Burnt Fingers

In April 2017, the Flamingo Group, a global insight and strategy agency, announced that it would close all seven of its international offices on the grounds of “the organization’s inability to reach unspecified revenue goals”. This announcement came after the company recently made new investments in international offices in Jakarta and Tokyo.

A statement from Omnicom (the holding company that acquired Flamingo 10 years ago) stated that the international offices were “underperforming” and the group would “be placing a renewed focus on its presence in London”, the only remaining office.

This drastic decision indicates very serious problems, but ones that can affect many market research companies that try to internationalise. In 2015, Truth, another UK-based research consultancy, also decided to close all its international offices, with a renewed focus on its UK operation. Several years back, Harris Interactive closed some of its international offices; Australian research firms The Leading Edge and Colmar Brunton also closed their offices in Singapore.

Two related observations here are, first, that the acquirer made a substantial investment in the Flamingo Group, partly because of its international network at the time (i.e. Singapore and San Francisco), and then embarked on further international expansion into additional foreign offices. The other observation is that centralisation, specifically in the UK market, is now seen as the solution to underperformance or financial difficulty.

What can we conclude from this?

Certainly centralisation brings some economies of scale, and can bring about more control over operations. With more data collection being conducted online, it is also easier to co-ordinate global fieldwork (e.g. through the global account managers within the panel companies). But in the case of Flamingo and Truth, predominantly qualitative specialists, this has its limitations – the lack of a local presence would then become a liability for international qualitative surveys.

But it is unlikely that the networks themselves represented a liability; an office in Jakarta and Mumbai would be a lot cheaper than any additional headcount or office space needed in London to serve these markets. There are good examples of cases in which international networks have been a considerable asset for research firms. For example, the international network was very much the value adder for the original AMI Group, and ultimately for the global network under the Synovate brand that was sold for $700 million.

The international network allows you to service clients in different time zone. More importantly, not having people on the ground within specific markets means that the researcher’s understanding of these markets is that much less – a bit of a liability if you are in the business of market research.

Moreover, the international network provides reach to a much wider client pool. Multi-national corporations (MNCs) are actually cutting back on their research spend, whereas some of the fastest growing spenders on research are local corporations and the public sector. While not impossible, it is very hard to win work with local clients with no local office – worse still if there is no presence in the entire region.

So the root causes of the ‘underperformance’ must be in the local proposition itself. In many respects, market research is becoming deglobalised. MNCs are now placing more emphasis on tailoring their products and communications to local markets, by considering local culture, competition, and prices. The MNC market research firms are losing shares to a growing range of boutiques that have a better understanding of these local markets, with more palatable prices to match. They are also better placed to undertake international research for the same reasons (i.e. through the resources of the global panel companies).

But since these companies had local offices, the problems might be in the mismatch of the product proposition. The UK agencies that have undertaken quite aggressive international expansion in the last 10 years have also been some of the most progressive and innovative. Business strategies were based partly on the company introducing cutting-edge techniques to local markets. The problem is that relatively unsophisticated markets are simply not willing to pay the premiums for ‘advanced’ research, which can sometimes just come across as ‘fluffy research’.

Another common underestimation is the level of competition in the local markets. If a market is viewed as ‘unsophisticated’ then one can draw the incorrect conclusion that it is ‘underdeveloped’ and therefore wide open to business opportunity.

But the decision of Flamingo and Truth to withdraw to the UK could be a sensible one. While there are considerably more market research firms in the UK than in all other markets apart from the US, the UK has by far the highest market research spend as a proportion of GDP than any other country globally. When the demand/supply ratio is x2 or x3 that of international markets, it could be sensible to concentrate on picking the lower-hanging fruit.  ■