International

Advertising

James O'Connor is the Director of the Institute of Practitioners

in Advertising He is a Fellow of the Chartered Institute of
Secretaries fFCIS). a member of Ihe British Institute of Management
(MBIMj. a Fellow of the British Association of Accountants and
Auditors IFBAA) He is an honorary member of the Norwegian
Association of Advertising Agencies, the Institute ol Advertising
Practitioners in Ireland, the British Direct Mail Advertising
Association, and a Fellow of the Institute of Directors, and a
member of She International Advertising Association.

HE GROWTH OF TRADE
The old caravan routes from China across India
and the Middle East to Africa were beaten by
traders and kept open by the early entrepreneurs.
They were used at various intervals by conquerors
and kings for their own purposes but It was the
traders who themselves, through the centuries, used
the old trails and opened up new ones as they sought
to extend trading areas. The Phoenicians and Greeks
used the sea for sweeping round the Mediterranean
and beyond in the interest of increasing trade. The
Portuguese, Spanish, Dutch and British were major
sea powers in the 1 5th century whose main concern
was trade, the getting and exchanging of goods in
an ever widening world as their ships pushed beyond
the horizons of the known world to discover new
countries and new continents. Trade sometimes preceded and always followed the conquerors and the
missionaries in a continuing process.
Through the centuries world trade has continued
to expand and in this era almost every country on
the globe is involved in multi-national trading. For
the United Kingdom, for example, expanding her
share of world markets is essential to maintaining
her population at any kind of standard of life, because she is unable to grow sufficient food for her
people and is short of many essential raw materials.
Dr. Johnson is reported to have said "man is
never so innocently employed as in the pursuit of
profit". According to the latest OECD figures (1)
world trade in pursuit of profit is now expanding at
the rate of 1 5% a year. The average monthly world
trade figures have increased from $13.3 billion in
1 968 to S23,6 billion in 1 972, Allowing for inflation
at an average rate of 7% this still represents a healthy
overall growth rate.
The International Monetary Fund (2} estimates
the rate of expansion of world trade from 1968 to
1 972 at 77.5% an average rate of almost 20% per
year which would mean the doubling of world trade
in five years (at least in monetary terms). This steady,
consistent increase in the exchange of raw materials,
goods and services between the nations of the world
will, it would appear, continue into the foreseeable
future.
It is necessary, however, to recall that by far the
greatest share of world trade is still in the hands of
the sophisticated industrial trading nations. Moreover Germany, Japan, the United States and the
United Kingdom have each increased their exports
to the developed areas at a far higher rate than to

JOURNAL cf ADVERTISING

the less developed areas.

TABLE I

by the company itself investing in efficient production methods in the source country often an underdeveloped country. Thus Africa was opened up; thus
the petroleum companies went into the Middle East
exploring potential sources of oil, opening wells
and building pipelines. Factories and refineries were
built on site to process the raw materials.
Unilever and Unilever NV, for example, (3) now
operates in more than 7 0 c o u n t r i e s . The Shell
Transport and Trading Company and the Royal
Dutch/Shell group of companies (4) operate in 90
countries. This company not only leases oil wells,
has its own refineries and a fleet of oil tankers,
not only is exploring undersea for oil, but has
logically diversified into chemicals and metals.
The story of ITT (5} and its world wide operations
illustrates how widespread, complex and convoluted
these operations can become involving not only
the economics of profitable enterprise but implications of this enterpreneurial spirit.
For this reason multinational companies have been
viewed by some nationals with concern bordering
on suspicion. Their activities, it is suggested, are
inimical to national interests; they are able to influence and affect the economic prosperity of the
country; frequently they build plants only in those
countries where labour costs are lowest, financial
inducement highest and some taxation exemptions
possible.
These suspicions of foreign investment are normally justified. For example, in the UK there has
recently been a study (6)' which makes it plain that
foreign investment raises the per capita income in
a country and is coupled with a generally favourable
effect on the balance of payments. The report looked
carefully at the many propositions which suggest
that multinational companies are the agents of
Britain's "economic enslavement" and that these
companies are not subject to the same degree of
control by national governments as purely national
companies, but that their international operations
in fact place them above the law and outside the
control of law makers.
The study found that, although the firm is foreign,
is in the country on sufferance and has possibilities
for manipulating exchange controls, these factors
tended to make it, at least under present conditions,
more (not less) publicly accountable than domestic
firms.
It is not possible to say, at this stage, whether
these findings apply universally. It is reasonable,
however, to assume that they are more likely to be
true of multinational operations in most countries
than the converse. It can be argued that the size of
multinational companies' investments in the UK,
proportionate to the total national investment,
is minute compared with that of a less developed

1972 INCREASE OVER 197t

TO
DEVELOPED AREAS

TO LESS
DEVELOPED AREAS

Japan

19%

12%

W Germany

18%

12%

US

12%

8%

UK

10%

3%

Source Direction of Trade 1 973 IMF,

Table I indicates the changes in the shares of world trade of
manufactured goods of the major industrial nations from 1965
to 1971,

The two interesting figures are the increase of

Japan's share from about 9 to 1 3%. while America's
percentage share has dropped from 21 to 17.2%.
These statistics although they show tittle change
inthe pattern of trade but of course a great increase
in its value and volume do not take note of the arrival on the world scene of the USSR and the East
European countries, which now realize the importance of trade and are forcefully seeking to expand
it outside the Eastern bloc.
There can be no doubt that there is going to be a
massive increase in world trade in the next 25
years in which more and more nations are going to
increase their own shares, certainly in value and
volume. This means increasing prosperity for more
people as production continues to expand everywhere.
This is not to ignore the problems of exploding
population in some parts of the world, upcoming
shortages of raw materials, and many ecological
problems and concerns, but to set the expanding
trading background against which these other problems may be discussed,
MULTINATIONAL COMPANIES
The large, sophisticated industrial nations dominate the world marketing scene and are responsible
for the major share of its expansion. These are the
countries which have bred the large multinational
companies which not only trade throughout the
world but have global networks of subsidiary and
allied companies. Many of these companies are
vast conglomerates with a wide diversification of
interests.
The multinational company is the logical extension of the expansion of production on mass flow
lines where optimum capacity exceeds the needs
of the home market. The pressure builds up via
multinational selling and then questions of access
to raw materials and the paramount need to preserve vital sources of supply. Frequently raw materials can only be provided in sufficient quantities

'Prepared under the direction of Professor Max S. Teuer and

a research team from the London School of Economics,

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fnternationaf Advertising

country where the impact of foreign investment is

greater. It is the developing countries, in the main,
which have imposed the most stringent rules on
exchange control and made it difficult for foreign
investorsto take money out of the country concerned.
This could lead to the same result as the Canadian
Government's decision to tax companies at the highest rate in the world, which forced Hunter Douglas
to move its head office to the Netherlands and reincorporate itself in the Netherlands Antilles (7)
However, in general, the multinationals tend to
weather uncomfortable experiences of this kind.
There are many ways for a company to operate
in other countries. It can begin by exporting manufactured goods through agents, though nowadays
the multinationals wouid not normally utilize such
selling methods, rating them antiquated for the scale

on which they would expect to break into any market. Normally the multinational company would
set up, as a minimum operational basis, a complete
selling operation from ieasing warehouses to organising a sales force and a total distribution operation.
The classic example is the motor car manufacturer
whether U.S., British, German, Japanese or Swedish,
where distribution and servicing operations are
linked to a sales service over which they have
complete control.
The next stage for a multinational company, if it
is not the first in the location chosen, is to set up a
subsidiary to make or assemble the product on the
spot. Such a subsidiary may be centrally situated on
the continent so that it can supply a number of
contiguous countries.
There are infinite variations to these patterns of

PERCENTAGE SHARES OF MAIN COUNTRIES' EXPORTS OF MANUFACTURED GOODS

Federal
Republic
of Germany
20.2
USA

17.2

Japan 13.0
UK

n.O

France 8.8
Italy

7.2

Canada 6 1

1965

1966

1967

1968

1969

Source; Annual report British Overseas Trade Board 1973.

1970

1971

JOURNAL of ADVERTISING

marketing which may be used. (The multinational

company, for example, may lease its patents to a
local manufacturer which pays either an annual
sum or a royalty on each product.) The method
ultimately chosen will depend on a variety of
factors, economic, political and legal.

each separate country. The adaptations nowadays

are more likely to be in the sales promotion methods
as within different countries, and the precise platform on which the advertising and selling appeal
is based.
INTERNATIONAL ADVERTISING
Parallel with the growth of multinational companies
has come the growth of multinational advertising
agencies to serve multinational clients. The increased
widening of trade horizons, coupled with the dismantling of trade barriers is, as we have shown,
turning manufacturing, distribution and advertising
agency practice into an international activity in
which the old concept of home as distinct from
overseas markets is increasingly irrelevant.
We have moved into a world where many industries particularly those where technical or cost considerations dictate a scale of mass production or
technical sophistication must market internationally if they are to survive and grow.
Given this basic requirement manufacturers must
exercise strategic control over their global operations
seeking a practical compromise between complete
decentralization and centralized control. The optimum
is a complete local marketing operation supported
by inter-market co-ordination and strategic planning
conducted centrally.
Advertisers need for this an overseas marketing
service in depth and this is now being provided by
most well equipped advertising agencies in sophisticated and developed countries such as the US and UK.
It must, however, be said that in the field of
international marketing, agencies can only be as
good as their clients permit.
They can do nothing for the manufacturer who
treats overseas trading as a marginal extension of
his home market. Nor can they do much for the
short-sighted manufacturer who will cheerfully
risk the loss of thousands of pounds by putting the
wrong product through an inefficient distribution
system into the wrong market rather than spend
money on basic research. The manufacturer who
can benefit most from the help of agencies is the
one prepared to invest in overseas growth, as
indeed most of the multinational companies are.
It is one thing, of course, to say that the agencies
can help. But what exactly can agencies do, how do
they deploy their resources overseas? What does
it cost?
First of all let us examine the ways in which
advertising agencies are organized internationally.
Almost all large service agencies in the developed
countries, and especially in the United States and
the United Kingdom, provide overseas services.
The nature and scale of these depends on the size
and financial resources of the agencies.
The classical pattern of agency development
broadly follows that of exporters. An agency

INTERNATIONAL MARKETING
The 'Jet set' is the brief way of referring to a
group of wealthy, sophisticated people with similar
tastes and values who are constantly moving about
the world. Today, however, with the immediacy of
communications through satellite, television, and
radio, the world comes to every man's home. Certainly the advanced developed nations of the world
not only share a common technology and scientific
background but also increasingly share, to a surprising degree, common tastes even where they
do not share a common culture.
From the 193O's through the 5O's the cinema
across the world began the process of standardizing
taste. This is an oversimplification of what happened
but it does emphasize the role of the cinema, the
moving picture in communications. Television took
over this role in a new and different way, providing
immediacy in its transmission of news, views, trends
and standards. How much the consumer revolution
or the age of consumerism owes to television would
prove the subject of a fascinating study one day
for some sociologist, the results of which might
well show that television was the midwife of consumerism.
Certainly it is true that instant communications
through thewholerange of media particularly print,
television, radio, cinema - are exerting pressures on
people in all countries in the world, leading increasingly to some standardization of needs and requirements.
Whether it is in the field of low-priced, repeat
purchase, packaged goods (such as soaps and detergents) or in that of consumer durables (such as
washing machines, refrigerators and motor cars) or
of machinery and factory plants, there is a fast
growing internationalization of design and taste.
The basic design, for example, of motor cars whether
they come from Germany, Japan, the United States
or the United Kingdom is international.
They have to appeal to a variety of people in a
large number of countries and are designed to meet
the highest common denominator of these tastes.
Because of this, fewer product adaptations are
now necessary when appealing to multinational markets. It is true that national prejudices have to be
taken in account as have also religious differences
and those of translating precise meanings into a
large number of languages, but basically it is now
possible to design and produce products for a wide
range of different national markets, without being
involved in large scale and costly adaptations for

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International Advertising

and complex the client's international trading pattern,

the greater the demand on the agency serviceTo illustrate the full range of services available
from a large international agency, let us take the
purely hypothetical example of a large scale manufacturer with sales agency arrangements in 40 direct
export markets and a spread of subsidiary companies
in six other countries, assuming that he has a new
range of branded consumer products established
in the U,S, which he wishes to market internationally.
Then the agency's first contribution can be to orientate the international selling effort for the product
rangealong rational lines inshorttodeterminemarket priorities for the range. International market
intelligence staff at the headquarters agency, drawing
on data from many different sources, can arrive at
a selection of priority markets for development.
These markets can be examined in greater depth.
Local retail audit data can be purchased where it
exists or trade research mounted to assess the size
and characteristics of the product range and its
distribution structure in each market.

entering the international field for the first time

would normally establish a working partnership with
foreign agencies operating in the territories where
their services are needed. These networks of associate agencies are supervised, directed and sometimes remunerated by the central agency, working
under the direct control of the manufacturer, who
pays an overriding service fee for this extension
of his advertising agency operation.
When the income from overseas operations justifies it, agencies often appoint an international
specialist to co ordinate and direct their overseas
services to clients. Thus, even at a fairly early elementary stage in their international development,
agencies offer the manufacturer marketing help at
the centre directly linked with advertising and
marketing machinery in overseas territories.
With increasing size and resources the agencies'
international structure becomes more sophisticated.
Partly- or wholly-owned branch offices are acquired
or set up overseas, sometimes to service the local
companies of multinational clients with big budgets
to spend in a number of territories. Complementary
networks of research, public relations and marketing
consultants are also established if the agency is
not structured to include them in its own operation.
What finally emerges is a composite network of
branch offices, associate agencies, research, marketing and public relations services.
In the case of the larger agencies these composite
networks are global in scale In some cases the
accounts they handle are co-ordinated and directed
centrally by highly qualified international marketing
staff located in the headquarters agencies Agencies
which operate on this scale can and indeed often
do pilot manufacturers into overseas markets from
the word go, acting virtually as an extension of, or
replacement for, the manufacturers' own marketing
resources.
It should be remembered too that certain advertising "centres" exist in the world, and that these
should be the first extensions from base markets,
which is usually possible since such centres are also
probable marketing jump-off points for a group of
separate international markets (8).

The agency's next contribution can be in the area

of actual marketing planning. The agency can advise
on product formulation, packaging and pricing policies. It can define marketing strategy and help to
compile investment spending plans and spell out
calculations specifying annual sales targets and
promotional budgets- Finally, detailed promotional
plans embracing, if necessary, the whole range of
advertising, sales promotion, merchandising and
public relations can be drawn up by the headquarters
agency in consultation with its associates and branch
offices, for eventual execution by the offices in
selected development territories backed where necessary by specialized services from the headquarters.
At this stage the actual mounting of promotion
plans in a number of varied overseas markets requires
the maximum flexibility from the agency network,
differing in character where the manufacturer has
subsidiary companies and where he is in direct
export markets. In these direct export markets a
centralized service is normally essential.
However, in those markets where both agency
and manufacturer have their own local companies
established, a completely different pattern of services
is needed. Once marketing strategy has been determined by client and agency headquarters, complete decentralization to the local agencies becomes
a little more than support and consultancy f r o m
headquarters. Central control becomes central
co-ordination, with most of the actual administration
of the advertising plans devolving on the local
agencies reporting in the first place to the manufacturer's own local companies.

THE ADVERTISING AGENCY SERVICE

So much for the organization. What practical
form can the advertising agencies' help take? {9}
First, it is important to appreciate that the keynote
is flexibility. Different manufacturers make varying
demands on agencies, depending on their organizational structure, product range and overseas marketing pattern. Obviously an exporter trading on an
FOB basis with 40 direct export markets would need
a different pattern of service from, say, a company
with subsidiaries established in a number of countries
and a direct export trade to the Middle East.
Generally speaking, the more highly developed

Nor is such agency service beyond the reach of

the smaller manufacturers. Large operations can
start in a small way, and alert advertising services
are always prepared to invest time and effort in

13

helping to develop overseas markets, provided the

product or service has real potential and the prospective client is prepared to invest resources in a
scientific and systematic approach to overseas selling.
An important part of all these investments will
be in the f o r m of realistic remuneration for
the agencies.
Advertising agencies can deal with every kind of
company from the multinational (such as Gillette
selling in more than 1 70 countries (10) and spending
in these over SI 00m on advertising internationally
through its advertising agencies) to the smaller
manufacturing company, which is selling direct to
one market.
Advertising agency costs in the export field are
governed by more or less the same considerations
as those of the manufacturer. At home, if the advertising market is large, the agency can subsist economically on the commissions and fees it earns.
As soon as an agency begins operating outside
Its base country it is involved in different and
higher costs. In addition most of the agency's initial
work in helping clients in overseas markets is of a
consultative type and may extend over many months
during which no money is spent on advertising or
promotion. For these tasks, therefore, the agency
yvill expect to be remunerated on an agreed fee system.
Even when money is being spent on promotion
and advertising outside the home country and the
commissions are accruing from media, the headquarters agency will be involved in the additional
costs of operation that have been outlined here.
For this it will need an overriding service fee, which
should normally be less than the cost to the manufacturer of providing it in any other way.

9 "The Advertising Agency's Role in Developing International

Markets," IPA. 1968 Also "Industrial Marketing and Advertising
m Europe,"/fy4, 1970
10 The Gillette Annual Report 1972

SUMMARY
The company selling internationally should:
1 Exercise strategic control over his global marketing operations.
2. Back his overseas marketing operation by the
same quantity and quality of investment in promotional resources as his basic market,
3, Work w i t h an advertising agency properly
equipped at the centre and working through an
integrated network operation, properly remunerated for its contribution to the total selling effort.
REFERENCES
1 World Trade 1972.
2 Direction of Trade. March 1 973, International Monetary Fund
3 Unilever Report and Accounts 1 972
4 Transport and Trading Connpany Limited Annual Report 1972
5. Sampson. A The Sovereign Slate Hodder Si Stoughton
6, "The Impact of Foreign Direct Investments on the United Kingdom."/yWSO. 1973
7 Sunday Times. August 19, 1973
8 O'Connor, J "Europe Means London,"/P>4. 1970

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