The Government’s proposed move to scrap the regulation known as Press Note 1 of 2005, has met with mixed reactions from the Indian advertising industry. The move would ease the flow of foreign direct investments (FDI) into the country and assumes significance in the light of quite a few mergers and acquisitions taking place recently in the Indian advertising industry – BBDO, Tribal DDB and Omnicom, among others.
Press Note 1 protects the interests of Indian companies by putting a brake on foreign companies changing local partners to suit their business interests. It prohibits any foreign company from exiting a joint venture in India and setting up its own company in the same line of business without the Indian partner’s consent. The foreign companies would require ‘No Objection Certificates’ (NoCs) from their Indian partners before starting any venture in India.
The Government’s proposal, when it comes into effect, would make the mandatory the NoCs from joint venture partners redundant for new investments. The Government is keen to go ahead with this proposal since there are various sub-sectors within the broad categorisation of advertisement industry, where there is no clash of interests in several cases.
However, most of the advertising fraternity feels that the move will not make much of a difference to the India advertising industry.
Sam Balsara, Chairman & Managing Director, Madison World, opined, “I do not think it will have a major impact on advertising agency entrepreneurs, because most large agencies are fully controlled by foreign networks. Also, foreign investors tend to take a pre-clearance letter at the time of entering into an agreement with the Indian agency.”
Nakul Chopra, CEO - South Asia, Publicis, said, “I am not sure whether this will make any huge difference to the advertising industry.” According to him, most of the top 20 agencies were now wholly or majority-owned, hence, the elimination would help ease the paperwork and be relevant where a dispute arose between the Indian and foreign partners. In a sense, it was ‘protection’ for the Indian partner, he said, adding, “This protection is equally available through our courts. I don’t believe this would make a huge difference.”
Arvind Sharma, Chairman, Leo Burnett felt that in the short run, “elimination of Press Note 1 will make a difference to the Indian entrepreneurs/ companies that have JVs with international players. The burden of providing a no-objection certificate will no longer rest with the international players. In cases where their contracts with local players bar them from entering into other JVs, the burden of proving this in the courts of law will now fall on the Indian players”.
Sharma believed that from a global perspective, however, restrictions like the one via Press Note 1 were more of an aberration. “They were not expected to last forever,” he added.
Though the advent of global players opens up competition and leads to a healthier growth and better quality, it should not be at the expense of Indian players. Taking this point of view, Suman Srivastava, CEO, Euro RSCG, noted that the elimination of Press Note 1 was healthy for the industry. He explained, “I expect something similar to happen in media as well. New media brands often create an eco-system for a new category of advertisers. Magazines for the rich are growing at the same time as luxury brands are growing. Similarly, I expect whole new categories to emerge, which have their own set of readers and advertisers.”
As for the Indian entrepreneur, would this elimination mean any kind of a setback? Srivastava said that most Indian entrepreneurs operated in a ‘Jugaadu’ way. “We Indians find our ways to compete. I don’t think foreign brands will do well merely because they are foreign brands. That was the mindset of a lot of brands in the first wave of liberalisation and many brands had to rue that mindset,” he added.
In the same context, Sharma stated, “I don’t believe that Indian entrepreneurs have planned their futures on the basis of Press Note 1. JVs and partnerships are rooted in complementary strengths that the two sides bring to the party. So, as long as the Indian players have their strengths, they will come up strategies to monetise them.”
While Balsara is of the opinion that even if one Indian entrepreneur is negatively impacted, it seems unfair. “I don’t see why only agencies should be singled out for this exception on Press Note 1,” he said.