The untamed giant: Why Western marketers are increasingly keen on Russia
Go back over the past year or so that we’ve been writing these blogs, and you’ll notice that we’ve written a lot about China. This is of course quite natural – and an awful lot of the big groups are interested in doing business there.
Major marketing investors are seeing potential in Russia
But what of that other giant, Russia? The great bear to the East of Europe is in many ways an equally exciting proposition. Although very different from the nations of the West, it is essentially “European” in nature and culture; has vast oil, gas and mineral wealth lurking beneath the permafrost of Siberia; it stretches from Poland to the Pacific, almost halfway round the world; and it borders no fewer that 14 sovereign states. Russia is also a democracy, which gives it an advantage over China.
But why aren’t more people investing in the giant in the East? The potential’s there, as we’ve just noted, but Russia has something of the untamed frontier about it. It’s the Wild West of the BRICs, and requires investors with true grit.
However, a recent deal aught my eye and got me wondering whether there might be some companies with the stomach and vision to do business in Russia.
Aegis, since being bought by Japan’s Dentsu back in March, has become perhaps the most ambitious of all the holding groups. You’ll remember that only a fortnight ago I wrote about Aegis’ successful swoop for Trio in China (at around the same time Aegis integrated Spanish research and media buying agency Ymedia into Aegis Iberia).
At the beginning of this month Aegis Media bought (for “an undisclosed sum”, of course) Traffic LLC, a leading full-service digital agency in Russia with a strong focus on “integrated digital solutions”. Completion of the deal is subject to regulatory approval, which is expected to be received within the next 30 days. Once the deal has been fully completed, Traffic will be integrated into the Isobar network and renamed Traffic Isobar, to become Aegis Media’s second full-service digital agency in Russia alongside AdWatch Isobar.
Founded in 2002, Traffic offers a full range of services, including digital strategy development, advertising creative and web production, social media marketing activations, media planning and buying, research and analytics, social media and mobile app development.
Led by MD Alexey Kupriyanov and located in St. Petersburg and Moscow, the 180 or so staff at Traffic provide digital expertise to clients such as Daimler Chrysler, Carlsberg, Philips, Nokia, Nestle, and L'Oreal. As with any good deal, the leading talent will be staying - Kupriyanov will remain as MD of Traffic Isobar and his colleague Alexander Kim will continue to run the Moscow office.
Aegis Media has a significant footprint in Russia, with representation from agencies like Carat, Vizeum, Ad O’Clock, Posterscope Russia, iProspect Russia, AMNET Russia, AdWatch Isobar and now Traffic Isobar.
This acquisition will significantly increase Isobar’s brand position within the market and provide Isobar’s international expertise to more clients in Russia. This is important, not just for Aegis and Dentsu, but also for the whole industry because it gives others confidence to move into the territory too. In any emerging market, it only needs one or two pioneers to get things moving.
And despite the issues outlined above, there is real potential in Russia. Some analysts have predicted double-digit increases in advertising spend for 2013 and 2014, and digital spend is growing at a rapid rate as well.
According to IAB research, in 2012 Russia was the sixth-largest advertising market in Europe. In terms of internet advertising, Russia represents the largest audience on the continent – well over 53 million (it overtook Germany back in 2011). And because the fixed-line infrastructure in the country has always been so poor, mobile penetration is, at 159 per cent, among the highest in the world. And smartphones’ share of the market, at 25 per cent, is comparable to the UK and Germany. Best of all, the curve is upwards everywhere – this is most definitely NOT a mature market.
After a long period of decline, Russia’s population is beginning to pick up, and the number of people living in poverty caused by the collapse of the Soviet Union in 1991 has reportedly decreased by 50% in the past decade. Here you have a demographic time bomb of the most beneficent kind – rising birth rates, falling death rates and increasing prosperity.
What’s really interesting is that there is going to be a vast new audience and a vast range of business, both Russian domestic and global, who are going to need help talking to this huge new audience. Here in the UK, well over a quarter of all ad budgets are now allocated to online communications; in Russia it’s just 9 per cent - but growing at 16 per cent a year.
Aegis/Isobar, with its years of experience in the more “developed” markets of Europe, Japan, the US and even China, is well placed to lead the charge. The senior management of Dentsu, who have doubtless spent years looking across the Sea of Japan to their giant neighbour to the West, pondering the possibilities presented by this untamed giant, must be feeling quite confident right now.
Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector.