Look abroad to avoid an early bath

It’s a general perception that 2002 has been far from a boom year. From a stagnating US economy and Enron-style scandals to a shaky global stock market and weak British manufacturing sector, the economic news seems singularly negative.

And designers aren’t immune from the malaise. WPP Group chief executive Sir Martin Sorrell gloomily predicts a further two years of gradual ‘saucer or bath-shaped’ growth and a recovery dependent on the US economy. Redundancies across groups including Wolff Olins, Enterprise IG and Landor Associates, plus the demise of industry veterans like Rodney Fitch & Co seem to support these glum sentiments.

But in truth it’s been a mixed year for design groups. A tale of two economies is borne out by consultancies’ experience. Consumer-facing projects have brought home the bacon, while corporate clients’ budgets have been shrinking. Groups working in the retail sector, which continues to benefit from UK consumers’ unstoppable shopping spree, are particularly ebullient.

Williams Murray Hamm director Richard Williams says the group is in the midst of its ‘best year ever’. Williams attributes the consultancy’s success to a focus on creativity and says a lack of differentiation is a problem for many groups.

‘When the going gets tough designers tend to become subservient and chase after work. They can be bought on price. We don’t do that. We believe what we do is worth paying for,’ he says.

Wren & Rowe managing director Paul Foulkes-Arellano agrees that creative or strategic excellence is now a necessity. ‘Being mediocre or solid isn’t good enough any more. [But] entrepreneurial people who can be very creative or strategic are still in demand.’

And even within the more challenging business environments some groups are bucking the trend.

Lambie Nairn managing director Sharon Wheeler says broadcast clients are becoming more focused on budgets, the time involved in projects has decreased and clients are less likely to invest in ‘peripheral’ services like research.

Although the BBC remains a key client for the group, Wheeler says Lambie Nairn has thrived by broadening its skill set, restructuring and pursuing a ‘lateral’ and ‘aggressive’ new business drive in overseas markets.

‘There are fewer pitches and if we had just operated in the UK it would have been a difficult year for us,’ she says.

The rise in the importance of international clients is a view shared across disciplines. Wren & Rowe now secures 30 to 40 per cent of its work from overseas clients and Foulkes-Arellano says the UK market is ‘flooded’.

‘[Consultancies] should look at a more aggressive drive abroad. There is still work there,’ he says.

In what Wheeler terms a ‘buyers’ market’, her view is that only those groups able to ‘think laterally’ about where their growth is coming from will survive.

Land Design Studio creative director Peter Higgins echoes Wheeler with his advice for growth. Survival can only be ensured by broadening skill sets and thinking laterally about new business opportunities, he says.

Lottery funding, the mainstay of growth in this sector over the past four or five years, is drying up. A change in priorities means funding has been diverted from large capital projects to smaller initiatives.

‘As Lottery funds come to an end, [groups] need to look for work elsewhere. [Consultancies] need to turn interpretation into a commercial domain and maintain a mix of corporate and Lottery-based clients in order to grow,’ says Higgins.

Landor London managing director Charlie Wrench highlights the economic dichotomy. He says the packaging side of the group’s business has ‘hardly slowed’, but admits it has been a ‘very tough year’ for branding groups in general, with degrees of survival rather than growth being the order of the day. ‘It’s been a nightmare year for quite a few players. There are not that many big new projects. The launch of a new airline or telecoms brand are fewer and further between,’ says Wrench.

The Partners managing director Aziz Cami agrees. An upturn in ‘tactical, short term projects’ means ‘strategically oriented’ groups are having a ‘more difficult time’ than smaller consultancies.

Cami says groups will need to focus on key areas of expertise and strictly manage finances if they are to remain profitable.

‘[Consultancies that] continue to deliver creativity and service to existing clients and maintain rigorous control of costs and expenses can continue to make a profit,’ he says.

The need for tight financial management and a focus on costs is echoed across the industry.

Williams says ‘control of costs is absolutely essential’ and stresses ‘salary expectations’ need to be managed. Those companies ‘trading too close to the wind’ are unlikely to survive, he suggests.

Looking ahead, the general view of the industry’s future seems to be a pessimistic one. Wheeler foresees a ‘frugal’ year, Higgins says 2003 will be ‘as tough or tougher’ than 2002 and Williams is ‘not bullish’ about the industry’s prospects. Most agree with Sorrell that a turnaround is unlikely until mid-2004.

Yet all believe there are prospects for groups able to adapt. International markets offer opportunities for new business growth and it seems innovative, creative and well managed businesses are likely to be the winners in an environment which no longer allows a more lackadaisical style to prosper.