The reason for their interest is simple: India, with its 1 billion citizens, growing middle class, and exploding economy has a potential matched only by China. The country's $2.7 billion ad biz is growing at 13% annually. There are 250-odd TV channels, up from 100 five years ago, while scores of new newspapers, magazines, and Web sites present fresh opportunities. "These are exciting times for the Indian ad industry," says Meenakshi Madhvani, partner with Spatial Access Solutions, a Bombay media consultancy.
Indian companies are taking increasing advantage of those new outlets. Conglomerates such as Reliance, Tata, and Bharti are spending more to buff their images and get their products noticed. And sectors that barely existed a few years ago -- telecommunications, retail, and financial services -- are booming. Telecom alone accounts for 7% of India's domestic ad spending, up from half that two years ago, and financial services account for 5%, up from 3% in 2003. "The growth of Indian multinationals is heartening," says Martin Sorrell, chairman of WPP Group PLC (). "They are the companies of the future."
Dealmaking is certainly picking up. The latest agreement closed on Nov. 22, when France's Publicis Groupe () took a 60% stake in Delhi-based Solutions Integrated Marketing Services, which does promotions and market research. "Their quality of people is fantastic, our marketing services business is growing fast worldwide, and Solutions will help us grow in India and in Southeast Asia," says Publicis Chairman Maurice Levy. In October, Omnicom Group Inc. () entered into an alliance with Bombay-based Hungama, a Web site that does marketing via games, contests, quizzes, and more. Omnicom is now scouting for a direct-marketing business as well.
Another area multinationals are looking into is public relations. Since 2001, WPP's Burson-Marsteller has had an alliance with Genesis, a 180-person PR firm based in Delhi. Now the others are looking for local PR partners too, says Prema Sagar, CEO of Genesis, though the agencies wouldn't confirm such talks. The big players "begin with a tieup, and with increasing comfort, that gradually results in equity investment and a final sellout," Sagar says.RACE TO DIVERSIFY
The move by global giants into sidelines lets them offer more services to clients -- and boost profits. Traditionally, Indian agencies survived on a 15% commission for both dreaming up ad campaigns and placing the spots in publications and on the air. But that is changing in India and elsewhere as margins have fallen as low as 8% in recent years. Services such as PR and market research are usually purchased à la carte, rather than as a percentage of commission, and offer margins as high as 20%. "The way to grow is building up your client base by offering them a range of activities," says Shashi Sinha, executive director of FCB-Ulka, an ad agency owned by Interpublic ().
And in that, India lags behind most developed markets. Worldwide, ancillary services account for 54% of WPP's sales, but in India they're only 33%, though the company hopes to expand that to 44% within five years. At Publicis, non-ad business represents 22% of revenues, but in India that figure is next to nothing, though the Solutions acquisition will lift it to about 15%. As Publicis buys more marketing-related shops, that portion should grow to 25% by 2010, says Ashok Kurien, chairman of Publicis India. "Communication is incomplete without integrating marketing services into advertising," Kurien says. "That's why we are looking at more such businesses." So don't expect the deal flow to dry up anytime soon. By Nandini Lakshman