Tete-a-tete at Cannes with Sir Martin Sorrell

Advertising and media buying is about 45% of our business; so you're missing the other 55%. Let me straighten out what we think is happening. A few of our competitors here at Cannes say they see no signs of any tightening. I have to disagree with them. What we've seen is the start of some tightening in Western Europe. We saw that in March. We believe that is going to continue. That has spread a little bit into America, but not seriously so. That's understandable, because in America you have low interest rates and liquidity in the system, whereas in Europe you have higher interest rates.

We're seeing the early signs of the impact of the sub-prime crisis with house prices falling in the US and the UK and consumers are feeling the squeeze. We're also starting to see the impact of very significant price increases in packaged goods, which have been increased on the back of commodity price increases; oil and others. Packaging costs have risen and several clients are saying that the increase in costs has been very significant and they've raised their prices. As yet, we are not seeing the full impact on the consumer - and the consumer cannot remain unaffected with this scale of price increases. For example, the US car market has shrunk from 16 or 17m units to 13m units. So we are seeing an impact despite what others might say and that will have a rolling impact particularly in 09.

With WPP as a business it's dangerous to say things are different now to what they used to be, because the moment you believe that, you're in trouble. But there are some differences in the nature of our business. Twenty five percent of our business is digital. It's a bit like China and India. If the world economy slows, China and India will still grow faster. Instead of growing at, say, 10%, China and India will grow at 5-6%, which I think is a good thing. China and India cannot grow at 10% compound forever and our businesses there cannot grow at 20-30% much as we would like them to do. There has to be a relaxation and we'd be delighted if that was the case, because if our competition disappears, and run away and leave the field to us totally.

2009 will be challenging because we will have a new American president, and in China, post Beijing (Olympic games) you will have a little bit of a slowdown. But then, in 2010 I think the prospects are very good; you've got the World's Fair, the Expo, you've got the Asian Games, you've got the World Cup in South Africa, you've got the Winter Olympics and you have the mid-term Congressional elections in America.

It's going to rough in 09. Do I think there's going to be a recession? I'm not even sure there will be a recession...although in the last few weeks people have become extremely gloomy. Which is interesting, because when everybody becomes gloomy is the time when you know that things are changing. I wouldn't say there is panic, but people are getting very anxious about what is happening, not just in the financial markets but in the real markets. With people I spoke to in Cannes, there's a very mixed view. I spoke to one client, who's in consumer goods, who says there's been a sharp slowdown in May.

Getting back to what I was saying, 25% of our business is in digital, 25% is in Asia, Latin America, Africa, Middle East and Central and Eastern Europe. We have much more variability in our cost structure; 7% of our revenues, which is an all time high, is in incentives, freelance consultants. But these are going to be testing times.

On the Google threat: poaching talent and business from the holding companies, etc

In order to reach the big budgets, companies such as Google will consider going direct to clients. In our business with Google, we buy about $900 million of search, which is about 5% of their projected revenue, whereas our normal market share would be about 25% with a media owner. So you ask yourself the question, where is the other 20% going? The answer to that is that Google has built it's position in small and medium sized companies; they've increased the primary demand for search with people who don't normally advertise. What they'd like to do is to reach the big-budget clients like P&G, Levers, etc, which they can do through us or they can do direct. That's the frenemy or froe, issue.

The other question that you asked, why did they hire Ogilvy's creative director? That's more of a mystery.

For the rest of the interview, visit Campaign India.