Data, American Manufacturing, and Chinese Innovation: 5 Predictions for the 2014 Economy

The current fortunes of global advertising and marketing services businesses are a window not into the future of the world economy, but what's going on right now. So, too, perhaps, with the World Economic Forum in Davos this week.
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Trends in advertising volumes are often described as economic bellwethers. However, our industry might be a better indicator of what's already happening than what's to come.

We generally lag an upturn, because clients only start to increase their marketing spend once they've seen concrete evidence of consumer confidence returning.

In other words, the current fortunes of global advertising and marketing services businesses are a window not into the future of the world economy, but what's going on right now.

So, too, perhaps, with the World Economic Forum in Davos this week.

The Forum is admirable in its focus on long-term strategies to address global issues. However, while there'll undoubtedly be some gazing into the future, the majority of the delegates will be focused on the immediate concerns facing their nations and organizations. It's interesting to note that over 30 government or state leaders and 300 other senior public officials will be attending Davos this year -- the highest number on record.

There's always a degree of commonality. People go to Davos, and the media obsesses about Davos, because it supposedly offers a glimpse into the collective mind of the world's political and business leaders. The common theme for 2014 seems to be governance in a world transformed by technology and networks -- a subject that resonates with leaders of all kinds.

Back in our less rarefied world of advertising, we struggle to agree on much, especially when it comes to the future of our industry. So here are five thoughts for the year ahead to argue over:

1. Confidence is growing, but it's fragile.

WPP's financial performance correlates directly with global GDP: when the world economy does well, so do we; when it catches a cold, we come down with the illness every time -- three times in the last 28 years.

We are growing, our businesses are doing well and we are a little more optimistic this year compared to the last. But clients remain cautious and risk-averse; in the post-Lehman world, finance and procurement departments have the upper hand and the focus remains (wrongly, in our biased view) on cost control rather than growing the top line. It's a tough environment in which to argue for increased investment in marketing or, indeed, elsewhere.

We are taking it month by month, and I think that's how most business leaders feel about things at the moment -- certainly in the mature economies and in some of the BRICs markets too.

2. Brand America can reassert itself.

Whilst "Brand America" was under pressure in 2013 with the government shutdown and the NSA surveillance allegations, America itself can look ahead to major opportunities over the next 20 years.

There are several reasons to be significantly more cheerful about the future of the U.S.: confidence is returning to the world's largest economy (over $16 trillion) and, most importantly of all, the fundamentals are strong and becoming more so.

The U.S. has unrivalled strategic, cultural and environmental strengths. It has the world-class entrepreneurial spirit and strong immigration-based society. It has tremendous natural resources, and should now have an energy self-sufficient future through shale gas.

It stands to benefit significantly from revolutionary changes in manufacturing like 3D printing, and it is home to still the world's greatest centre of innovation in Silicon Valley.

These developments in manufacturing and technology will reposition American manufacturing in comparison with lower cost offshore options. Indeed, there are indications already of clients moving manufacturing onshore to the U.S.

The global economy needs America to project a strong, positive, confident brand and there are real signs that this is happening again.

The politics surrounding the budget deficit and debt levels means that uncertainty will remain -- but it has never been wise to underestimate the U.S. and its ability to reinvent and reassert itself.

3. Everyone's getting more worried about data security.

The NSA revelations continue to create waves in Washington and around the world.

But I suspect the impact is being felt in other ways, too. The public is already concerned about data security and privacy, as technology drives an explosion in the amount of information collected on consumer behaviour.

The spying and phone-tapping allegations can only intensify those concerns and further erode trust between individuals and organisations on the subject of personal data. It's a major issue for a vast array of businesses - everyone from tech companies and retailers to marketing agencies and banks.

Businesses, like governments, are going to have to work harder to show the benefits that "big data" brings to consumers and economies, to educate the public about how that data is handled, and to demonstrate that companies are responsible custodians of people's information.

"Opt-out" is no longer an acceptable strategy. And "opt-in" has to be clarified and simplified for the consumer.

4. Mobile: the floodgates are open.

No list of marketing trends would be complete without a reference to mobile (as well as data).

In its latest This Year, Next Year report our media investment management (media planning and buying) arm, GroupM, declared that "the [mobile advertising] floodgates are open". In the UK in 2013 mobile advertising spend doubled as a proportion of the total digital advertising investment managed by GroupM.

Half of Facebook's global advertising revenue was mobile in the third quarter of 2013, up from 14 percent in the same period in 2012. GroupM estimates that Twitter's advertising is already 70 percent mobile in the UK. A quarter of YouTube's traffic is mobile, and Google predicts 80 percent of all its traffic will eventually come from mobile devices.

Fast-growth markets provide fascinating glimpses of what's to come globally in mobile. In China, it has already overtaken the desktop as the most common way in which people go online.

80 percent of China's 618 million internet users are now thought to access the web via mobile devices. In 2012 the Chinese bought 213 million smartphones -- rising to 360 million last year.

So, finally, mobile is on the up and up.

5. Chinese innovation is the next big thing.

Some people still say that the Chinese are only good at copying other people's business models. We said the same about Hong Kong, Japan and South Korea -- and equally mistakenly.

Xiaomi, with a very different business model and approach to product development, is outpacing Apple in China. Alibaba, Tencent and Baidu are poised to shake up the traditional banking sector.

Some are talking about Alibaba having a market capitalisation of $200 billion -- with Tencent already at $100 billion and Baidu at $60 billion.

Huge demand is driving not only volume in these businesses, but new thinking about how services are delivered in a hyper-connected world.

There are those who continue to see China purely in terms of inward-looking state monopolies focused on an inexhaustible home market. They believe the conditions for innovation don't exist there, that innovation is somehow a Western preserve. Smarter minds are looking East -- and learning.