After a slow year in APAC, should agencies expect faster growth in 2024?

WPP, the parent company behind VML, Ogilvy and GroupM, measured just 0.5% net revenue growth in Asia Pacific in 2023. Interpublic Group (IPG, which owns McCann and Jack Morton) measured -2.7% growth, while Japanese-headquartered Dentsu recorded -8.2% organic growth in the region over the same time period, excluding Japan. Even Publicis Groupe, which largely defied agency sector trends last year, recorded a 1.5% fall in revenue in Asia Pacific compared with 2022.

According to the World Bank, East Asian and Pacific economies are due to grow at their slowest rate since the late 1960s. Weaker economic growth in China was one of the key headwinds cited by WPP chief executive Mark Read in his summary of the holding company’s year; the company recorded two consecutive quarters of negative growth for its Chinese business.

“China has been a challenging market for us and others… we do expect it to continue to be challenging from a macro perspective in 2024,” he told investors last month.

The influence exerted by the Chinese economy is one of the few common factors agencies can rely upon across APAC’s diverse collection of markets. But China’s consumer spending has still not recovered from the impact of Covid, four years on from the original outbreak. Retail spending has only increased 3% each year since 2020, according to CNBC, owing to low consumer confidence and the continuing fallout of the 2021 property crisis, which was sparked when property developer Evergrande missed a repayment deadline (the company was ordered to be wound up by a Hong Kong judge in January).

Away from revenue figures, new business tracking data from consultancy R3 shows there were fewer APAC accounts out for review and less marketing investment on the table in 2023 than there was during 2020, suggesting the last 12 months were worse for business than the first year of the Covid pandemic.

R3 New Business Leagues, APAC 2020-2023

For Shufen Goh, co-founder and principal of R3, 2023’s figures reflect trends that bookended the Covid era.

“The APAC marketing landscape has settled after a few years of recalibrating itself. Social, influencer, and e-commerce are now mature in the ecosystem. You have clear platform leaders within each country and less disruption in consumer behavior. The focus now for brands is working on effectiveness and efficiency,” she tells The Drum.

As in the US and Europe, enthusiasm for large-scale digital transformation work – demand for which drove agency growth in 2021 and 2022 – ebbed away last year.

“Increased pressure to rationalize marketing spend and prove its value has made marketers more cautious with their budget,” says Goh. “The initial post-pandemic push for digital transformation in APAC is now being measured and more consideration given to understanding the ROI of any marketing investment before actual spend takes place.”

Pat Rowe, chief executive officer of Saatchi & Saatchi’s Australian business, tells The Drum those factors “certainly have had an impact in Australia.”

“Many of our clients have been facing supply side challenges either through product availability or rising costs and often this flows through to consumers who are already dealing with higher interest rates and inflation,” he says. “When consumers are spooked by the ‘cossie livs’ it creates uncertainty across the board and we see that caution reflected in marketing spend.”

In India, economic figures for the final quarter of 2023 suggest the country’s economy is resilient – on paper. But Meenakshi Menon, founder of media audit firm Spatial Access, says that’s not the experience of most consumers, causing marketers to be cautious about spending.

“There is a general consensus that markets are softening,” she says. Consumer spending is slowing down. While stock markets may be at an all-time high, the cash in the hand for most consumers is tight.

“I think this will not just stay but will intensify. Extreme climate events are going to have a negative impact on food prices and food inflation will go through the roof. While the stock market will continue to deliver double-digit returns to investors… the middle class will get squeezed, and since they are the fuel that feeds the growth engine, we have tough times ahead of us.”

WPP’s Read remains optimistic about his company’s prospects in the region. Speaking to The Drum as the firm released its full-year results last month, he said: “I think we have a great business, particularly a strong media business across Asia Pacific. It has been an area of strength historically, for WPP, for many years.”

Goh suggests that 2024 will put more new business in the way of agencies. “Network consolidation, the need for specialist capability and generative AI will provoke an increase in the volume of reviews this year,” the analyst argues. Media investment will likely predominate, she adds.

“When it comes to account values in APAC, the current trend will continue of minimal investment in creative with more focus on media as companies look to drive efficiency and performance.”

Read hopes the VML merger completed in January will help unlock more value in the region for WPP.

“We continue to invest. And I think that the creation of VML will bring together strong businesses and give us a stronger footprint across the region,” he says.

Rowe says Saatchi & Saatchi is already seeing more accounts up for grabs. “We’re seeing some green shoots and the tide seems to be turning.

“I’m optimistic about this year. We’ve got multiple pitches active at the moment, double the run rate from last year and many of our clients are increasing workloads and budgets,” he says.

“We’re hiring and it seems the labor market has loosened up a little – it’s easier to find good people now. I think 2024 is going to be big.”