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Havas has a problem. It's just announced a 19 per cent fall in revenue for the first half of 2003 while, so far, its larger Western competitors claim to have done relatively better. Is this the latest living proof of the marketing theory that recessions drive out the weak to the advantage of the strong? And should we assume the latest strategic restructuring that prompted the merger of Partners BDDH with Euro RSCG Wnek Gosper is anything more than a panicky reaction to a slither down a slippery slope?

Certainly a question-mark now hangs over the credibility of Havas as a serious member of the Big League. Measured by revenue, it is less than half the size of its pushy French rival Publicis, one-third of the size of WPP and only one-quarter of the size of the mighty Omnicom (see Table 1, top right).

But take a closer look. Much of the bad news is attributable to adverse exchange rate movements as the euro recovered some of its decline against the dollar and sterling. Publicis suffered a massive 289 million euro exchange rate hit in the first half of 2003, yet trumpeted organic growth and a massive leap in revenue by including the Bcom3 business that was not part of the group this time last year. In fact, real revenue from the combined Publicis and Bcom3 businesses suffered a double-digit percentage fall. By contrast, if Omnicom were based in euroland instead of the US, and had thereby been deprived of the benefit of the strengthening UK and European currencies, its revenues would now be showing a worrying quarter-on-quarter decline.

Nevertheless, Havas has boxed itself into a tight corner. It reported a modest profit of 23.5 million euros last year after a 58 million euro loss the year before, and we can expect some more losses as a result of the restructuring activities that are being incurred this year. Indeed, if French groups reported on the same basis as their US competitors, neither Havas nor Publicis would have earned any profits in the past two years.

Havas also has limited funds to play with - bankers will be watching carefully as borrowings are edging up towards the level of funds invested by shareholders - and the group has already admitted it will have to restructure its existing funding arrangements by the end of the year. But Havas is not yet in the sort of predicament that brought Cordiant to its knees.

Setting aside any financial constraints, how did Havas get into this situation and can it trade out of it successfully? On the surface, Havas has never been anything more than a collection of marketing businesses.

Some have historically strong reputations - such as Brann and WCRS in the UK. Some have a healthy international client base, but rarely thanks to their Havas parentage. Havas just isn't a powerful global business, whereas for all their faults Omnicom, Interpublic, WPP and Publicis each own several powerful global networks. Havas' heartland is in Europe (see Table 2, bottom right), augmented by the separate Arnold agency in the US.

In the UK, there have been periods when Euro RSCG's traditional advertising offering has often lacked the clout of its contemporaries, sometimes being perceived as little more than the UK branch of a French agency. That may also help explain why, along with the obvious clash between Euro's Peugeot and WCRS's BMW accounts, Robin Wight has been able to keep WCRS independent for so long.

Aware of this global vulnerability, the group has opted for an integrated worldwide approach under the Euro RSCG banner. This objective has two discrete elements within it - a stronger global brand and a distinctive proposition in the form of a multidisciplined offer.

A test will be whether Arnold will surrender global clients to Euro RSCG in the US as proposed, or simply hold on to them under the pretext of offering a "real creative alternative in a key market" as envisaged in the press announcement.

The pursuit of Havas' much-vaunted "Power of One" integrated multidiscipline delivery may prove more difficult. Saatchi & Saatchi tried it in the 80s.

It didn't work. D'Arcy tried it in the 90s. It didn't prevent that group's demise. Cordiant was trying it in the new millennium, and see where that strategy finished up. It's not that an integrated approach cannot work.

It's just incredibly difficult to orchestrate the delivery of the best of every skill under a single umbrella. The strength of an integrated agency is no greater than its weakest link. That is probably why Omnicom and WPP have so far been more successful by encouraging existing businesses to grow - with a nudge towards merger or other rationalisation when necessary.

The danger facing Havas now is that, in rationalising the businesses under a single integrated, unexciting brand, better-known brands will be subsumed, with the inevitable loss of clients and talented staff. But doing nothing is not an option, and a lesson learned from the Cordiant affair is that survival depends on strengthening the core businesses, rather than buying up everything in sight.

Havas has already learned the hard way that you can't buy your way out of trouble. The Snyder acquisition alone cost more than one billion euros in write-offs and the unsuccessful bid for Tempus must have been an enormous distraction irrespective of its merits.

Havas deserves to be given a chance, but it's going to be tough and the management, under its chairman and chief executive, Alain de Pouzilhac, will need to be equal to the task.

Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com) and a special professor at the University of Nottingham Business School.

HAVAS' MAIN UK BUSINESSES BEFORE RESTRUCTURING AND FUTURE PLANS
EURO RSCG WORLDWIDE
Plan: To become a global network offering integrated communications to
global clients
Biss Lancaster
Bounty Group
CGI Brandsense
Circle UK
Euro RSCG Direct Marketing
Partners BDDH
Euro RSCG Healthcare
Euro RSCG Wnek Gosper
KLP Euro RSCG
The Maitland Consultancy
ARNOLD WORLDWIDE
Plan: To concentrate on offering other clients a real creative
alternative in key markets - most existing business to transfer to Euro
RSCG
All Response Media
Arnold Interactive
Brann UK
Conran Design Group
EHS Realtime
SDM (40%)
Steam UK
WCRS
MEDIA PLANNING GROUP
Plan: To be grown into a top five global player including all existing
media buying and interactive business
Media Contacts
Media Planning
SPECIALISED SERVICES
Plan: All companies to be integrated within Euro RSCG MPG or eventually
divested
AIS Group (40%)
Cognisance
Contact 24
Dunwoodie Communications
Ellert
Grayling UK
HR Gardens UK
Hudson Sandler
MBO London
RSMB
Skybridge Group
Source: Havas' annual report.