Outsourcing: David Bonthrone, Executive Vice-President, Group FMG (Part 2)

Sramana Mitra: Let me see if I’ve got this right. The way you split the market is the holding companies have a variety of advertising agencies and new media agencies and, typically, most of them have centralized production facilities.

David Bonthorne: There’s a trend towards it.

SM: Now, the part that I didn’t quite get is, are those centralized production facilities also doing offshore development work, or is that all still on shore?

DB: It’s a combination of both. In many instances, they’ve built offshore facilities. Now, some of these offshore facilities, to be in the same time zones as the United States, are in places like Costa Rica, the Dominican Republic and Argentina. There are some pros and cons with that. There’s a perceived value with their being in the same time zones; however, when English is not mother tongue of those people doing the work, there tend to be grammatical errors in the work that is sent back. From what we’ve seen, having English as a mother tongue and, from people I’ve spoken to, India and Sri Lanka seem to be the best places to go for offshoring for two reasons. One, there’s a high adoption of technology  and software understanding and use from quite a young age within the workforce there. So, the skill levels are proficient. Number two, English is a main language. And number three, on a per hour or per day cost basis, India and Sri Lanka tend to be more competitive than the other markets. I’m not saying the other markets are inferior. That’s just based on our analysis. Some of the agencies are doing stuff in Costa Rica.

SM: Yes, and Argentina has come up on our radar quite a bit, especially in the area of design or user interface, user experience oriented stuff. A company called Globant has made quite an impression in that space.

DB: Yes. There’s a big player out there called AvVenta Worldwide. I understand that a significant portion of their revenue comes from the agency world. They have a sizable operation down in Costa Rica. They were started a few years ago and have enjoyed rapid growth. Depending on which agency there is, some of them work under a centralized production model. Others work under a hub-and-spoke model. For example, I know that at Draftfcb they have an offshore center in Estonia. They have another in Colombia. I believe they have another one in China. So, we’re all in this together, finding out where the best place is. There was a group called Tag that was acquired last year, I believe, by Williams Lea for approximately $150 million, which had exponential growth in this area. They work under a hub-and-spoke model. But by virtue of the fact that we’ve built from the ground up that facility in India, we think that gives us a competitive advantage.

SM: A couple of questions about that. Where do you put companies like AKQA in that framework?It’s one of the most well regarded interactive advertising agencies.

DB: AKQA has its own offshore facility. Some of the leading-edge digital agencies have their own proprietary offshoring facilities. AKQA does, in India, I believe. Digitas, which is owned by Publicis Worldwide, has an offshore facility in Costa Rica. We’re hoping to partner with agencies, either in an overflow situation or to white label under them, given that we have a robust capability in India. Or we will work directly with clients, brands, and retailers alike. With AvVenta, for example, as I said, it has earned significant revenue from agencies. If you look at how the lion’s share of our revenue has been portioned over the last couple of years, it’s probably 90% from brands and retailers and only 10% from agencies.  We think there’s a clear opportunity there, and that’s specifically my role.

This segment is part 2 in the series : Outsourcing: David Bonthrone, Executive Vice-President, Group FMG
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