From the glass-walled lobby at Asatsu, the Japanese advertising
group that fought its way to the number three slot this year, the neon
sign on top of Dentsu’s headquarters, the industry leader, shines
brightly in the distance. Between the two buildings, crowds of prim
salarymen and uniformed office ladies weave through the narrow streets,
past advertisements for cigarettes, American movies, and sports cars. On
a hot summer evening, the intensity of the competition is as palpable as
the heat that rises from between the crowds.
It looks like the competition is just warming up in Japan. The world’s
second-largest advertising market has been rocked by a wave of mergers
and foreign entries lately. Asatsu, which last year ousted the Tokyu
agency from the number three slot, has recently purchased Dai-Ichi
Kikaku, the seventh-ranked agency, and tied up with WPP, the
second-biggest marketing group in the world. It had just shed its
alliance with BBDO, the New York-based group. Earlier this summer, I&S,
another leading ad group, agreed a deal with BBDO. And Nippo, a smaller
Japanese agency, just announced a merger with TBWA, the New York group
that is part of Omnicom, the world’s largest advertising group.
Add to this the moves the two giants of the Japanese ad industry, Dentsu
and Hakuhodo, have made to strengthen their position recently, and it is
clear that Japan is in for an epic struggle. How the new pack of foreign
entrants plays its cards will determine the shape of the industry in
years to come.
The rapid series of changes in recent weeks is unprecedented in Japan,
where takeovers and mergers are still rare in the advertising industry.
Since the 70s, the top ten firms have accounted for around 50 per cent
of all ad revenues annually, of which Dentsu and Hakuhodo have
controlled between 30 and 40 per cent.
Their closest competitor, until last year either the Tokyu or Daiko
agencies, rarely took more than a 3 per cent market share. Even today,
Asatsu only commands a mere 3.3 per cent of total revenues.
Smaller advertisers, which were sometimes the subsidiaries of a big
Japanese corporation, hardly made a dent in the market. Nippo, for
example, was a subsidiary of Nissan Motor, the car company, until the
But as Japan’s recession has deepened, and consolidation in the global
advertising industry has picked up pace, pressure is mounting on
Japanese advertisers to link up with a global network. Financial
deregulation has also brought a wave of new multinational companies into
Japan. Advertising groups are seizing the opportunity.
’The only way to survive is to see ourselves in global terms. Japanese
young people think more and more internationally; our clients think of
the world as their audience ... and the only way to become more global
is to make an alliance with a foreign company,’ explains Masao Inagaki,
chairman of Asatsu.
Smaller advertisers, feeling the brunt of the recession most acutely,
have also jumped at the chance to tie-up with a cash-rich foreign
TBWA’s offer to buy a majority stake in Nippo was welcomed by Nissan,
which has been cutting costs recently to improve its balance-sheet
Nippo, an unlisted company, had revenues of pounds 15 million on
billings of pounds 187 million last year.
The coincidence of these factors has also been convenient for US and
European marketing groups looking for a foothold in the Japanese and
Asian markets. Not only do many of the companies that have tied up share
a common client base - TBWA already does work for Nissan in the US, for
example - but many Japanese advertising groups have a long history of
dealing with foreigners.
Inagaki says he has been talking to WPP’s chairman, Martin Sorrell,
about a tie-up with Asatsu for 15 years. It was only after the end of
the agreement with BBDO, however, that the two began to consider a
merger more seriously.
Ogilvy & Mather and J. Walter Thompson, which have a strong presence in
Japan, are also part of the WPP group. TBWA also has a number of joint
ventures with Hakuhodo overseas, and Dentsu has been linked to the New
York-based Young & Rubicam since 1981.
Michael Greenlees, president of TBWA, said on a recent trip to Tokyo to
announce the alliance with Nippo: ’We have been looking at this for
years. We have gotten to a size where we have got to have a stake in
Just getting their foot in the door, however, will not be enough,
analysts warn. The new foreign entrants will have to contend with
Dentsu, as well as the special demands of Japan’s ad business and the
tough economic conditions.
It will be no easy feat. Dentsu, which recorded pounds 6bn in billings
and pounds 838m in net profits last year, is arming itself to defend its
position in the market. Last year, the group commanded a market share of
just under 23 per cent. Although its overseas network is still weak -
overseas sales accounted for only 15.4 per cent of turnover last year -
Dentsu says it aims to expand its foreign operations to 30 per cent of
sales by 2001.
This will give it greater access to big, multinational companies.
The group has begun construction of new, high-tech headquarters in the
Tokyo area, and announced it will float its shares on the Tokyo exchange
in order to ’become one of the greatest world-class agencies,’ according
to Yutaka Narita, Dentsu’s president.
Hakuhodo, Dentsu’s closest rival with pounds 3.1 billion in billings, is
an easier target. Last year, the group took only 11.85 per cent of the
market. Although it will keep its alliance with TBWA, Hakuhodo could
lose out to the new agencies and their foreign partners. ’The foreign
companies entering the market will make inroads into Dentsu and
Hakuhodo. The loss of market share is the biggest threat,’ Paul Smith of
HSBC Securities in Tokyo says.
But their effect on the market will not be immediate, he cautions: ’I do
not think you will see a major impact until they (the agencies with
foreign partners) get a critical mass of 10 per cent market share.
If they are adding a few points a year, in the space of a few years, it
can bring them pretty close; it will exercise the minds of Dentsu and
Hakuhodo.’ Smith estimates that Asatsu will capture a 10 per cent market
share in the next five years.
The foreign entrants will also have to adapt to the peculiarities of the
Japanese market. Unlike in the US or Europe, in Japan agencies are
responsible for both developing advertisements as well as buying the
media space to run them. This has contributed to consolidation in the
market at the expense of smaller advertisers, analysts say. Dentsu, for
example, controls 50 per cent of prime-time television slots because of
its long-standing relationship with television networks, Smith says. The
invoice system is also somewhat opaque: clients are typically not
informed where their money was spent.
But local customs are nothing new to the seasoned veterans that are
entering Japan’s market. They bring links with a global network that
Japanese agencies lack and, in return, they gain unlimited access to
on-the-ground expertise in a growing market. Last year, advertising
revenues grew 3.8 per cent despite a slump in consumer demand, and
industry analysts expect more growth this year.
The new alliances have advantages in economic booms and busts alike.
Foreign executives describe the current recession as an opportunity.
’Our experience in Europe is that sometimes during the worst economic
times, some of the best creative work occurs. The requirement to become
creative becomes greater,’ Keith Smith, chairman of TBWA’s Asia
Without a doubt, it should be an exciting few years for the industry in
Japan. Company executives are whispering about more alliances between
domestic agencies, and another big foreign group is said to be seriously
eyeing the market. The globalisation of Japan’s advertising market has