On a quiet street corner in Kyoto, a large neon sign glows eerily
above the sleepy tea houses and traditional inns. The bold lines of
Dentsu’s logo may strike passing tourists as an intrusion into an
historic scene, but not so the Japanese - Dentsu is a household
Despite several leading US and European conglomerates having been in
Japan for decades, Dentsu has controlled more than 20 per cent of
billings for at least 20 years. It has the biggest multinational
companies in Japan among its clients, controls 50 per cent of prime-time
TV slots and boasts an impressive overseas network.
Last year, Dentsu had profits of Y189.5 billion (pounds 987 million),
far surpassing Hakuhodo, its closest rival, which has an 11.9 per cent
But analysts and industry executives think that the times may be
catching up with Dentsu. In the course of a few weeks last autumn, WPP,
Omnicom, and BBDO marched into Japan and snapped up pieces of the top
agencies, in what was certainly the largest influx of foreign marketing
groups in decades.
WPP’s purchase of a 20 per cent stake in Asatsu, the number three
Japanese agency, was swiftly followed by an investment by TBWA, the
London-based agency that is part of the Omnicom group, to buy a majority
stake in Nippo, an unlisted Japanese agency affiliated with Nissan
Motor. And early last year, US-based BBDO purchased 20 per cent of I&S,
one of the top ten Japanese agencies.
Two other local agencies, Ogilvy & Mather Japan and J. Walter Thompson
Japan, are already part of the WPP group. Asatsu, an upstart agency that
climbed to the top of the industry, had also recently taken over
Dai-Ichi Kikaku, the country’s seventh-largest agency.
At the same time, conditions in the Japanese economy were worsening.
The country’s worst recession since World War II has forced companies to
slash advertising and promotional spending, with advertising revenues
down 3.8 per cent in 1998 - the first annual decline in five years,
according to a survey by Dentsu. Total revenues only reached Y5,750bn
(pounds 29.8 billion), reflecting the sharply reduced advertising
budgets of Japanese car manufacturers, by far the advertising industry’s
It would not have been surprising if Dentsu had backed off to reconsider
its strategy amid these increasingly tough conditions. Instead, it
plunged into an expansion programme, including an organisational
restructuring, an audit of its operations in preparation for flotation
in August 2001 and construction of a new headquarters building in Tokyo.
The company is also currently strengthening its ’Chinese walls’, to
allow it to serve competing companies.
In December, Dentsu even signed an alliance with Leo Burnett, the highly
ranked US-based agency, and bought 10 per cent of a wholly owned
investor relations subsidiary of Nomura Securities, the leading Japanese
brokerage group. Earlier this month, it opened a new office in China, a
50:50 joint venture known as Shanghai Oriental Rihai Advertising.
Industry observers say that more overseas expansion, particularly as
Dentsu looks to reinforce its European operations, is likely. The agency
says it plans to double its share of overseas revenues of total billings
Dentsu’s president, Yutaka Narita, is focusing on globalisation and
digitalisation as the guiding concepts for the company in the coming
years. In an address earlier this year he said: ’We expect the
international mega-agencies to move toward strengthening their position
in the Japanese advertising industry. If we are to compete successfully,
we must continue to upgrade our client services while improving our
overseas performance and reinforcing our overall systems.’
Teruyoshi Katsurada, the executive vice-president, believes that Dentsu
owes much of its influence in Japan to its close ties with media
organisations, including Jiji and Kyodo, two of the largest wire
services. Dentsu also buys media space and plans campaigns in the same
division, unlike its US and European rivals, which typically conduct
these activities in separate agencies.
Industry observers argue that increasing demands for structural change,
particularly as Japanese companies pay closer attention to raising the
efficiency of investments, could challenge Dentsu’s position in the
Kota Nakako, an analyst at Warburg Dillon Read in Tokyo, says that while
the new arrivals will hardly dent its market share in the short term,
Dentsu has been criticised for focusing too much on revenues at the
expense of efficiency. ’It has several thousand client companies. This
raises labour expenses a lot. There is some value in shrinking the
number of clients and focusing more on efficiency.’
The question of overseas expansion is what brought Dentsu, which already
has a global partnership with Young & Rubicam, into a tie-up with
Analysts say that although the Y&R relationship is strong in Asia,
Dentsu needs to cover the lucrative US and European markets better to
compete with WPP, Interpublic and Omnicom.
With little hope for a quick recovery at home, analysts say Dentsu would
be wise to gear up for stiffer competition from foreign companies in
Japan and use its new links with Burnett to bring new clients back to
its home market, where it is still the undisputed champion.