As the results from the 2014 client survey show, anyone trying to run a market research firm in Singapore has their work cut out. While there is some indication of a recovery in clients’ budgets, the market still remains fairly stagnant, and clients are spreading their business around more than ever. Judging by their willingness to entertain new agencies, this is likely to continue.
Asia Research surveyed the heads of some of the leading research firms in Singapore, including both multinational and independent agencies. With some exceptions, the firms were very keen to contribute to this survey, perhaps to demonstrate their leadership within the competitive Singapore market.
The key issues discussed in the survey included how agencies are seeking to find competitive advantage in such a crowded market.
In dontdontevaluating the battleground for the research business, we looked at two opposing forces: the bright side, which encourages competition driven by innovation and dedication, and by attracting the best talent; and the dark side of slipping standards and the restriction of competition through the murky area of restrictive trade practices.
THE BRIGHT SIDE
The business-friendly nature of Singapore and low cost of market entry has certainly helped to spawn many new research organisations in the last few years. In addition, the Singapore Economic Development Board (EDB) has promoted Singapore as a market research and business intelligence hub, and for this reason it is often the “point of entry” to Asia for research firms from outside the region.
But while Singapore has done well to attract multinationals to establish their centres of excellence (including research) to Singapore, the supply side of research has grown a lot faster than the demand side.
Some feel that the industry will not be able to support so many players, but just like other industries, the market research business will always find a way of “sorting itself out”.
Nehal Medh, the Managing Director of the custom research division of GfK, comments, “some agencies will exit, close down, or merge with others, but we will continue to see the fresh entry of more boutiques. The real challenge is for existing businesses to understand these ‘shifting sands’ and re-position themselves sharply for sustained business viability.”
Competition is certainly keeping the supply side on its toes.
Jon Foged, Managing Director of TNS Singapore, comments, “the ecosystem (of market research) now consists of the big agencies, management consultancies, online panel providers, and the client’s internal teams. In such an environment, agencies need to sharpen their focus more than ever to support the client’s business decision-making.”
While boutique research firms have been increasing their market share, some feel that they will not be able to meet the challenge of scalability that regional clients in Singapore will need. Nehal Medh from GfK comments, “without an international network and the vagaries of fieldwork quality in offline markets, they (the boutiques) may run the risk of being marginalised.”
Paula Kant, CEO of Insight Asia, expects more agencies to come to Singapore, but argues that boutique agencies can flourish by either tapping into the resources of third-party suppliers or by developing their own network. Indeed, even the larger agencies are increasingly using third parties for data collection. Paula argues, “the success factor will be real insights – what keeps a client happy and keeps them coming back are insights and original thinking.”
The level of competition and the choices the clients now have has put pressure on margins, but the extent to which the Singapore market is “price driven” has been hotly debated over the years. While some sectors (e.g. Government and fieldwork services) are often very price-driven, there are many areas for research companies to find points of differentiation.
Some of this has been in the form of product innovation and the development of proprietary research solutions, but many of the industry players agree that customisation is very important in adding value. Jon Foged from TNS Singapore comments, “our business solutions have been developed and refined by some of the gurus in the industry and proven by thousands of studies all over the world. They are the foundation of our expertise and the basis from which we develop customised approaches tailored to client needs.”
Nehal Medh from GfK also feels that customisation is key: “black box solutions are not the answer, but instead the solution is in (analytical) frameworks. No single technique is capable of solving the increasingly complex reality of today’s markets”. Paula Kant from Insight Asia adds, “the tools can never replace the thinking. The tools facilitate and support the thinking, (combined with) the passionate and creative approach to research.”
Greg Wayman, Regional Director for ORC International, comments, “There is probably a move towards greater transparency (in solutions). So, while a company may have a preferred and structured approach, it has to have the ability to be customised to suit the business needs of the client.”
Piers Lee, Managing Director of BDRC Asia, comments, “the BDRC Group’s proprietary techniques are not black-box solutions, but are instead analytical frameworks that are transparent, allowing the clients to see how the insight has been derived. The downside is the transparency makes them easy to replicate by competitors, but being the pioneers of these techniques, we are best placed to use them to the greatest effect.”
Some companies seek to defend their solutions through intellectual property protection. The ZMET qualitative technique from OZA in the US is actually a patented technique. However, it is trademarking that has been used most by firms to create identity and brand recognition for their solutions. Neil Gains from TapestryWorks has trademarked several frameworks and approaches, and comments, “We use trademarking to establish authority and precedence in the use of our approaches, all of which we have also published in Brand esSense and through our company blog. Trademarking does not protect us from being copied, but is an important part of establishing our credibility in developing original and professionally recognised approaches that can reassure clients.”
Despite the discussions over products and solutions, all the industry pundits agree that the main competitive advantage of agencies will come through attracting and retaining the best talent in the industry.
Jon Foged, Managing Director of TNS Singapore, comments, “our business is only as strong as our people, and we need to build and nurture the talents of our employees, supporting them to develop into truly client-centric consultants who can apply their commercial focus and deep expertise to address clients’ business challenges.”
Samy Mardolker, Managing Director of ORC International Singapore, feels that innovation and proprietary solutions can be a bit of a “wild buy doxycycline us pharmacy low prices card”, and concurs with most of the industry that it will ultimately be about finding and retaining the best talent. He comments, “it was people, it is people, and it will be people. Everything boils down to the passionate and intellectually curious research mind (of the individual).”
THE DARK SIDE
Competition has raised standards in many respects (e.g. by encouraging innovation and setting higher standards for the industry). But the counter-argument is that with so much competition, there has been something of a race to the bottom on pricing as competitors try to undercut each other. Cut-throat pricing and “over promising” to clients can result in corner-cutting, particularly in areas of fieldwork, focus group recruitment, and getting access to hard-to-reach audiences.
But problems also arise when agencies simply cannot attract the right talent.
Since the industry pundits concur that the core of competitive advantage is in the people, it is perhaps not surprising that some agencies seek to impose restrictive trade practices to prevent the staff that they hire from competing against them as soon as they leave their company.
It is not uncommon for agencies to impose restraints on trade through staff employment contracts. Since lawyers are usually paid by the hour, they are quite happy to draw up elaborate employment contracts for companies, even if they might contravene the trade and competition laws in the country.
The most common restrictive clause is the “non-compete clause” in its various forms; for example, where employees who leave organisations cannot solicit clients or staff from their former company for a specified period. This is often a bit of grey area since “solicitation”, directly or indirectly, can be open to interpretation.
It is alleged that an agency in Singapore even put in place a directive whereby staff could only join a specific competitor if “written permission” was given by the employer (which they could theoretically block), even though this was not in the employee’s contract. Such directives are likely to get companies into trouble with the Ministry of Manpower, since they are a mechanism that can stop the free flow of labour in the market. It could also be viewed as a violation of civil liberties. In the example given, the staff member complained that she was required to go through multiple high-stress exit interviews before permission was given to join the competitor firm.
More elaborate non-compete clauses are where agencies try to impose this at an international level. In one example, an employment contract did not allow staff leaving a company to work for a competitor in the whole of Southeast Asia for two years, a clause that could seriously affect the agency side career of the employee if they wanted to stay in the region. The challenge to the company (who seeks to impose these clauses), is to demonstrate in a court of law that this is reasonable, but even more challenging is trying to get these conditions enforced in overseas jurisdictions. In most cases, they probably would not even try, but these contracts can be used as a means to bully or intimidate the staff leaving the company.
Another element of restrictive trade practices is in agreements between industry players themselves. There has been a lot of publicity in recent years about rate-rigging between the banks (e.g. LIBOR), and also within other commoditised industries such as oil, industrial components, and building materials (as featured recently in the Economist, 29 March–4 April 2014). Governments are now coming down much harder on companies who break the rules, as shown by the hefty fines imposed and even prison sentences for trade collusion.
But how much of this goes on in the market research industry?
It has been reported that a Singapore-based research agency had tried to seek a trade agreement directly with a competitor for the purpose of protecting “long term profit margins” and even had the audacity to put this in writing. While the research industry is too fragmented to make cartels a reality, the Singapore 2004 Competition Act ensures that anti-competitive practices, even among the smallest private entities, are prohibited. Section 34 of the Act prohibits “agreements, decisions and practices which prevent, restrict or distort competition”, which would make any such trade agreements between competitors illegal. The Competition Commission of Singapore has even set up a whistle-blowing facility as a means of deterring such activities.
In some jurisdictions, agreements between competitors not to compete for certain clients or markets can be an infringement of competition rules, and even just the exchange of information between competitors can be construed as “collusion”.
It has also been reported that in some emerging markets where there is often a shortage of market researchers, firms have reached agreements not to poach staff from each other. But anti-poaching agreements have actually come back to bite organisations. Only very recently, Apple, Google, Intel, and Adobe settled a class action law suit in the US brought by 64,000 workers alleging conspiracy to hold down salaries by agreeing not to poach staff from each other. Such agreements are a form of restrictive trade practice, since they stifle competition for staff in what should be an open market for talent.
On the flip side, companies might try to use the law to deter competitors from poaching. In Singapore, research firms have tried to bring claims against competitors for poaching their staff and even “attempting to poach”. In one case, a research firm brought a poaching claim against a rival company, but had done this only after they had fired the member of staff in question (on the grounds that they were talking to this rival company). A further irony was that the claim was brought against an individual in the rival company who they themselves had tried to poach in previous years. When this was pointed out, they soon dropped their legal action.
The vagueness of restrictive trade practice laws means that employment contracts need to be dealt with on a case-by-case basis. Where employment is brought about through company acquisitions or the hiring of very senior staff, these can sometimes make restrictive covenants enforceable. Lawyers can advise the employee on the enforceability of certain clauses in their contracts (at a cost), but the best advice is to question employment contracts and restrictive covenants with potential employers before you sign them. If they seem too draconian, then the best judgment one can make is to simply not work for the firm in the first place.
Be free, and may the force be with you!
First published in Asia Research Magazine, Q2.