When the going gets tough in PR, the tough fall out

Now more than ever, PR flacks must do more to be heard over the competition.

There is a schism opening up in the wacky world of financial public relations in the region. It has already caused a certain amount of disagreement, even confrontation, among PR executives in Dubai, and become a hot topic for dinner party conversation when the flacks and hacks get together. Of course, it's all about money, and specifically how much the PR agencies can charge clients for advice in the straightened circumstances of the post-credit crunch world. Some of the disagreement has got pretty tetchy, with eyeball-to-eyeball confrontations and finger-jabbing point-scoring between normally urbane executives. It's obviously a matter close to the flacks' hearts.

Just a little context is needed. The PR community in Dubai has been reinvigorated in the wake of the financial crisis. Before September 2008, when all the news coming from the emirate and the UAE appeared to be good, PR must have been a simple process - another set of record profits, another iconic lifestyle waterside development, another tallest building in the world. The flack could just write up the press release, hand it over to the grateful media and sit back to enjoy the fees the booming client was happy to pay. Many western firms, as well as indigenous ones, were keen to get into the Dubai market to exploit this steady stream of revenue.

In the period between the collapse of Lehman Brothers (September 2008) and the announcement of the restructuring of Dubai World (November 2009) the market changed drastically. The "good news" work all but dried up, while what business there was consisted of crisis management and limitation to reputational damage. Firms such as Financial Dynamics, which won the brief to handle Dubai World, and Brunswick, which eventually got the business from the Dubai Department of Finance, won a big chunk of this business.

But to their credit, the newcomers who had arrived in the good times - such as the London firms M:Communications and Finsbury - did not just pull out when the easy pickings disappeared. They maintained, even grew their presence in Dubai, using it as a hub to do business in the Gulf and wider Middle East. Add the foreign and indigenous incumbents - which include firms such as ASDA'A Burson-Marsteller, Hill & Knowlton, Bell Pottinger and CapitalMS&L - to the ambitious newcomers and you suddenly have an awful lot of PR firms fighting for a declining, or at best static, amount of work. The result, according to those at the sharp end, is stiff competition and some nimble financial footwork.

The scramble to get what business there is going has been intense and has led to allegations of undercutting, or even loss-leading, from some quarters. When a PR firm "pitches" its services to a client - perhaps as a retained customer, perhaps for a specific period or transaction- it is supposed to be a "blind" process: that is, the competitors are not supposed to know what the others are asking for by way of fees, or what they are promising in return.

The serious allegation is that some firms have found out what the others are pitching, and are undercutting them to win the business. Nobody can say for sure how this information leaks, but you can see how it might be in the interests of the client, or an introductory banker, to tip off the competition. The matter came to a head recently over a pitch for a capital markets transaction in Saudi Arabia. In the current climate such business, in the biggest market in the region, is like gold dust. One firm (anonymity requested and assured) won the business with a pitch that was some way below the others.

That sparked the angry confrontations mentioned above, with accusations of undercutting and devaluing the business. Stuart Leasor, the head of emerging markets business for M:Communications, puts it like this: "Cut the fee and you get either less time or a less-experienced person, or both. If the prices get too low you will get a poor service - at a time when GCC clients are getting more needy and demand ever better service."

Another financial PR executive puts the other side of the coin: "The point is that we are not trying to undercut the fees as a loss leader. We work out, on the basis of our long-term business model, what level of fees will work for us, give the client good service and make us a profit, and go with that." Another essential point is this: a start-up operation in Dubai, with expensive salaries, rents and other overheads, will have to try to cover those costs early on, and could come under pressure from the parent company in London to start "washing its face" as quickly as possible. That will maintain an upward pressure on fees.

But in the end, the laws of supply and demand will surely prevail. Those firms that have sustainable business models that allow them to pitch fees at the optimal level, will endure; those that have got the financials wrong will have to do the sums again, or fail. Ultimately, it is a healthy development for the flacks to be falling out like this. If there were no arguments about fee levels, we might have to assume that there was a price-fixing arrangement in operation, and cartels are certainly in nobody's best interest.

Keep scrapping chaps. [e-mail]