India’s impact on the global economic order
India’s growth is having an impact on the current global economic order, said Martin Sorrell, Group Chief Executive, WPP, in an interview. Mr Sorrell is also Co-Chair of the India Economic Summit (27-29 November).
Martin SorrellWhat value do you think the World Economic Forum’s India Economic Summit brings?
It communicates and reinforces the importance of India as a growing economy and a tremendous source of intellect, creativity and strength in our industries. It also demonstrates to Indians and foreigners the importance of developing businesses and operations not only in India but in the context of Asia Pacific as a whole.
The value of the World Economic Forum is that it emphasizes that message and provides a productive debate on how further improvements can be made by liberalizing trade and services even more effectively such as restrictions on media ownership. We are going to have a good attendance at the India Economic Summit which shows just how top of mind India is.
The India Economic Summit 2005 is focusing on India’s phenomenal growth and the impact this is having on its relations with the rest of the world. What is your growth scenario for India over the coming decade?
I would be very surprised if India does not continue to grow at significantly faster growth rates than we see elsewhere in the world. I certainly hope that is the case. This will depend to some extent on the continued strength of the United States economy.
Whilst I think that the Asian tigers have become less dependent and more independent vis a vis the US, they are still interdependent and therefore strong growth depends on the American economy. Maybe if we start to see a resurgence in Japanese growth, that will help growth in India and China too.
Over a third of the world’s population is concentrated in two Asian countries and both those countries are becoming very important in the context of our operations. We have a well-established business in India and strong market share in our industry. We have around 5,500 people working in our businesses and although the Indian advertising and marketing services market is not in the top 10 worldwide whereas China is, India is growing very rapidly.
Those two countries represent our strongest growth businesses. During the first six months of 2005, our business in China grew by about 22 percent, excluding acquisitions, and in India by 13 percent. And that compares with six percent growth elsewhere in the world.
There will be bumps, things can’t go upwards forever and I would say that if we did see dips in the Indian economy, we would buy on the dips to give ourselves an opportunity to expand our position. Given our business is really about investing in people, the quality of the people that we have in India is absolutely outstanding. A number of Indians have gone into management positions outside India.
From your perspective, how is India’s role changing in the world economy and how is this impacting the current global economic order?
I think India’s growth is having an impact on the current global economic order. This is not new, if we go back to 1825, we would find that India and China represented the same proportion of worldwide GDP that they are forecast to represent in 2025. And this is a 200 year economic cycle that we are seeing.
So I think that it will continue with significant success and I see no reason for it to be checked in the short-term.
Most people associate India and China with low-cost outsourcing and low-cost manufacturing. And I do not believe that it is low cost. I think it is high quality at the price that they deliver. The price-value relationship is very strong. Some research work that we had done in India which was outstanding and which was at relatively low cost, would have cost significantly more in the Western market. If you look at the importance that Indians attach to education, it’s phenomenal and not dissimilar to what we see in China.
How would you characterize the West’s response to the emergence of India and China?
Most people in the 1990s espoused the benefits of free trade and globalization. But it is a two-way street. You cannot say it’s wonderful when you benefit from it and not-so-wonderful when you suffer some of the reverse.
And we clearly have failed to adequately explain to car workers in Detroit the benefits of globalization because when they see Japanese, South Korean or Chinese competition, they view it as jobs being taken away from them rather than looking at the benefits of the expansion of the economy through globalization and free trade. What you have to do is look at this as an opportunity and try and capitalize on it rather than reject it.
“The value of the World Economic Forum is that it provides a productive debate on how further improvements can be made by liberalizing trade and services even more effectively.”
The structures and regulations in most cases have enabled us to compete effectively. There are some industries where that is not the case, but certainly entry into the Indian and Chinese markets has probably been easier than we saw in Japan and South Korea.
India currently runs one of the highest budget deficits in the world and so how badly could a downturn in the world economy hurt India’s growth?
That is a worry and the same thing is true for China. I was in Thailand recently and the rise in oil price has had an impact on the Thai economy, dampening growth prospects there. It is inevitable that there will be some cyclical response or downturn if the American economy comes under pressure to a significant degree, and the current oil price does not make these sorts of calculations or situations easy.
So far, over the last 15 years we have been very fortunate that the US economy has been very well managed and there have been cyclical shocks for example in Asia in 1997 and after the internet bust in 2001. The recoveries have been very quick and I think we were all amazed by how quickly the Argentinian economy recovered. And so I think it is a worry and it is a source of concern and we have to watch it carefully. And if that were to happen, we would use the opportunity to invest in India even more heavily.
The Media and Entertainment industry in India has received a shot in the arm following the government’s decision to open up the FM radio and newspaper segments to FDI. There is also greater availability of organized finance in cinema and a rapid expansion in TV channels. What are the opportunities emerging from the most recent policy changes?
They’re all to be welcomed. There were some concerns about it going the other way with some restrictions on commercials on television and media ownership. I read about attempts by foreign retailers like Tesco and Walmart to enter the Indian market and I think that the further opening up of the economy whether it be in retail or services or media is all to be welcomed and will stimulate investment and therefore jobs and therefore incomes. This will also help with the trickle down effect which is obviously an issue that people are concerned about.