Ad Agencies Are Booking Passage to India

As one of Leo Burnett's Italian ad agencies pitches for part of the European business of Coca-Cola Co. this month, it has some unlikely competition: Leo Burnett India.

"Business is highly competitive, and clients say we need the best ideas," says Arvind Sharma, the company's CEO in India, internally named Burnett's top global office in 2003. "India can be a good place to turn, because quality is high and costs are significantly less."

Treated like a dirty word by many on Madison Avenue, outsourcing is starting to invade the global marketing industry, and India is leading the charge. While Mr. Sharma is leading a trend of Indian agencies doing high-end creative work, a large number -- whether branches of global marketers or Indian-owned companies -- have already taken on important roles at performing back-office and computer-intensive marketing tasks.

WPP Group's Ogilvy & Mather is setting up a base in India to perform production work for its other offices around the world. Already, some work for the company's International Business Machines Corp., Nestlé SA and BP PLC's Castrol accounts has migrated to India. In November, Publicis Group, which owns Burnett, bought direct-marketing agency Solutions India, in part because of its capabilities at database marketing for companies beyond India.

In one of the industry's biggest moves, WPP's Mindshare in 2004 shifted to India all of the data analysis it uses to justify buying media for marketers, who increasingly demand proof of return on their investments.

Typical of ad outsourcers is niche luxury brand Alfred Hammel, which pitches $10,000 Swiss watches to Americans and Europeans in tony magazines and newspapers. Looking to cut marketing production costs, two years ago the New York-based company handed its ad account over to Banerjee & Partners, an agency specializing in outsourcing work to India.

The watch company's president, Gurbakhsh Sethi, meets with Banerjee staff in New York to plan strategy and sign off on designs, slogans and creative ad themes. Behind the scenes, Banerjee's staff in Bangalore, India, does art direction and color correction on the photos, which were shot in New York. The finished work is sent back to New York over the Internet. Dave Banerjee, the agency's founder, says his U.S. team, which works in morning and afternoon shifts to take advantage of the time difference, works closely with the Indian team throughout to process "to ensure that the work reflects the right cultural nuances."

The move saves an estimated 30% to 40% on production costs for Mr. Sethi's annual $3 million ad budget. "They are attentive and respond to our needs, but also save as much money as possible," Mr. Sethi says.

Like Burnett's Coke pitch, the Indian units of global agencies are also beginning to pitch, and win, high-end creative assignments. Last year, Omnicom Group's New York BBDO office lost its account with Genpact, a back-office processing company, to WPP Group's Grey India. Formerly a unit of General Electric, Genpact was looking to rebrand itself and recruit staff.

"They're an outsourcing company themselves -- so they saw a lot of sense" in the pitch, says Ashutosh Khanna, chief operating officer of Grey India. His office made print ads for Genpact that ran in magazines targeting senior executives in the U.S. Because jobs in the outsourcing industry have become so competitive, companies like Genpact have to work hard to woo and retain quality staff. So Grey India is also making glossy ads to recruit professional back-office staff, like accountants, in China, Hungary and India for Genpact.

Ogilvy's India office has done European spots for Italian candy maker Perfetti after the company liked some domestic Indian ads the agency had produced. One spot, produced specifically for Europe, showed a woman blindfolding her boyfriend on a bed, then using the opportunity to take a bite of Perfetti's Alpenliebe candy.

The shift of creative advertising work to India is happening in part because the industry there is becoming more sophisticated. Local staffs are honing their skills in India's thriving advertising market, which attracted $2.98 billion in spending last year, up 14%, thanks to a booming economy, according to TAM Media Research.

And of course there's cost. Agencies in India can charge as little as an eighth what they might in more developed markets for a campaign, according to marketing consultancy R3. India's outsourced ad-production industry currently about takes in about $280 million in revenue each year, according to a study done last year by the Associated Chambers of Commerce and Industry of India. That compares with an estimated $50 billion that U.S. ad agencies spend on creative production each year.

Much of the outsourced creative work so far has been for online campaigns, which require skills at which Indian agencies excel, such as computer-intensive image editing and database management. Omnicom Group's Tribal DDB digital ad agency in London first tried outsourcing with its Indian office 18 months ago, developing the ideas in London, then making the ads in Mumbai.

"We realized that this helps us to produce good quality work in quicker turn around times while keeping cost under control," says R. Lakshminarayanan, the CEO of Mudra Marketing Services, DDB's joint-venture partner in India.

Some agencies are clearly hoping to pocket the savings they realize by moving some of their overhead overseas. Banerjee and a San Francisco-based outsourcing agency called Tungsten say they have found a niche creating work for other agencies looking to cut their own costs. But those agencies often want them to keep quiet about their behind-the-scenes work, so that clients don't have to know it is being made in India.

Cost is only one consideration for advertisers; advertising needs can be very culture-specific. That's why Paris-based Publicis chairman Maurice Levy, who prefers the term "sharing" to "outsourcing," says Indian agencies will never pose a threat to Madison Avenue's dominance.

"I don't believe that there will be a global agency in India which, due to the fact that they are cheaper, will be able to service all the world's clients," he says.

But that's not stopping Indian agencies from trying. "There was a time, not so long ago, when everyone laughed at outsourcing software development to India. Look at that industry now," Mr. Banerjee says. "Our work, despite being much lower in cost, is and will be at par with the best in the U.S. industry if not better. Slowly and gradually clients will realize our value proposition. While pioneering something like this, we must keep in mind one thing: Rome was not built in a day."