Aurora Magazine

Promoting excellence in advertising

Published in Mar-Apr 2016

Doing business in a non-linear world

Interview with Ghassan Harfouche, Group CEO, MCN.

Ghassan Harfouche speaks to Mariam Ali Baig on the geo-political dynamics affecting the MENA region and what agencies need to do in order to remodel for the future.

MARIAM ALI BAIG: What is the economic outlook for the region, given that according to press reports ad spend was down by 11% last year and is likely to contract further?
GHASSAN HARFOUCHE: When we speak about advertising spend it is important to differentiate the geographical space we are talking about. In this region, this means the GCC (Gulf Cooperation Council) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. This is a cluster in itself and it has a lot of correlation in terms of trading, business and advertising. It is also the reason why the headquarters of most multinational brands are based in Dubai, even if they are targeting consumers across the region, and more specifically Saudi Arabia (the UAE has a population of about eight million compared to 30 million in Saudi Arabia). Dubai has created a unique economic model that is much less oil dependent compared to other countries in the neighbourhood; six percent versus 30% in the rest of the UAE and 80 to 90% in Saudi Arabia. So, from an economic standpoint, the region, regardless of Dubai, is highly correlated to oil revenues and the first factor affecting this region today is the fact that oil prices are one-third of what they used to be a year ago, and although oil prices have dipped in the past, the concern is that they will not go up substantially again.

MAB: Why are they unlikely to go up substantially again?
GH: Because of increased production across the world and because of the economic slowdown taking place in the major oil consuming countries. The sentiment today is that we are in a post oil age. Dubai has always been very aware of this and over the past 15 to 20 years the government has taken initiatives aimed at diversifying the economy away from oil. Saudi Arabia is showing signs of acknowledging this reality and the government has taken initiatives to address this; it has stopped the subsidy on oil prices – and this is really a first, as they have always subsidised the price of oil and this signals an acknowledgement that they will have to think differently about how to drive their budgets. The government of the UAE recently held a brainstorming session about how to create new industries as well as take existing ones to the next level. There is a huge awareness and public acceptance of this reality in the UAE. The second factor is the global economic situation. In the US, the Dow Jones recently dipped from 7300 to 15,000 points within 10 to 15 days (over 10% in a very short period of time). China, which has been a major source of growth for this region, is witnessing a slowdown. The same goes for Russia and Europe. So the economic environment is not very promising. The third factor is the political uncertainty in the region; a war in Yemen, a war in Syria, an ongoing struggle in Iraq and added to this, the Iran- Saudi conflict has never been so public, so open and at this level. It is now at its peak and cascading into wars that involve Saudi Arabia and the GCC countries. This has created a number of pressures. Social, because people don’t want to see their kids killed and this creates political pressure on their governments. Then there are economic pressures because these countries are investing in defence and military capabilities. The fourth factor is the fact that Saudi Arabia is witnessing a new form of leadership. Previously, power was transferred from the king to his brothers and they all shared a common mindset and governance style, and they were from the same generation. Today, the crown princes are young; they have a different background, different motivations and different mindsets. So there is a change of leadership style – not necessarily of regime. This might be a positive thing, but it has embedded within it some risks. Previously, people knew what to expect, today there is a level of uncertainty. Adding to this Daesh or ISIS poses a threat to the region and to the rest of the world. In my view, America’s new foreign policy is changing the rules of the game; the Iranian-American agreement and the withdrawal of American forces from Iraq has put a new framework around the politics of this region because US direct intervention is likely to be less than it has ever been. In such an environment everyone is cautious. Companies are not only concerned about their financial performance in the region, they are also looking at their financial performance at the global level and if they are squeezed elsewhere they will probably put pressure on the local region to meet their budgets – and advertising is always the first to be hit. As for last year’s downturn in ad spend, the lack of data in this region is enormous, so it is difficult to know what the numbers actually are. Last year we witnessed a very satisfactory percentage growth, but in terms of the industry, growth went from flat to negative and in 2016, the outlook is negative – by how much is the big question mark. Personally I think there is a lot of wealth in this region. Yes, the outlook is less promising, yes there are changes in the fundamentals, but there is $600 to $700 billion worth of savings in Saudi Arabia as sovereign funds, maybe another one trillion in Abu Dhabi, another one trillion in Qatar. These governments are still rich. In my view, the cooperation among the GCC countries is much better than ever before and if they have a plan (and I think they do) about how to bring in new sectors, stimulate demand and trigger new industries, they also have the means to do it. They are not indebted; they have the ability to finance any programme they want – they have manoeuvrability.


"This is no longer a linear world and we have to learn to work within a matrix. The way I see it, in its simplicity, is that first of all we have to become rich in the strategic capabilities that are necessary to our clients.”


MAB: What kind of economic diversification will this post oil era call for and where will it come from?
GH: A lot of the wealth in these countries had been directed overseas. Qatar has been investing in France and the UK, among other countries; Abu Dhabi has invested in joint ventures with US companies. They need to think internally and about how to deploy and allocate these financial resources behind industries here and help them create demand by giving them competitive advantages.

MAB: What kind of industries?
GH: Manufacturing for example. Governments in this region own plenty of land. There are a lot of initiatives they can take by using their assets, at low or even zero prices, to encourage manufacturing. The Arab region has a population of 200 to 300 million; there are enough people to target and customise products for. The Islamic compliant industry is huge and you can take it to an entirely different level by encouraging new ideas and creating new products. The economies here are mainly driven by what governments do and it is all about the infrastructure, assets and rules the governments can put in place to facilitate investment.

MAB: What about the rest of the MENA component?
GH: As an agency, we are present across 14 disciplines in 14 markets. Saudi Arabia, Egypt and the GCC countries account for more than 80% of our revenue and they are the three pillars of the economy. North Africa (outside Egypt) consists of Tunisia, Algeria and Morocco – the Maghreb cluster. Tunisia and Algeria are small markets and are very linked to what happens here. Morocco is different because it is linked to this region as well as to Europe.

MAB: In terms of insights does this involve three different blocks of consumers? Are there differences in culture or is there a common Arab sensibility?
GH: Yes and no. Certain things are common and others are particular to each market. When it comes to insights, attitudes and consumer behaviour, we focus on both the common and the particular to create the right messages and content. A big part of what we do is to try and improve our knowledge about these societies; they are generally introverted, which makes it difficult to collect data about them.

MAB: What would be the commonalities and the differences?
GH: The language, religion and family values are big commonalities. There is a lot of movement between these cultures. As for the differences, we live in a world which is much more personalised. The challenge is to identify and reconcile those differences and cater to them. It is about being global but being local, being mass but being individual.

MAB: Has there been an evolution in terms of consumer attitudes?
GH: It has been tremendous. What characterises this region is the youth of the population. In the GCC countries 60 to 70% of the population is under 30. What social media has brought to this part of the world is ‘freedom’ of expression and much more connectivity. The UAE has caught up with technology much faster; the expatriate community is very large and Dubai has always been about tolerance, acceptance of other people’s opinions and their contribution to the country, and this has influenced the local population as well as consumers elsewhere in the region.

MAB: In terms of a post oil economy, how much emphasis is being put on drawing in the local populations into areas of new economic activity?
GH: In the UAE unemployment among the local population is not high; however, in Saudi Arabia it is 25%, which is why they have a huge programme to lower unemployment and make it more manageable. There is a quota system in every industry and companies must maintain a ratio between expatriates and locals.


"We should not be myopic, no business model remains the same; consumers change, technology changes, then there are a lot of exogenous factors that come into an industry that require that you keep adapting."


MAB: Is this ‘unemployment’ voluntary or not?
GH: Both. In some cases it is because they don’t have the level of education required to find employment, although they still manage to earn a living. However, let’s not underestimate the fact that some people are in need of employment. We may be a rich part of the world, but unemployment exists and huge efforts are being made by governments to integrate the nationals in the economy, because that is what is going to be sustainable for them. When we speak of a post oil economy, the challenge is to educate and prepare local nationals to be part of the economy in a good way, and not just by forcing industries to hire them. Let me give you an example relevant to our own industry. A lot of nationals are employed on the media side – media suppliers and producers, but on the advertising or media agency side only one or two percent of the people employed are local nationals.

MAB: Why?
GH: Firstly education – the universities were not offering courses on marketing communication, although things are improving. Secondly, they are not attracted to this industry because of the hours we put in; they are more attracted to finance, banking, entrepreneurship and the government sector, because of the salary, status and exposure. But it is a two way street and we need to make more effort to bring in local talent. Having this diversity as part of our business is an enriching factor in terms of understanding consumers better.

MAB: Is there such a thing as an underprivileged segment in this region?
GH: From the outside one has the impression that everyone is rich, but it is not the case. You have social classes that go from the extremely rich to the poor. The social divide is huge and there is an enormous middle class. The A class is probably richer than any A class outside this region, but it is a small percentage of the total population.

MAB: Do you think there is a need to change the agency model in order to deal with changing consumer expectations?
GH: We should not be myopic, no business model remains the same; consumers change, technology changes, then there are a lot of exogenous factors that come into an industry that require that you keep adapting. Our industry is going through challenges in terms of redefining what we do and how relevant we are to our brands. How we do it? I think this is going to happen by stages. Firstly, we cannot continue to offer what we used to in the same way, in terms of processes, people, structures and thinking. We have integrated technology into our business and we have to evolve our offering in those terms. This is a major change in the way we work and necessitates that we recruit different kinds of people and operate under a different culture. Technology has changed the way people consume information and receive messages. The nature of the messages has changed; they can be personalised or mass and we have to deal with this complex world of multichannel multitasking in real time and in a world that is data rich. We need to bring in new capabilities that will allow us to talk to consumers with relevancy. This is what we struggle with and technology is putting pressure on all industries, not just ours. This is no longer a linear world and we have to learn work within a matrix. The way I see it, in its simplicity, is that first of all we have to become rich in the strategic capabilities that are necessary to our clients. We have to create those capabilities and make sure we gain expertise about them and not worry too much about how they fit in, because we are in the process of creating this matrix. Secondly, we don’t know yet how to link those capabilities; we are still learning about them, how we will work with them and where we will put them, so first and foremost it is going to be about creating the culture that enables those capabilities to work together. It is about change and nurturing people who are willing to collaborate with each other in order to create a better product. This is how we will develop new processes and evolve a different way in how we offer our services. Too much pre-empting is like making too many predictions, so you have to take it step by step; build those capabilities, embrace technology, accept change, bring in people who are open and understand today’s world. Then we will figure out how we are going to cope with this new world. Ultimately, this might lead to changes in the business model, but it is too early to say what this new model will be, because we are still boxed within our legacy structures...management, legal, accountability or P&L structures, and we will have to cope with living with grey areas because we are going to find a solution today. We have to do our best to work with this evolution and time and experience will help us figure out how we can reposition our services. The key point is that we need to be dynamic; we need to embrace what has happened and bring in people who can cope with the future and in this way will come up with the solutions our clients will expect from us in the future.

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