Hot for offshoring: why it makes sense for marketers

Agency Assessments International There is nothing new in the idea of sending work overseas, although the term 'offshoring' itself is new, and many of the venues are a surprise. Even before the economic downturn, actively controlling cost in the supply chain made perfect sense for marketers, as Charles Kirchner argued eloquently in Issue 42 of Market Leader. Now it's a no brainer. If we factor in the fevered debate about how agencies should be remunerated, offshoring is clearly also in the interest of agencies, as they rush to find ways of proving added value and reducing their dependence on charging for input cost.

Global companies and international agencies don't find it difficult to buy into the idea of profiting from their ubiquity. Trade followed the flag in all the world's great empires. IT, the internet, fast broadband and the wonders of digital now give extraordinary advantages to both suppliers and buyers of services, if they can leverage cost differentials while maintaining (and even at times enhancing) quality and continuity of supply.

I am going to try to put the discussion in context by pointing out that advertising in particular, and marketing in general, have always been truly international businesses – largely because most of the biggest brands are global, multi-market or regional. Brands are marketed and advertised across frontiers by multinational agencies on behalf of multinational clients.

During the last 40 years or so companies have tended to swing from centralisation to decentralisation, and back again. By common consent we seem to be looking at a big move towards centralisation, driven by efficiencies, technology and a desire to maximise economies of scale. The credit crunch and downturn are likely only to intensify this trend.

Even if we didn't use the word 'offshoring', it has certainly been going on:

l brand owners taking away marketing control from local teams, and concentrating their efforts in hubs and regional HQ's

l agencies similarly co-ordinating, and indeed creating, campaigns out of regional hubs, and sub-hubs – as opposed to doing everything at the centre

l printing devolved to parallel quality/lower-cost countries (e.g. Malaysia in the 1980s) – a process that gathered pace as digital reduced costs further still)

l similarly with TV production (e.g. South Africa, and then the Czech Republic)

l decoupling production (ATL and BTL) from agencies, leading to the growth of companies like TAG and Freedman.

OFFSHORING VS INSHORING

We tend to think of the UK as an offshoring country, but we have also benefited from a lot of 'inshoring' at the strategic, brand management and creative level, as companies took advantage of London as a European hub and talent pool. Equally, relatively high-cost countries like Belgium and Switzerland (the latter benefiting from being outside the EU) have attracted companies to locate their HQs there.

China and India have been the main recipients of production offshoring – but many other countries have joined in. India, which has been for some time a magnet for offshoring in areas like IT, telecoms and call centres, is now leading the way. Examples in digital production include Sapient, which opened in India in 2000, and now has 3000 people across three offices

It is perceived that there is a growing exodus of work and process in marketing/advertising – away from UK, US and other traditionally strong markets to lower-cost markets. Digital is one obvious sector – but it is not the only one.

I'm interested in benefits and problems. I'm interested in the 'why' as well as the 'how'. Do we see the future as one-way traffic from high-cost to lowercost economies? Or is there a chance of a repeat of the co-ordination/regional hub inshoring that boosted employment and agencies here in the last 20 years of the last century? Could a concentration of digital talent in the UK bring that about? Would the London village be the only winner, or might benefits be spread around less expensive parts of the UK? Will UK plc benefit if the trend gathers pace? But are there contingent problems also?

VIEWS FROM THE TOP

I was interested in what people think might develop – and looked for concrete examples of what is happening already, and the upsides and downsides of the phenomenon.

Tom Eslinger, Worldwide Creative Director Interactive at Saatchi & Saatchi, is an enthusiastic user of Prodigious, the Digitas digital production subsidiary. Prodigious has production units in China, India, Costa Rica, Ukraine and the Czech Republic. Tom is as impressed by the quality and speed of the service he gets from these countries as by the cost savings. He explains that each unit is a 'diamond', with a producer (responsible for all dealings with customers), a project manager, and two or more Flash programmers. Most of these people will have been trained from scratch by top-flight locally based management. 'The training is superb,' says Tom. 'When we first worked with Ukraine and Costa Rica out of New York and London, we sent them test projects (which had been already executed locally). We expected lots of questions and some false starts. What we got back was superb quality first time, and faster turn-round time'.

Gwilym Lewis, Managing Director of Kieon (a 60-strong software development company in Bangalore), agrees completely about the importance of training. New recruits spend at least four weeks being trained and inducted into the company's operations, its clients and its zero defect culture. He also says that the set-up at Kieon would surprise sceptics. 'We interview only 5% of the people who apply to work here. Then the first interview is always by an existing employee. Our existing team are the toughest filter. They understand how Kieon differs from the original outsourced Indian model, where employees weren't empowered, and never questioned their superiors'.

His London colleague, Christopher MacColl, owner of consulting firm Marketing Unleashed, takes up the story: 'We looked at early experience in outsourcing to India. Call centres were lowest-cost providers, with basic technology and little or no investment in quality or training. Consumers in the UK were rightly critical of abysmal levels of service. When we started we were attracted by the availability of talent potentially better than in the UK. But we knew we had to make heavy investments upfront – not just in the staff, but also in technology, infrastructure and in creating an outstanding working environment'. Lewis is proud that the company has an Anglo-Indian management and culture. Kieon also has a flat structure, shorter than average working day, and a motivated team, who 'straddle both the Indian and British environments', as he puts it.

Martin Barrett, Operations Director of Freedman International – the international campaign implementer – is another Bangalore enthusiast. Freedman uses its production partners in India to offer its clients a 24/7 studio service. In late afternoon, jobs are transferred to colleagues in Bangalore, and back again for the London team when they report for work the next morning in Shad Thames. 'There are constant advances in online and offline studio technology, and our Indian colleagues keep abreast of these changes,' says Barrett. 'They can offer us and our clients quality at much lower cost.'

Ogilvy & Mather appear in the list of the world's top 250 offshoring companies, and like all the major international agencies devolves production overseas: press and print (through TAG), TV, and digital. It has a 24-hour creative support studio in Bangalore for global accounts such as Lenovo. But London Vice-Chairman Rory Sutherland has a vision of solutions closer to home. He has a dream he calls 'Ogilvy Brighton'. 'Why do London agencies have to do everything in London?' says Sutherland. 'The BBC is moving much of its activities to Manchester. Smash hit computer game Grand Theft Auto is put together in Dundee and Edinburgh. Half the good programmers in Britain wouldn't live anywhere else but London. The other half don't want to. We should set up a digital agency in Brighton.'

THE OTHER SIDE

Not everyone is sanguine about the idea of agencies offshoring. Guy Hayward, Managing Partner of 180 in Amsterdam, buys the core argument about cost savings, and indeed points to the advantages of shooting TV commercials in Uruguay and Argentina. But he worries about the idea of taking offshore the IP part of the business. 'Imagine the day when Unilever puts all its global personal care business into an agency in Mumbai or Shanghai. As consumers in China and India become more and more valuable, it is ever more likely that this will happen. This is the threat to us. We will have nothing left unless we can show that we're better strategic and creative leaders than our Mumbai counterparts. The danger is that we are too complacent and do not nurture the right talent for the new world. We're already looking to hire people from China and India in our Amsterdam office.'

Hayward also questions whether in a tough economic climate clients will inevitably move towards greater centralisation. 180's client Adidas has stripped out central costs and devolved more freedom and authority to markets, thereby allowing the countries to use their marketing budgets in whatever way is most likely to enable them to hit the numbers.

Julian Ingram, Managing Partner at McCann-Erickson London, also distinguishes between the two business models operating in international agencies: high value-added IP (which needs talented teams, and will be expensive), and the production process (requiring systems and implementation expertise, which can be delivered at a competitive cost). 'At McCann, by seeking to separate the two models we have been able to offshore the production process for some of our clients' European business using a joint venture between a third-party partner and a low cost agency network office. We have in each of these cases retained the value creation element in a separate location.'

Ingram also describes how McCann has experimented with taking lower cost centres of proven value creation in Latin America and Asia, linking them with teams based close to the physical location of the client.

'There are of course downsides to this trend for clients and agencies alike', Ingram adds. 'First, the cultural differences cannot be underestimated. Second, without enough volume, the production process fails to generate the economies and commercial return and, third, it only really works where you have a strong creative idea that can be easily adapted.'

WPP, with its 2000 offices, and an estimated 110,000 employees in over 100 countries, is the most international agency group of all.

WPP Digital, the digital investment and operating arm of WPP, has launched Deliver, a global digital production capability that distributes work among the group's stable of digital agencies to ensure that clients get the best solutions at the best price.

Deliver has over 700 digital production professionals on tap, located all over the world. I asked Neal Prescott, the company's CEO, what is the most important consideration in offshoring. 'Teamwork', he said. 'Just because a team lives thousands of miles apart, with creatives in New York, and production in Colombia, it doesn't mean you have different rules. Everyone needs to identify with the brand, so you need brand thinkers in the destination office. To make sure there is a collaborative way of working, everyone – even the guys in the most remote location – needs to be briefed on the brand.' Prescott says that expectations need to be set, and managed.

There will be teething troubles with new teams. The people in Costa Rica or Romania will respond far better to a pat on the back, and to being treated as 'us', not 'them'. He urges starting with the low-hanging fruit, and trying the easier jobs first (like resizing an existing banner). To make collaboration easier, he suggests starting by nearsourcing within adjacent time zones with obvious cost benefits (e.g. Western Europe with Eastern Europe, North America with Latin America, and sophisticated Asia with lower-cost Asia). He recommends leaving the biggest gaps in time zones and complexity of task until the offshored units have really learned their trade.

Tribal DDB is also a keen nearshorer. The London office works hand in glove with highly skilled programmers and designers in Tribal DDB Lisbon. In this way Tribal gains extra capacity, additional flexibility and enhanced value – all within the same time zone.

But all remote operations need management and communications with the mother ship. Sutherland of Ogilvy believes that the secret, particularly in tough times, is to look beyond the normal formula of putting people on planes, sending emails and using the mobile phone. He (like the author of this piece) is an enthusiast for the latest generation of video conferencing equipment.

However Prescott of Deliver emphasises that collaboration will suffer if there aren't enough visits to the remote locations. And that you also need great phone links and shared whiteboards.

CONCLUSIONS

There are five conclusions from all this:

1. Clients and agencies will have to think more internationally than ever, with pressure on big  centres like London and New York to be less parochial.

2. The trend to offshore in our business will accelerate as digital technology is used to take cost out of the centre and relocate work to new locations (although very big agencies will try to make sure those locations are their locations).

3. Investment in management, infrastructure, selective recruitment and training is essential to ensure the remote end of the partnership works optimally.

4. Teamwork and collaboration are even more important when colleagues are working in different places.

5. There is huge potential in smaller markets, not just for being on the receiving end of jobs, but in terms of the opportunity to use their acquired skills and knowledge to become originators in their own and neighbouring countries.