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Will regional agency hubs in APAC still exist in a post-coronavirus world?

The Drum 19 May 2020 02:30
Agency presence in any market has always been driven by client demand.

As ad spend is squeezed globally, agencies are having to run redundancy and furlough schemes but in Asia Pacific, it's the hubs that could be hit the hardest.

As the economic impact of the pandemic is realised, one of the areas to be cut first is the multiple layers of management and coordination, which some believe led to bloating inside major holding groups.

As many businesses move to a model of having global brand platforms that are implemented locally, agencies are being pressured to remove operational duplication.

It was revealed late last month (30 April) that Omnicom Group’s BBDO is closing its office in Malaysia as it prepares to exit the market over the next three months. The move will affect 21 staff. The creative agency is also reducing its Hong Kong presence to a small regional team that will concentrate on Beijing and Shanghai in Greater China.

As the pandemic further squeezes the marketing industry and travel is limited, the relevance of hubs, such as Singapore and Hong Kong, is being questioned.

India is the one exception to this, and as such agencies will also continue to hold and look to grow their presence. She believes Hong Kong will continue to be seen as a gateway to China by European or American headquartered agencies looking to access China, but those that are confident will increasingly jump straight to just having a Shanghai, Beijing or even Shenzhen presence.

“Agencies are increasingly embracing Thailand as a potential creative hub due to the quality of creative international talent, whilst India, Philippines and Myanmar are the countries that we hear most regularly cited for building hubs in marketing technology implementation and analytics.”

He says a few years ago, the marketing management consultancy assessed hub locations in SEA for a client and based on considerations such as cost of living, ease of transport, talent accessibility and government regulations, Malaysia, Thailand and the Philippines offered better options than the traditional hubs they were considering.

Meanwhile, Stuart McLennan, senior vice president for APAC at Rakuten Advertising points out agency presence in any market has always been driven by client demand.

“For example, during the Huawei APAC media pitch in 2019, there was a requirement to base a significant portion of agency staff in Malaysia to be close to the Huawei regional HQ.”

He argues that for specialist capabilities especially, it makes sense to be able to provide clients around the region with talent and capabilities that may not be available in all markets.

“This strategy favours hubs in cities with a multi-cultural talent base, such as Singapore and Shanghai, as well as in large domestic markets where local talent is essential, for example, Tokyo.”

Singapore will enter into a recession this year because of the blow from the pandemic, resulting in job losses and lower wages, with “significant uncertainty” over how long and intense the downturn will be.

Singapore’s current financial situation is on par with the pressures that are impacting the whole world. For Hong Kong, an added factor is that China is upgrading the infrastructure and technology in Shenzhen to reduce its reliance on Hong Kong. In both cities, the cost of living is a real factor for talent.

This means there will not be a short-to-medium-term change in where agencies choose to base their regional hub teams.

“Holding companies had already become overly complex and too slow to react to changing consumer and client demands, so I doubt this would have impacted decision making around future hubs. The location of future hubs will be dictated by changing demands of clients, the core revenue base of any regional holding company hub.”

Agreeing, Marsden points out some agencies have had some strong trading during the immediate months of the global pandemic in March and April as the need for reactive work added to committed spend.

In the shorter term, she predicts wage-based subsidies are particularly helpful for the agency model, given that between 55-75% of costs are typically on talent, but undoubtedly there will come a crunch when subsidies end.

“Businesses will be attracted to the economies that are rebuilding fastest and where government support is best - and Singapore may be a good example of both of these things.”

“We believe in following a talent-first strategy in looking at where hubs should be built and launched. For example, Sydney is a hotbed for design talent so it makes sense for us to have a brand and design hub in Sydney,” he explains.

With predictions of borders not opening for another 6-12 months at least post Covid-19, Woolley points out one of the benefits of no travel for regional teams is the amount of time and cost of savings, as both marketers and agencies embrace video conferencing tools like Zoom.

“When borders reopen, we will all be very skilled at communicating virtually. This could increase the number of possible hub locations, as currently, the main ones are also the ones with the best flight access, including Singapore, Shanghai, Hong Kong etc,” he explains.

"India and the Philippines are attractive from a cost point of view. Singapore has strengths as a regional client consulting centre, with strong strategic talent. I don’t see China being a hub that serves other countries, given the uniqueness of its ecosystem," he explains.

Agency APAC hubs post Covid-19

“There was an existing need for many of the traditional agencies to shift, and the pandemic has highlighted the existing need. Who emerges triumphant will be both sector-specific and client portfolio dependent,” explains Marsden.

With marketers demanding more and agencies work with less revenue, even before Covid-19, Woolley says marketers will be looking to do more with even lesser revenue now.

“Having duplication across a multitude of markets does not make sense if you can hub core talent and infrastructure and run service offices in each of the markets where your clients are operating from,” he explains.

Taking an optimistic view, Laura Quigley, the managing director for SEA at Integral Ad Science says holding groups have a long track record of navigating successfully through uncertain economic periods due to the strength of their talent and operating models.

"There will be great learnings for the post-pandemic world and we have already seen the importance of creativity and innovation during the pandemic. Businesses that have been able to come up with ways to deliver services virtually (like many healthcare providers have done) or quickly shift to new products (like Mercedes F1 that have shifted from making racing cars to innovative breathing aids) have been able to better weather the storm," she explains.

She adds: "Lifelong and virtual learning will become the way forward and today, it doesn’t require years of study or hefty loans to build up your skillset to be prepared for a post-coronavirus world. There are endless free and open online courses available that will help you improve your skills."

The former media and performance lead for operational excellence at Dentsu Aegis Network points out these businesses were already facing incredible challenges to their existing business model prior to Covid-19, but the current situation will be accelerating the demise of the holding group in their current format.

APAC has always presented the agency model with challenges, thanks to fragmentation and vastly different opportunities for scale in each market. But the businesses that can play this to their advantage and use local talent in agile ways will not only survive, but thrive.

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