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Public relations firms expand abroad as clients seek worldwide service.

Multinational. Global. Pan-European. They are the buzzwords of the 1980s, words that have joined "leading, largest, oldest and best" on the list of adjectives that public relations executives labor mightily to get attached to their clients' names in the public's mind.

Now the agencies, following the lead of their colleagues in advertising, are working the same magic on themselves. All but the tiniest and most specialized are trying to persuade clients-and the press- that they need not go beyond their "local" agency to get their worldwide communications needs served.

"It is turning into a global shootout," said james E. Arnold, president of the Chester Burger Company, a New York public relations consulting firm. "Even when the profits aren't there, no one wants to be seen as pulling back. Instead, everyone is advancing the flag, and growth is the name of the game."

Indeed, large American agencies like Hill and Knowlton Inc. and Burson-Marsteller Inc. are marching across the globe, opening offices in places that once seemed barely worth a business trip. Britain's Shandwick, plc., is buying smaller agencies throughout the continents. Medium-sized firms that used to be perfectly happy being the "best" agency in, say, Minneapolis, are banding together in worldwide networks like the Pinnacle Group, PR Exchange and the Worldcom Group. And even more formal networks are emerging, in which members buy equity in each other's firms as well as service each other's clients.

Each agency is certain its strategy is correct-and readily criticizes the others. But on one thing they agree: The global path is necessary for survival.

"Everyone realizes now that they have to be part of an international structure, because the big agencies are getting bigger and the small ones are disappearing," said Edward M. Stanton, chief executive of MSL Worldwide, D'Arcy Benton & Bowles's public relations arm, which does about $27 million annually in net fee income-the term the industry uses to describe billings less out-of-pocket reimbursements.

It is a high-risk, high-stakes game. On the upside is the huge potential for profits. Corporate clients, once content with a listing on the New York Stock Exchange, are increasingly trading on London, Tokyo and other exchanges, requiring simultaneous release of information, often with different rules governing what the information must be. Those same clients are opening plants and sales offices overseas, and using public relations agencies as an advance guard for product publicity and government and employee relations work.

Moreover, the advent of a commercially unified Europe in 1992 has created a feeding frenzy among American multinationals eager to be viewed as pan-European players. And European and Asian companies have grown far more attuned to public relations, opening a tasty market for agencies hungering to expand. Claudio Belli, the head of Hill and Knowlton international, predicts that by 1991, European companies will be spending $3 billion a year on public relations, triple their level now. While that still does not approach the $9.5 billion that American companies currently spend on public relations, it is nothing to sneeze at.

Corporate mergers and joint ventures also are crossing national borders-witness the takeover of Pillsbury, Inc. by Britain's Grand Metropolitan plc., or the appliance joint venture between the Whirlpool Corporation and the Netherlands' Philips N.V. Such marriages also require press, government and investor relations work in several countries.

Technology, meanwhile, has made international communications easier to handle. Satellites and computer networks have enabled the media to aggressively cover international news-and those same technologies, combined with facsimile machines and electronic mail, have helped agencies feed information simultaneously around the globe.

The Bad News

But the downside is considerable. Cultures, regulations, media practices and government relations all differ from country to country, and public relations methods-aggressively pitching stories or chasing clients, for example-that can work in New York can fall flat in Japan or Europe. And the more far-flung an agency gets, the harder it is to coordinate service and control quality.

Wooing clients is getting harder, too. European patriotism is often such that local business executives-even those working for American-based companies-will give their account to a compatriot, even if an American agency offers more services. The competition has heated up stateside for the opposite reason. Foreign agencies-particularly British ones like Shandwick and Dewe Rogerson, London's largest financial public relations firm-are setting up shop in the United States, pursuing American clients who, unlike their European counterparts, have little history of nationalistic loyalty.

Still, the large agencies are barreling ahead. Most will privately admit to carrying money-losing overseas offices that they would close if they were domestic. They have no choice. Public relations, like advertising, is a world where clients readily dump an agency for another than can better meet their needs. So as their clients move overseas, the agencies have to move with them-or lose them.

"You're soon going to see an increasing polarization with maybe 10 mega-agencies with international presence, and a few niche companies run by die-hard entrepreneurs," predicted Paul Holmes, editor of Relate, a public relations supplement to Ad Week's Marketing Week. "For anyone outside of these firms, there will be very little growth."

Most public relations executives agree with that assessment. There is no similar agreement on strategies, though. Agencies continue to debate the pros and cons of buying existing overseas agencies, starting their own or setting up affiliations.

Not surprisingly, proponents of each view insist they have found the magical course.

Weighing the Risks

"We start our own offices because it's cheaper, and because we want all of our people steeped in the Burson culture," said James H. Dowling, chief executive of Burson-Marsteller, Young & Rubicam's $149 million public relations arm.

Far too risky, counters Charles Jones, the chief executive of Shandwick N.A., the British parent's Connecticut-based subsidiary. "There's a lot of risk in opening a new office in a big city without local client support," he said. "By buying a firm that has a strong market presence, you are buying a high probability of success."

Some agency heads buy both arguments, and are looking to a hybrid strategy that combines ownership, independence and uniformity of style.

Yurg Leipziger, head of Leipziger Partner, Germany's largest independent public relations firm, is taking small equity positions in agencies in other countries, and forming joint ventures with still others.

But he has a hard and fast rule: Anyone who runs one of his joint ventures must spend nearly two years working at his Frankfurt company and learning the Leipziger ropes. "That is where the Shandwick system falls down," he said. "The point is not to own all these agencies. The point is to bring them under one philosophy and make them run well."

That concept is catching on in the United States, too. In the early 1980's, MSL Worldwide hooked up with about 25 companies in as many countries, with each network member remaining independent but promising to service each other's clients.

It did not work. "If you don't have any ownership, you can't impose quality control," said Mr. Stanton, MSL's chief executive. MSL now owns part of agencies throughout Europe and Australia. And this year it moved Kay Berger, an American, to Europe to comb the continent for new equity partners, as well as to visit the offices to "help them learn the style of American public relations," as Mr. Stanton put it. Peter Mahon, an Australian, has been charged with building up MSL's equity positions in Southeast Asia.

MSL has been greatly helped by its parent's deep pockets. Similar-sized independent firms rarely have the wherewithal to expand on their own. For them, the independent network concept, despite its built-in problems, remains the only option. Network members insist their strategy is one of choice, not default. "Our independent companies are operating in markets they grew upon, that they know really well and that they are personally committed to," said Andrew S. Edson, general manager of Minneapolis-based Padilla Speer Beardsley Inc. and secretary of the Worldcom Group, a year-old network of about 60 agencies that service each other's clients for a fee. Mr. Edson, who will not release billings figures, insists that the fledgling coalition has already generated leads and assignments for its members.

Few observers hold out high hopes for the networks, though. "Sure, it helps to say you have 99 affiliates all over the world, but who says they'll drop whatever they're doing to help you?" said Jack O'Dwyer, who publishes a well respected public relations newsletter that bears his name. "It's just not like an owned office"

Clients, in fact, are a hard sell for just that reason. "I'd be suspicious about a new network," said A. George Battle, managing partner in charge of market development for Andersen Consulting, Arthur Andersen's consulting arm. "We'd all be learning a whole lot together. "I want to be led through the process."

When Andersen decided to go after global recognition as an information technology consultant, it hired Burson-Marsteller. Does he think Burson can ensure quality? "There are probably cities in which they aren't our best shot, but we see the overall strength of consistency as more important than the chance of spottiness from city to city," Mr. Battle said.

A Coming Together

Chances are excellent that, in years to come, the disparate strategies will grow closer together. For one thing, the heady acquisition pace is bound to slow down. In the United States, all the firms that one would want to buy have been bought by now," said Mr. Holmes, the editor of Relate. And European firms are growing less willing to be absorbed. "The entrepreneurs are starting to say, Come over and we'll do business as partners, but don't think you can buy us and make us little brothers," said James E. Kiss, an executive vice president of Chester Burger.

A lack of trained public relations people, meanwhile, will put the brakes on startups. "To get more out of organic growth than 20 percent a year would require training a mind-boggling number of people," said Robert L. Dilenschneider, chief executive of Hill and Knowlton, the WPP Group's $145-million public relations subsidiary. In a recent speech, Mr. Belli, Hill and Knowlton's international chief, predicted that "we will see public relations firms investing in training and development programs as they never have before."

For now, though, only Burson seems to be formally tackling the training task. The company, which has offices in 25 countries, spends more than $1 million a year-not counting employee-hours-on training tapes, traveling teams of trainers and and seminars, all with an eye toward fostering a uniform approach to client projects. It is also one of the few big agencies to encourage its branch offices to actively court local clients as well as multinationals.

"You have to be an effective national organization in all of your locations before you become an effective international company," said Mr. Dowling, Burson's chief executive. "That's the only way you learn the politics and the culture of the area.

Burson's approach has won it many fans. "It's an ephemeral thing, but when you talk to people in Europe they seem to think of Hill and Knowlton as 'that American company' and of the local Burson office as our friends down the street,"' said Mr. Kiss.

A New Campaign for Image Polishers: Going Global

Hill and Knowlton is scrambling hard to get the same image. The firm has waffled between acquisitions and organic growth, and between centralized and decentralized control of client accounts. Now it is trying to entice, rather than coerce, its offices into working together as a cohesive whole. For example, until three years ago its bonus plans fostered what Mr. Dilenschneider calls a "take care of your own business first" mentality among the different offices. Now, managers are rewarded for helping out other divisions' clients.

Chasing Collegiality

That is a collegiality that Shandwick has yet to attain. For now, the company remains the king of the acquirers. British securities and accounting rules make it far easier for a British company to raise money through private placement of stock, and to pay a premium for an acquisition without badly skewing its income statement. Thus, Shandwick has consistently been the high bidder for leading niche firms-Rogers & Cowan in entertainment public relations, for example, and Golin/Harris Communications, the Chicago-based company responsible for publicizing McDonald's. Indeed, through acquisition Shandwick has grown from just $7 million in net fee income in 1986 to more than $140 million today.

Shandwick agencies keep their names and individual styles, a habit that clearly appeals to the agency heads and that is useful for attracting local clients, but that can be terribly confusing for clients with multi-country projects. Mr. Jones, Shandwick's head in North America, insists that a "master contractor" shepherds each project through the various agencies. But the Shandwick agencies concede that much more must be done to improve coordination.

"Phase one was putting the network in place, and that's pretty much over," said David L. Mona, president of Monal Meyer & McGrath, a Minneapolis agency that Shandwick bought in December. "Now Shandwick must serve as the catalyst for us to build on each other's strengths." In fact, Shandwick has started holding network-wide meetings to do just that.

Whether Shandwick emerges as a worldwide public relations powerhouse or just a directionless conglomerate probably rests on how well it coordinates its agency services. Indeed, quality control and consistency will be the deciding factors on who survives throughout the industry.

It is a fact that clients clearly recognize. "Global agencies are no different than other multinational organizations-you can have wonderful human capabilities in France and not have them in Germany," said Bruce K. Berger, director of worldwide human health public relations for the Upjohn Company, who guesses he has interviewed 300 agencies in the last 10 years in the process of parceling out Upjohn's international business. "Generally small to midsize agencies for whom we represent the significant account seem to work harder and more cost-effectively for us."

For now, Mr. Berger's liking for small agencies represents a minority view among multinational clients. But unless the huge agencies get a firm handle on quality, they may topple of their own weight as more and more clients spurn quantity for the personal, quality touch.
 FOUR STRATEGIES FOR EXPANSION
 PR firms have developed different
approaches to international growth.
Burson-Marstellor inc.
- STRATEGY: Open own offices,
staff with local people.
- ADVANTAGES: Initially
cheaper; easier to coordinate; fosters
uniform approach; name recognition
of US clients.
- DISADVANTAGES: Heavy
training costs; hard to find qualified
employees; risk of being considered a
"foreigner" in other countries; no
established client base.
Shandwick plc.
 STRATEGY: Acquire local
agencies, leave them untouched.
- ADVANTAGES: Maintains entrepreneurial
instincts; capitalizes on
known local names and reputation;
trained staff in place; existing client
base.
- DISADVANTAGES: Expensive;
difficult to insure international
consistency; harder to foster cooperation
between offices.
MSL Worldwide
 STRATEGY: Take equity
positions in agencies in other
countries.
- ADVANTAGES: Greater control
over quality; trained staffs in place;
capitalize on existing reputations.
- DISADVANTAGES: Difficult to
insure that affiliate agency win give
MSL clients top priority; hard to
superimpose uniform culture and
style on network.
Padilla Speer Beardsley inc.
 STRATEGY: join international
network of independent agencies.
 ADVANTAGES: Inexpensive;
maintains entrepreneurial instincts;
trained staffs in place.
 DISADVANTAGES: Almost no
quality control; hard to enforce
priorities; many affiliates unknown
quantities to clients.


DRUCKER PREDICTS REGIONALISM

Here's what management guru Peter Drucker says about developing global trade patterns in the May '89 issue of Business Month: "One answer is to form economic regions or blocs: the economic merger of the European Community planned for 1992; the North American Free Trade Zone, which the 1988 US-Canada Free Trade Agreement is trying to create; or perhaps, in the future, a Japanese-centered Pacific Rim Region. ...Regionalism creates a unit capable of a trade policy that transcends both protectionism and free trade. It creates a unit capable of reciprocity. ... Reciprocity is emerging fast as the new integrating principle of the world economy. It is clearly going to be the main trade policy of the European Community, if only because it alone offers a compromise between the traditional protectionists in the EC (the French and Italians) and the traditional free traders (the British and the Germans)."
COPYRIGHT 1990 International Association of Business Communicators
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:International Association of Business Communicators: 1970 - 1990: Section 2: Coming of Age; includes related articles on Saatchi and Saatchi Company PLC, regionalism, expansion strategies
Author:Deutsch, Claudia H.
Publication:Communication World
Date:May 1, 1990
Words:2690
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