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Alvin Chan, of Koeweiden Postma Associates, provided me with some insights from his direct experience of a couple of the larger players - he provides a great perspective on the truth behind the hype. Richard Henderson of Futurebrand FHA, one of the firms that I mentioned in the original article, has also provided a useful perspective as one of the new players. You can read his unedited comments at the end of Globals vs locals.

One thing I would like to make clear is my personal position on this trend, as some readers may have misinterpreted that from the earlier article. Fundamentally I think the trend is a good thing overall, as it will increase the level and quality of local competition. However, I do empathise strongly with the many local studios that will no doubt find the transition period (next 3-5 years) rough going.

As in any industry undergoing structural change there will be winners and losers. The big positive is that the ultimate winners, either local or global, will be significantly better managed, more professional and more attuned to global competition. I have long banged the drum about the quality and quantity of Australian design talent relative to other countries, so an increase in the professionalism of our best firms can only increase global awareness of Australian talent, and ultimately lead to greater exports of our design services.

Now, where were we?

Let's do a quick recap of the potential effects. These don't add up to a pretty picture for the locals, but I think it is critical to confront the issues in order to understand the magnitude of the problem and to prepare a pragmatic response.

• Industry structure: More large design firms will emerge, with many of the international firms featuring a greater breadth of services offered and greater financial endurance
• Creative standards: Hard to say whether creative standards will improve or not. International design trends, both visual and management, may start to hit Australia sooner than before
• Professional standards: The new internationals are likely to lead the charge in establishing higher standards of professionalism
• Staff: Employee expectations of how professionally they are managed and developed are likely to increase, driven mostly by the way that the internationals will treat them, additionally senior salaries may increase
• Clients: Clients expectations of customer service and project management will probably increase, again driven mostly by the internationals
• Pricing: High-end fees are likely to increase, but the new players may need to selectively discount in order to build market share quickly

Industry structure - how to respond to a greater number of large competitors?

The likely scenario is that the industry ends up dominated by a mix of large, mostly international firms and smaller, local specialists and boutique firms. In this scenario, the mid-sized generalist design firms will end up getting squeezed hard because they can't compete against the professionalism of the big guys, nor can they compete successfully against the focus and quality of the boutiques. Also in the firing line will be small studios who can't develop strong, long-term client relationships and some clear areas of design strength. Net-net, there will be fewer firms, and those left standing will be stronger and more focused.

What I mean by 'specialist or boutique' is that the firm is openly and genuinely focused on a subset of the entire market. It doesn't mean that you only do one thing or another, but that you have some deep and fundamental experience in specific areas. The logic behind specialisation of any sort is that you can accumulate knowledge and experience faster than non-specialised competitors, and you also get the credibility that comes with a strong network of contacts in a specific client industry or function. You can specialise by:

• type of project, in bizspeak this would be called as 'functional' specialisation, eg. annual reports and related corporate communications
• type of client, eg. merchant banks and brokers
• size of client, eg. ASX top 100 vs mid-sized vs small firms
• geography, eg. your local council or shire

The weakest dimension to specialise along is probably geography, because in Australia the market is so concentrated in a handful of big cities. Therefore, for a firm to say that it "specialises in Melbourne" doesn't actually mean that much. Personally, I would encourage you to steer clear of this type of focus unless you happen to be in a large country town with thriving local economy - Canberra springs to mind, and even there it is clear that studios can outgrow a local market pretty quickly.

The most important thing to remember here is that big doesn't always equal better - time spent building your position as a specialised firm should pay off. Clients value designers that have enough direct experience of their problems to hit the ground running. They also greatly appreciate direct contact with the firm's principals rather than more junior staff.

One example of specialisation is Harcus Design, who has carved out a strong position in wine and other forms of high-end packaging. Previous to that, Annette had a lock on large-scale graphic design systems for shopping mall developments, both in Australia and South-east Asia. What is interesting about the evolution of Harcus Design is that it has managed to establish strong positions in two very different markets, proving that specialisation doesn't need to lead to stagnation.

One final idea for locals - consider spending time developing a network of overseas designers with the same specialties as you. These relationships could provide you with the ability to say to clients, "well, in the UK, the major issues that [insert specialty of choice] design faces are..."

Creative Standards - stay focused, promote more

According to Alvin, his experience of the effect of a merger/acquisitions is that, "creative standards have always suffered, due to a mismatch of ideals and a focus on revenue." For one Australian firm, the parent company replaced the founding designer with a manager who has apparently had a real culture clash with the rest of the studio.

I think that the hype will, on average, outweigh the results on creative quality - that view however acknowledges that in some cases, the big guys will be able to deliver the goods just as creatively as the little guys. In practical terms, however, it means that in order to compete effectively, local firms will need to be able to convincingly argue that not only are they more creative, but that they are also just as focused on bottom-line results for the client. It is important to remember that most clients do not buy design awards, even if they do tend to enjoy receiving them.

When I had a studio the way we got around the 'creative vs bread-and-butter' problem was to have a pro-bono client who we could be experimental with. We also diligently entered into a few award programs, so we could check that stuff off the list as well.

Local firms should plan to make a greater effort to promote their creative output, via awards, competitions and PR. An example of a local firm that has been systematic and consistent in their self-promotion is Fusion in Adelaide.

Professional Standards - going up

I am convinced that the new entrants will substantially increase the threshold for what clients expect as a "minimum acceptable level of professionalism."

Alvin thinks so too, "I agree the professional standards will pick up but in most cases, with local operators joining the bandwagon by also offering services like strategy without having the knowledge to back it up. So you will get designers competing in marketing rather than design. My fear is that the shift of focus from the essence of the business - creativity to professionalism - will cause creative quality to suffer. I think it is important to have both but the larger players will now win pitches purely based on ability to implement a project and not on whether the design is good."

So, for local players, being more buttoned down and disciplined in the way you manage your projects and communicate with clients will be very important. You can still be very relaxed and informal in your interpersonal style but it will be all about careful documentation and following through on every action item. That way, you are removing "professionalism" as a meaningful differentiator between yourself and the bigger internationals, and forcing the comparison back on to creative quality which should be easier for you to defend.

Staff - take a bit more care, focus on what you can provide cost-effectively

For local firms it will be quite difficult to match the HR (human resources) professionalism of larger organisations with global standards. So don't! It could put you underwater profit-wise. There are a bunch of things that small firms can do for their employees in an advantaged way. For example, access to the founding designer/s is easily managed in a smaller firm - if it is not a feature of the way you work today, it is only a matter of discipline and time-management to make it so. Since 'apprenticeship' is still the main model of skills development in this industry, this sort of direct access is can be perceived as incredibly valuable by your staff.

However, you will need to balance that direct access with autonomy, so that 'access' doesn't become 'pedantic, overbearing supervision.' For some studio owners, this is going to be difficult, so may be a people management course would be the right thing to do.

One thing that local firms will have to adjust to is the idea that senior employees may jump ship earlier than before, as they will have more large firms to target. Giving someone a direct stake in the profits of the firm is a way to more tightly align them with the firm's direction and objectives. Setting up a profit-sharing or ownership scheme requires a fair chunk of analysis of the business accounts and careful planning, so get your accountant and lawyer involved early.

Clients - anticipate that they are going to get smarter, and tougher

Clients are always going to get smarter and tougher anyway, but the new entrants will probably give that trend a little extra push. Earlier in this article we reviewed the changes in professional standards, so I won't go into that topic again here. Alvin Chan, who has worked for two of the companies mentioned in my previous article, points the way out for local operators:

"being part of an international network, they are way too expensive... The processes with charts and slick brandname work well with multinationals but sometimes alienate smaller clients - I had some experienced with the 'overseas fly-ins' for some of the projects which really put-off my client who felt that it was a lot of talk and knowledge but the experts knew nothing about who my client was and the problems they were facing."

As with staff issues, the smart thing for local operators to do is highlight what is different about their service, rather than what is the same as the global operators. Again, however, it is dangerous to assume that big guys will get it wrong just because they are big - as Richard Henderson says:

"Many people think that big means being blunt. In my view the reverse is true. The competition to succeed within the group, to achieve the business expectations and to be creatively challenged 24/7 to deliver individual and collective potential means you have to be very focused."

Last point on clients - be kind to yourself. Don't go chasing every asshole client just because they represent a few more dollars. Strong relationships will be the foundation on which you will build your business, so focus on them and leave the difficult clients for someone who fits them better.

Pricing - if you have the position, enjoy the ride!

For local players who succeed in establishing a top-tier specialised position, the new entrants could represent a real boon by resetting the local market perception of top-tier pricing. Of course, getting into that position is going to be damn hard, and there will be a lot of your colleagues aiming for exactly the same position.

I mentioned in the previous article that some of the new entrants may be tempted to discount in order to build market share, however as has been since pointed out to me, since the globals are basically in the market to make money, there is a tremendous amount of pressure to hold price levels in order to make the agreed revenue targets - global outfits will not have the same flexibility in pricing as locally-owned studios as they are being compared to sister companies elsewhere around the world.

In the mid-range of pricing and quality, things may get a little ugly as some firms will be under threat of going out of business. "Desperate times call for desperate measures," so the saying goes, so that means that in some markets, undercutting may prevail for as long as it takes for those firms to go out of business. And unfortunately, some good studios with precarious finances will also be taken out in the frenzy.

There is one type of position in the middle of market that I think could be quite viable, and that is for a highly professional 'design factory,' where the quality is respectable but will never win any awards, where the project fees are fixed, where projects are always finished on time and where designer prima-donnas just don't exist. For mid-sized clients with fixed budgets, this is a very attractive proposition as it is a low stress way of buying design services. In London, there is a company called Design Bridge that has an enviable business based on this model - over the last 12 years they have managed to do over 4000 brand identities! In fact it has been so successful that you could argue they are now too big to be described this way anymore.

At the bottom end of market, I actually don't care what happens to these people - yes, yes, someone has to do this work, but they can muddle along as they always have. Crappy pricing usually goes along with crappy clients and work, and that is not what we are talking about here.

Conclusions

I believe that there is plenty of room for local players to succeed alongside the global new entrants. In the US and the UK, the graphic design industries remain highly fragmented, with locals and globals co-existing in healthy competition. What is clear is that local studios will need to more carefully target their mix of clients and work, as trying to be 'all things to all people' will simply not be competitive or sustainable. Locals will also have to pay more attention to the quality of their business, client and staff management practices. Good luck!

"Andrew,

Good article. Just to add that the I am also supportive for the big players to increase professionalism and for local operators to check themselves more. (so not all negative comment from me!)

However, there is another entity which is not listed in your article that could pose as a up-and-coming competitor. There is a surge of that here slowly in the Netherlands and it has the same network and professionalism as the multinational design agencies and MORE.

We are finding that large Ad agencies are establishing large in-house graphic design facilities which will mean an all-in-one shopping experience for the client. Strategy, design, implementation plus promotional and advertising needs all in one. Something to think about.

What we are experiencing now in the market here in Holland could also be another significant competitor that is not listed in your article"

"Yo Andrew. Good dialogue. I think the comments discussed in both articles will, I hope, provide some food for thought for the communication industry in Oz. I suspect however that the majority of the design fraternity will continue to see it from a local issue level. To survive and have the industry prosper needs real leadership on the big issues confronting the profession. In addition, the future of Australia and how we as communication experts can contribute to the debate is something AGDA could provide valuable insight. Keep up the momentum. Richard"

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