We are poorer as a result, well, I certainly am, on paper. But the actual reported profits and revenues of the company rise. That’s in the short term.
In the longer term, four big markets in our top 10 are in Europe: Germany is 4, France is 6, Italy is 9, and Spain is 10. It means we have to put more focus on these markets. That’s the irony of all this. The UK may be coming out of Europe but we have to get further into Europe. We will escalate our activities in those markets. Horizontality, which is our key strategy, becomes more important. Ironically you have to get people to work together not in isolation.
How is India doing vis-a-vis the other fast-growth markets for WPP?
Among the fast-growth markets — BRICS — India remains a stellar market for us. Brazil is having a tough time. Russia is having a tough time. China is slowing, but India remains stellar. We will cross $600 million in revenue this year as opposed to $500 million last year. I am quite pleased and proud of that.
At what stage do you see India holding itself at the same level of employee productivity and margins as WPP’s top five markets?
It will take time. At the moment we have 15,000 people generating $600 million of revenue. In the top markets you find a smaller number of people generating the same and more. If I look at Germany for example, our third largest market, it’s $1.6 billion for 8,000 people. It’s a function of smaller size, labour intensity is greater. Also, Germany’s economy is double the size of India’s.
So, it’s going to take time. Right now, India is the second most populous country in the world. Soon, it’ll be the most populous. India will be a fair way behind the US, so will China. But on an absolute GDP growth — China will be No.1, the US second, and India – third.
How are you dealing with the slowdown?
You have no choice but to be calm. You have to stiffen your upper lip, put a tin hat on, and deal with it. Unless you resign like the Prime Minister. If I were an advisor to the Prime Minister and he said to me that I have to resign, I would have told him: “Can’t you wait until the weekend? Just think about it and do it Monday morning. Then you can make up your mind – we’ll prepare the announcement one way or the other.” But I thought it was a bit too hasty. I mean I understand the emotional bit but it almost indicates he wanted to go. Especially when you think about the fact that he said he wasn’t going to seek a third term.
Did you anticipate Brexit will be voted in?
I forecast 53:47 and I was wrong. Our TNS (Taylor Nelson Sofres — market research and information firm) poll forecast said that 41will remain, 43 will leave, and 16 will be undecided. It seems they got it exactly right because the undecided were split equally
Do you think it’s going to vastly impact the world economy?
Do I think we’re going into recession? No. Do I think certain markets will go into recession? Yes. Russia, for instance. Brazil has gone into recession even before Brexit. Growth will slow a bit, but it’s already slowed to 3.5%. Inflation is virtually non-existent. There’s lack of pricing power, therefore more focus on cost. That makes it very difficult for our clients. Brexit is going to make it more difficult. Uncertainty is the enemy of growth.
How does it affect WPP directly and how do you plan to de-risk your business now?
Ironically, sterling falling means our reported revenues and profits rise because 90% of our business is in markets outside the UK. We don’t have currency exposure across borders so no immediate concerns other than the fact that value of the company in dollars falls. It fell in sterling as well but more so in dollars. We are poorer as a result, well, I certainly am, on paper. But the actual reported profits and revenues of the company rise. That’s in the short term.
In the longer term, four big markets in our top 10 are in Europe: Germany is 4, France is 6, Italy is 9, and Spain is 10. It means we have to put more focus on these markets. That’s the irony of all this. The UK may be coming out of Europe but we have to get further into Europe. We will escalate our activities in those markets. Horizontality, which is our key strategy, becomes more important. Ironically you have to get people to work together not in isolation.
How is India doing vis-a-vis the other fast-growth markets for WPP?
Among the fast-growth markets — BRICS — India remains a stellar market for us. Brazil is having a tough time. Russia is having a tough time. China is slowing, but India remains stellar. We will cross $600 million in revenue this year as opposed to $500 million last year. I am quite pleased and proud of that.
At what stage do you see India holding itself at the same level of employee productivity and margins as WPP’s top five markets?
It will take time. At the moment we have 15,000 people generating $600 million of revenue. In the top markets you find a smaller number of people generating the same and more. If I look at Germany for example, our third largest market, it’s $1.6 billion for 8,000 people. It’s a function of smaller size, labour intensity is greater. Also, Germany’s economy is double the size of India’s.
So, it’s going to take time. Right now, India is the second most populous country in the world. Soon, it’ll be the most populous. India will be a fair way behind the US, so will China. But on an absolute GDP growth — China will be No.1, the US second, and India – third.
How are you dealing with the slowdown?
You have no choice but to be calm. You have to stiffen your upper lip, put a tin hat on, and deal with it. Unless you resign like the Prime Minister. If I were an advisor to the Prime Minister and he said to me that I have to resign, I would have told him: “Can’t you wait until the weekend? Just think about it and do it Monday morning. Then you can make up your mind – we’ll prepare the announcement one way or the other.” But I thought it was a bit too hasty. I mean I understand the emotional bit but it almost indicates he wanted to go. Especially when you think about the fact that he said he wasn’t going to seek a third term.
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