Global Rankings 2010: Research Finds Optimism Up Despite Economic Concerns
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Global Rankings 2010: Research Finds Optimism Up Despite Economic Concerns

Optimism about the future of the public relations agency business increased last year, despite a difficult economic environment and declining revenues for many of the firms featured in The Holmes Report ranking of the world’s largest PR firms.

Holmes Report

Optimism about the future of the public relations agency business increased in 2009, despite a difficult economic environment and declining revenues for many of the firms featured in The Holmes Report ranking of the world’s largest public relations firms—although European markets continue to regard the immediate future with some trepidation.

When asked whether they agreed with the statement that they were optimistic about the future of growth of the public relations industry in their own market, public relations consultancy leaders responded with an average “optimism rating” of 7.7 on a scale of one to 10, up from 7.56 when we asked the same question at the end of 2008.

More than 320 agency leaders from markets around the world responded to this year’s survey. The mood was brightest in the Asia-Pacific region, where optimism surged from 8.06 last year to 8.8 this year, but there was a significant improvement in optimism in North America too, where optimism levels rebounded from 7.45 last year to 7.74.

European respondents, however, are less certain about the future. The U.K., which was the least optimistic of all the regions in our survey a year ago, saw a slight uptick, from 7.16 to 7.45 (still considerably short of the 8.16 optimism rating we reported three years ago), but in continental western Europe, optimism declined slightly, from 7.57 last year to 7.13 (making it the least optimistic region this year), and in eastern Europe there was a significant collapse in optimism from 8.36 to 7.33.

“There’s no doubt that 2009 was a difficult year for public relations firms around the world,” says Paul Holmes, editor of The Holmes Report. “But in Asia and North America, at least, there seems to be a feeling that the worst is over, and that the business has the ability to come back strongly in 2010.”

Economic Concerns Persist
Even so, it is clear that concerns about the economy persist in every region. In 2009, when we asked agency principals from around the world to rate various potential obstacles to the continued growth of the public relations business, economic conditions displaced the ability to retain top talent as the number two concern, ranking behind only the ability to attract good people—the perennial number one difficulty facing agency leaders.

This year, concern over economic conditions moved into the number one spot, cited as a major concern by 37 percent of respondents from around the world—up from 28 percent in the previous year. The ability to attract top talent ranked second, cited by 32 percent of respondents, followed by increased competition from other public relations firms (19 percent) and the unwillingness of clients to commit sufficient funds to public relations (18 percent).

Again, there were significant regional differences when it came to concerns about economic conditions—although, interestingly, the highest levels of concern were in the U.K. (where 45 percent cited the economy as one of the top three obstacles to continued growth) and in North America, where 56 percent—the highest in any region—said the economy was a major concern.

Asia reported the lowest level of concern about the economy (16 percent), but economic conditions were not the major cause of concern in either Eastern Europe (17 percent) or Western Europe (21 percent).

“These findings are worrying,” says Holmes. “They suggest that pessimism in Europe is not exclusively or even primarily the result of tough economic times. Agency leaders in Europe believe that there are structural problems with the public relations agency business that need to be addressed regardless of whether the economy recovers swiftly and strongly.”

Other Obstacles to Growth
In Eastern Europe, the ability to attract good people continues to be by far the most pressing concern for agency leaders, cited as a major obstacle to growth by 58 percent of respondents. Attracting people also remains the number one concern in Asia (48 percent) and Western Europe (30 percent) and a cause of considerably worry in both North America (26 percent) and the U.K. (27 percent).

Similarly, when agency leaders were asked whether they agreed there was a plentiful supply of intelligent, well-educated talent in their market, they were less than enthusiastic. Overall, agreement with that statement averaged just 6.5 on a scale of one to 10 (among the lowest scores on any question), and outside of North America (7.14) the scores were dismal: 6.55 in western Europe; 6.21 in the United Kingdom; 5.16 in the Asia-Pacific; 5.08 in Eastern Europe.

“It seems obvious from these numbers that the shortage of smart, well-educated people interested in public relations as a career remains the biggest long-term obstacle to the continued growth of our business,” says Holmes. “It’s an issue the industry has to address.”

But at least the difficult economic conditions of the past two years appear to have soothed concerns about the ability to retain top-quality staff. Once the number two concern globally, it has fallen to number six on our list—even in Asia, where competition for talent and resultant poaching of staff has been a major problem.

Increased competition has become a bigger concern over the years we have been conducting the survey, and the hypercompetitive PR market was the number three concern globally. Concern about competition from other public relations firms (cited by 19 percent of respondents) remains a more pressing concern that increased competition from other marketing disciplines—although concern in this arena rose from 10 percent last year to 17 percent in 2010, in part presumably as a result of advertising agencies and others competing for a central role in digital and social media strategy.

The infringement of other marketing firms on PR’s turf was a somewhat bigger issue in the most developed markets, however. It was cited as a concern by more than 18 percent in North America and the U.K. Competition from other professional services firms, such as management consultancies, is still a relatively minor concern (5 percent), as is competition from in-house PR departments, or clients moving their PR activities in-house (also 5 percent).

Concerns about Client Attitudes Persist.
Overall, 18 percent of respondents said they were concerned about the reluctance of clients to allocate sufficient funds for public relations activities (down significantly from 21 percent last year), while 13 percent were worried that clients were too focused on the short-term (no change), and 11 percent felt that lack of understanding about the role of public relations was still a major concern.

However, concerns over client understanding rose to 15 percent in western Europe and the Asia-Pacific region, and to 25 percent in Eastern Europe. Finally, difficulty of effectively measuring the impact of public relations activity remains a middling concern at best. Overall, just 11 percent of respondents ranked measurement among the top three obstacles to public relations industry growth, with concern highest in the U.K. (12 percent) and lowest in Eastern Europe (8 percent).

“What these numbers suggest is that the public relations industry needs to establish several priorities,” says Holmes. “First, it needs to do a better job of reaching out to potential employees and selling itself as a stimulating and meaningful career choice. Second, it needs to do a better job of explaining to clients that PR has the right skill-set to help them engage with stakeholders in a more beneficial and rewarding way. And finally, it needs to focus on providing solid evidence of return on investment.”

The Coming Golden Age
But while there are issues that clearly need addressing, responses to some of the questions that will determine the long-term outlook for the public relations business suggest that corporate attitudes are shifting in way that will be beneficial to the profession.

There was widespread agreement that client CEOs are taking corporate reputation seriously (7.62 globally on a scale of one to 10, up from 7.51 last year); that companies are taking corporate social responsibility more seriously (7.07, down from 7.34 last year); that companies understand the need to balance the demands of shareholders with the interests of other stakeholders (6.70, up from 6.65 last year), and that clients are willing to turn to public relations firms for non-traditional services such as digital communications, advertising and word-of-mouth (7.15, up from 6.78).

Still, when agency principals were asked whether marketers were increasing their spending on PR relative to other marketing disciplines, they were far less impressed. The average level of agreement around the world was a mere 5.87, up only slightly from 5.74 last year—although this was the third consecutive year the score on this question has improved.

“We have seen a number of studies in the U.S. in the recent years that look at the marketing mix and conclude that PR is still under-funded,” says Holmes. “The return on investment for public relations spending is typically better for PR than it is for advertising, for example. But we are still not seeing that reflected in the reallocation of significant funds to PR programming, although there are signs of a shift in the more sophisticated PR markets.”

Moreover, significant regional differences persist. In North America and the U.K., for example, there was widespread agreement that CEOs take corporate reputation seriously (7.98 and 7.94 respectively), but agency leaders in western Europe (7.17) and Asia (7.14) were far less convinced that this was the case.

When it comes to balancing the needs of shareholders with other stakeholders, the contrast was even starker. In North America, agency leaders agreed with this proposition (7.10) much more strongly than their European
counterparts (6.57).

“The conventional wisdom is that European companies have a stakeholder-driven governance model,” says Holmes. “But if PR agency leaders are to be believe, in practice American companies are doing a much better job of balancing the needs of all their stakeholders. Perhaps because of their bottom-line focus, they have come to realize that there are pragmatic benefits to such a balance.”

The media
Despite the frequent complaints about the relationship between public relations professionals
and the media, most PR professionals seem relatively content with that relationship. And despite frequently-heard complaints about questionable media behaviour—ranging from the increased blurring of the line between editorial and advertising in the U.S. to the continued practice of pay-for-play in the emerging markets—there were few complaints about media corruption.

Both media cynicism about public relations and media corruption ranked among the least troubling issues when respondents were asked about obstacles to growth (17th and 14th out of 17 factors globally, where media hostility was considered an important issue by fewer than 1 percent of respondents).

Even in Eastern Europe, where there has been considerable focus on so-called “black PR” in recent years, media corruption was mentioned as a concern by only two respondents, while in Asia-Pacific it was not
mentioned by just four.

And there was widespread agreement (6.5) when respondents were asked whether the media in their markets operated with integrity and impartiality, although this number was down slightly from last year (6.61). Agreement was strongest in North America (7.14), and lowest in Eastern Europe (5.08).

Similarly, most PR people feel that the media respect the role public relations plays in the information process (6.76). Again, agreement was strongest in North America (7.03), but it was lowest in the U.K., where it
declined to just 6.33.

Where the Growth Will Come
Not surprisingly, when asked which practice areas they expect to deliver the strongest growth over the next 12 months, the majority of PR agency leaders from around the world focus on the digital realm, with 53.7 percent of respondents saying they anticipate growth in the digital and online communications realm.

And while last year optimism about digital was restricted largely to the most developed markets (North America and the U.K.), this year it appears to have spread to developing markets: it was cited as one of the top three growth areas by 49 percent of respondents in Asia and 50 percent in Eastern Europe.

“Clients around the world are coming to realize that digital and social media offer an opportunity to connect with consumers and other stakeholders in an entirely different way. And the most sophisticated recognize that the public relations skill-set—which has always emphasized values such as engagement, authenticity, transparency and dialogue—is precisely the skill-set that is needed to take advantage of this opportunity.

So it’s no surprise that PR firms around the world see a major growth opportunity in digital media. Having said that, many PR agency principals continue to see significant growth potential in more traditional areas: 45.9 percent expect to see growth in corporate reputation work and 39.9 percent expect to see growth in consumer marketing.

In Asia, more than 60 percent of respondents identify corporate reputation as one of the top three areas of opportunity, while in Eastern Europe, 50 percent believe there is still plenty of room to expand PR’s role in the marketing communications realm.

Others identified public affairs (22 percent), corporate social responsibility (19 percent), word-of-mouth marketing (11 percent), employee communications (9.5 percent), financial communications (5 percent) and crisis and issues management (1.5 percent) as top areas of opportunity.

The biggest opportunity for public affairs was in western Europe (33 percent), while the biggest opportunity for corporate social responsibility was in Eastern Europe (25 percent) and the U.K. (21 percent). Interest in word-of-mouth marketing was strong in North America (18 percent) and the U.K. (16 percent) but weak in the less developed marketing, including western Europe (less than 4 percent).

When it comes to industry sectors, consumer products companies continue to present the greatest opportunity for growth (cited by 48.6 percent of respondents globally), followed closely by those in thehealthcare arena (46.3 percent). There’s plenty of opportunity for growth in the technology
sector (31.6 percent) and in financial and professional services (21.1 percent), while the food and beverage sector (18.8 percent), industrial and manufacturing (13.3 percent), public sector assignments (12.4 percent) and the not-for-profit arena (4.1 percent) hold less potential for growth.

The consumer sector is seen as a major opportunity in the Asia, where it was cited by 56 percent of respondents, and in the U.K. (51 percent), while healthcare is expected to see its most significant growth in Asia (60 percent) and North America (56.2 percent). North Americans are also most optimistic about the technology sector (36.2 percent), while Eastern Europeans anticipate healthy growth in the public sector (16 percent).

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