Paul Holmes 10 Apr 2006 // 11:00PM GMT
One book on the business best-seller lists predicts that we are already living in “the Chinese century,” while another describes the world’s most populous country as “the next superpower.” There are books about India’s emerging economy, while another, focusing on outsourcing, asks: “What’s This India Business?” C.K. Prahalad, meanwhile, advises companies to seek “The Fortune at the Bottom of the Pyramid,” extolling the profits to be made in the world’s least developed markets.
With all the hype about emerging economies and future superpowers, it’s easy for business leaders to forget that the largest market for their products and services is also the oldest. Derided by Americans for its slow growth, Europe is nevertheless home to about 800 million people, with a gross domestic product of approximately $15 trillion—a massive, developed, and sophisticated market.
It is not, however, a single market the way that the United States or China are single markets. It is, in some regards, a theoretical construct. It is not even a continent in a geographic sense; more properly it is a peninsular that forms the westernmost part of the Eurasian land mass. While the Ural mountains separate Europe from Asia, the distinction is more cultural than physical.
But there is nothing culturally homogenous about Europe either. Forty-nine separate states have territory in Europe. Its people speak 230 languages.
For companies wishing to communicate on a regional basis, this obviously creates a significant challenge—and that’s before you factor in the fact that most companies tend to approach Europe as part of a larger region they call EMEA (Europe, the Middle East and Africa), encompassing not only the wealthy oil states of the Gulf but also the much poorer emerging economies of Africa.
Companies don’t need to learn all 230 European languages, many of which are spoken by only a handful of people, but they do need to be prepared to communicate in at least a couple of dozen if they want to reach the whole of Europe. They also, naturally, need to familiarize themselves with local media—there are relatively few pan-regional newspapers or trade publications, and local publications are by far the most influential in their respective markets; with local labour practices and employee expectations; with local financial and corporate governance regulations; and with local opinion leaders, policy makers and regulators.
Finding the right public relations firm (or firms) to help negotiate such a complex environment is no easy matter.
The heart of Europe is, of course, the European Union, originally six members (France, Germany, Italy, Belgium, the Netherlands and Luxembourg) and now—following the admission of 10 new members in 2004, 25 countries—with only Iceland, Norway and Switzerland of the former western European countries not yet participating, and with most of the remaining eastern European powers (most notably Romania and Turkey) clamouring for membership.
But even the EU is not a homogenous entity—and efforts to impose greater homogeneity have been rebuffed by citizens who still see themselves as Frenchmen or Dutchmen or Englishmen first and Europeans a distant second.
The economic growth rate varied dramatically among EU members in 2004, with Ireland leading the way (5.6 percent), followed by Luxembourg (3.9 percent), Greece (3.7 percent), Sweden (3.6 percent), Finland (3.3 percent). But with the exception of the United Kingdom (3.1 percent), the major economies of Europe have been underperforming, with growth in France of just 2.3 percent, in Germany of just 1.7 percent, and in Italy of a paltry 1.2 percent. With overall EU economic growth at just 2.3 percent, Europe clearly lags the U.S. (4.4 percent) and the waking giant China (9.5 percent).
Moreover, major EU companies (members of the Fortune Global 500 with their headquarters in the U.S.) report net income 23 percent lower than their U.S. counterparts, and marketing capitalization 58 percent lower, despite almost identical sales. They also lag the U.S. in spending on research and development (1.9 percent of GDP compared to 2.7 percent) and in the number of patent registrations (36.2 per million of population compared to 92.6).
But the EU still represents the world’s largest economic zone in terms of gross domestic product: €8,482 billion compared to €8,012 billion in the U.S. And its population of 456 million makes it a market considerably larger than the U.S., at just 293 million. And companies in several sectors—automotive, oil and gas, chemicals, and telecommunications, for example—have been outperforming their U.S. rivals, and the recent enlargement of the EU is expected to drive economic growth.
In any event, there are some suggestions that Europe’s growth problems have been exaggerated. Yes, the EU’s GDP growth over the last 10 years has been a disappointing 2.1 percent, compared to 3.3 percent in the U.S., but those figures may exaggerate the U.S. advantage because its population is growing more rapidly. As The Economist pointed out in an article last year, per capita GDP grew at 2.1 percent in America compared to 1.8 percent in the Euro zone—and almost all of the difference can be attributed to the poor performance of a single country, Germany, which has unique experienced economic difficulties since reunification in 1990.
At the same time, total employment has expanded by 1.3 percent a year in America, compared to 1 percent in the euro area, with a reunited Germany once again accounting for the entire difference.
Similarly, the much-discussed differences in productivity between the U.S. and Europe may also be exaggerated. American productivity numbers exclude the public sector, where productivity is traditionally slower, while Europe’s numbers fail to take account of a decline in the number of hours worked. But using GDP per hour worked across the whole economy, America’s productivity has risen by about 2 percent, Europe’s by 1.7 percent.
And even those numbers are distorted by the way GDP is measured. In the U.S., for example, corporate spending on computer software is seen as an investment and so contributes to GDP, while in Europe it is treated as a current expense and thus excluded.
The one significant difference that remains is in purchasing power. The average European is still about 30 percent poorer in terms of purchasing power than the average American. That’s because hours worked per person have fallen sharply in Europe: by one estimate the average American will work 40 percent more hours over the course of his lifetime than the average German or Frenchman. So while the Germans and French are actually more productive in terms of GDP per hour worked, they have elected to work more hours, trading the additional earning power for more leisure time.
This looks like more like a lifestyle choice than an indication of superior economic performance in the U.S. compared to Europe.
Whatever economic differences there may be between the U.S. and Europe, they pale into insignificance compared to the cultural differences.
American multinationals looking to do business in Europe will find they face different—some would say higher—stakeholder expectations. Certainly, European consumers expect more from companies in the area of corporate social responsibility than do their U.S. counterparts. Corporate philanthropy is not enough; in fact, giving money is probably the least impressive way for a company to demonstrate its commitment to the society in which it operates.
Companies in Europe are expected to communicate more aggressively about their CSR activities too. Formal CSR reporting is commonplace, with most major European companies publishing social and environmental reports in addition to their annual financial reports—in several countries, social reporting is now mandatory—and a lack of transparency on CSR activities will be interpreted as an indication that a company has something to hide.
Some companies will also be surprised at the central role played by activist organizations. The leading NGOs in Europe are both credible and powerful. They are skilled communicators, often abetted by the sympathy of the reporters with whom they deal, and they are frequently consulted by governments—including the EU—when important regulation is being considered.
But every multinational that seeks to do business across Europe will find significant differences from market to market.
In the U.K., for example, a strong and proactive approach to media relations is critical, because the media culture is remarkably aggressive. U.S. corporations used to the cosy relationships they enjoy with business reporters in their domestic market will find the openly hostile attitude of the British business press surprising. But the British press is ultra-competitive—10 national newspapers, all looking to scoop each other—and the print media dominates, with many reporters relishing the traditional media mission of “afflicting the comfortable.”
In Germany, meanwhile, companies need to understand that employee communications is central to success. The presence of workers’ councils at most companies gives employees (via organized labour) a say in management decision-making and ensures that decisions about restructuring or off-shoring must take employee reaction into consideration.
The approach to public relations is likely to differ from market-to-market too. The U.K. is widely considered to be home to the most creative PR community in Europe, unafraid of big, bold ideas and risky tactics. The German and Nordic markets are highly empirical, even academic, basing their communications strategies on hard data whenever possible. And in France, clients familiar with the Anglo-Saxon approach to public relations will find a model that at first appears strikingly different, with many PR firms offering advertising and corporate identity services in addition to the more traditional media relations and corporate communications counsel.
Every decision involving the use of public relations consultancies in Europe involves a trade-off between convenience and quality. At one extreme, companies may be tempted to hire a single firm and hope that it can execute effectively across the entire region. At the other, it is possible to select the best firms on a market-by-market basis.
U.S. companies approaching Europe for the first time tend to experience a steep learning curve.
Their first instinct may be to ask their U.S. public relations firm to handle Europe as well. If so, they will quickly learn that very few firms have mastered the art of quality control across oceans and that there are major inconsistencies between regions. Some of the very best U.S. firms are merely average in Europe, while several firms that have struggled in the U.S. in recent years have nevertheless been able to maintain a market leadership position on the other side of the Atlantic.
If a company prefers convenience over quality, its next move is likely to consider several other U.S.-based multinationals.
Certainly, a growing number of these U.S. firms have strength across multiple European markets and multiple practice areas. But very few are good at everything everywhere (see Sidebar: The Evolution of Multinational PR Consultancies in Europe.) If a firm has 100 people in the U.K., it might legitimately claim to be proficient across all major practice areas—consumer, technology, healthcare, corporate, and public affairs—but it is unlikely to have depth of expertise in all those sectors in a smaller office of 20 or 30 people.
And unlike the U.S., where a firm can be strong in healthcare in its New York and Washington offices and thus cover any weakness in its Los Angeles or Atlanta offices, local market knowledge is critical in Europe. The media marketplace differs dramatically from country to country, and a lack of local contacts or cultural understanding will be quickly exposed.
Of course, not every network in Europe has its headquarters in the U.S. There are now at least three multinational, multi-specialist consultancies with their roots in Europe, and several specialist consultancies (particularly in the technology and financial communications arenas) with operations in each of the major European markets.
Another option is to choose not a single firm but a consultancy network. Many of these networks, which bring together independent firms from multiple markets, have been around for 20 or 30 years or more and have considerable experience managing business across borders, and the old criticism—that the members knew each other only via phone contact—is no longer true. They hold meetings, they share best practices, they transfer knowledge. In some cases, they may know each other better than the managers of multinational agencies who all have the same company name on their business cards.
But quality control is as much an issue for these networks as it is for the multinational firms. Few are good at everything in every market. Moreover, clients need to ask questions about turnover. When mergers and acquisitions activity booms, independent PR firms may be tempted to sell to one of the large holding companies, and replacements are sometimes found with too much haste and too little concern for quality checks.
A less formal approach to building a network is available through several of the quality midsized firms operating in major markets. These firms may have several relationships with like-minded firms in other major markets, and the ability to build “bespoke” networks that are based on an individual client’s specific needs, so that for a technology client they will find firms with strong tech capabilities, while for a financial services company they can find firms with deep sector experience.
Many U.S. clients will look first to the U.K.—there are no language problems, and the time difference is not as significant as it is for continental Europe—for a firm that can build a pan-European network. But the reality is that there are leading firms in almost all of the major European marketplaces who have the language skills, relationship and experience to manage business on a pan-regional basis.
The final option for large companies is to select consultancies on a market-by-market basis. This is particularly appealing to companies that prefer a decentralized approach to public relations, or those in which individual country managers exercise a great deal of authority and expect a significant degree of autonomy. But for companies that expect a high degree of coordination it may be too time-consuming or too complex to manage effectively.
Companies that elect to follow this path will find a wealth of choices. There are now strong, independent, locally owned-and-operated public relations firms in every European country. The U.K. has literally hundreds of them, including specialists in every conceivable market segment and practice area. Developed markets like Germany and the Nordics have dozens of strong independent firms. And even the developing countries of Eastern Europe have some very impressive local consultancies.
And most of these firms have experience working with other independents—and with large multinationals—on international business.
If there is a trade off to be made, the decision about how to make it rests with individual clients.
But a client that selects a single agency to handle European public relations should be prepared to hold that agency’s feet to the fire, to demand an honest assessment of the agency’s strengths and weaknesses in Europe, to ask where geographically it does not have the resources in place to offer top quality service (and more particularly, in-depth expertise in the client’s industry sector or required discipline).
And the client should be prepared to supplement that single agency with additional resources as needed. So if a giant multinational does not have the requisite healthcare or public affairs skills in Spain, the local office should be replaced in that market by an indigenous firm that specializes in those areas—and the lead agency instructed to treat that indigenous firm as a full partner.
Similarly, if a client prefers to pick the best consultancies on a market-by-market basis, it should still seek some level of coordination and cooperation between those firms, if only because an issue that impacts a brand or corporate reputation in one market will likely create challenges in neighbouring markets almost immediately.
Coordination can be handled either in-house or by identifying one of the local partners as the “lead agency” for the region, with responsibility for a common strategy (that can be implemented on a country-by-country basis, with respect for local culture and media sensitivities). But however coordination is managed, it should be made clear to all local consultancies that cooperation with their peers is one of the criteria upon which they will be evaluated.
Procurement professionals play an ever-expanding role in corporate purchasing decisions, and there is no doubt that their influence has been felt in the public relations sector over the past few years. But public relations counsel is not a commodity, and any attempt to purchase public relations based on price is likely to have a significantly negative impact on the value of services provided.
To be fair, the best procurement people understand that, but have been frustrated in their efforts to analyze value alongside cost by the absence of any meaningful metrics though which agency performance can be measured. The dearth of credible measurement and evaluation standards is a problem as old as the industry itself, and one consultancies must address as a priority, but it does not eliminate the need for potential clients to consider quality as well as cost when considering potential public relations partners.
There are only a handful of ways public relations consultancies can differentiate themselves from their competitive: their people; their processes; their clients; and their work. Prospective clients can study the resumes and track records of senior consultants; question the firm’s methodologies and analyze its proprietary intellectual property; discuss performance with current and former clients; and look at examples of a firm’s work, including its track record in industry award competitions.
Nor should chemistry be ignored simply because it does not lend itself to rigorous quantitative analysis. At the end of the day, there is no “best” consultancy out there—only the right consultancy for a particular client and a particular challenge. But if a company believes public relations is important, it will take the time to find that right consultancy.