Japan: Asia's toughest nut

Why do international agency networks struggle to make it big in Japan, Arun Sudhaman asks.

When Publicis Japan decided that enough was enough and merged with its sister shops Beacon Communications and Fallon Tokyo after six years, it came as little surprise. For the international networks, whose tentacles have been successfully wrapped around the globe's myriad markets, Japan remains a profoundly frustrating country.

While growth rates in places as far flung as Latin America, India and China spiral off the speedometer, growing big in Japan is still little more than a pipe dream for the vast majority. Publicis' regional chief executive, Matthew Godfrey, shies away from discussing the specifics behind Publicis' downfall. Instead, he points out that succeeding in Japan requires a considerable degree of "time, money and effort".

Japan's appeal is not difficult to fathom. It is the world's second-largest advertising market, accounting for EUR37 billion in 2006. And every multi-national client has designs on the country's wealthy consumers. But the depressing truth is that few agencies have been able to convert this potential into long-term success.

According to Kevin Ramsey, McCann WorldGroup Asia-Pacific's Tokyo-based chief executive, the factors behind this paradox can sometimes be too complex for New York and London management to genuinely understand. Ramsey should know. McCann is the biggest international agency in the country - employing almost 1,000 people after 47 years.

The fundamental issue, Ramsey says, is the Western model of unbundled services, in a market where client bills are not even itemised. "Clients here want a bundled offer and they expect media to be a core component of that," he says. "As a result, media buying is a critical component for an agency to have credibility. Without that, the ability of an international agency to win local business is impacted negatively."

For the "big three" - Dentsu, Hakuhodo and Asatsu-DK - domination of media buying is so complete, it's almost a birthright. The likes of Group M and Aegis mostly make do with media planning, while creative agencies largely rely on multinational business. Such international business rarely offers the kind of stability it does in other Asian markets, particularly when clients decide to focus on the lower hanging fruit from markets such as China and India. "Japan is losing its share of marketing spend from multinationals," Ogilvy & Mather's Asia-Pacific president Mark Blair, who ran the Japan operation for three years, says.

"If an international agency enters Japan, it needs to define its value proposition in the market," Godfrey adds. "What value does it bring to clients in Japan that is not already provided by the incumbents? It is not enough to rely on international alignments alone."

The entrenched relationships between the big three and traditional media in Japan translate into the kind of clout domestic clients treasure. In addition, "they have a project rather than a brand orientation and they maintain a bundle of agencies that they pretty much ask to pitch for every key assignment", Ramsey explains. "So nobody has the business exclusively. And the major Japanese agencies have a relationship with everybody. The key thing for an international agency is to get on the roster."

Getting on that roster, however, often means trading in Western notions of staffing and profitability. "Your account managers are more salesman than brand guardians," Ramsey says. "And this is compounded by the fact that this is still primarily a commission-based market."

The value of relationships, so im-portant throughout Asia, is taken to another level in Japan. In contrast to other Asian markets, Japan's agencies were already firmly established by the time international agencies began eyeing the market. As Blair points out, this means the embrace between domestic clients and agencies can be difficult to dislodge.

Neither are international agencies able to attract the kind of domestic talent that could make a difference to their business development prospects. "Because of the inbuilt Japanese cultural hierarchy, the best graduates go to the biggest, most well-established Japanese companies," Blair adds.

It's hardly a shock that the domestic agencies - and even the Japanese at international agencies - will not comment openly on the issue. But the DDB Japan president and chief executive does. "They are very protective of the current model," Takeshi Takeda, who spent 12 years at local agencies before switching to international, says. "They are the winners, so they don't want to change."

That international agencies lose focus in Japan is unsurprising. But the energy needed to grow an operation there from scratch means Japan rarely attracts the cream of international talent. For Jonny Shaw, a founding partner at Naked Japan, which set up last year, this undermines international agency ambitions in the country.

"It's quite ridiculous that people think they can succeed in a city as sophisticated as Tokyo with the kind of management quality that they have," he says. "Because it's not that successful, a lot of people don't want to be too close to it."

Those that do often find themselves caught between a rock and hard place. "When things don't work out, senior management sometimes gets a little unforgiving about the challenges people face in Japan," Blair says. "By the end I was pretty burned out."

Of course, some international agencies do survive, and even thrive, in Japan. Shaw points out that Naked's business model - providing strategic creative communications - means it can successfully collaborate with like-minded small shops such as Bascule, Suitmen and Tugboat.

And Blair believes some of the country's creative talent is now disaffected with the domestic agency machine, and ripe for plucking. Takeda is also convinced things are changing. "Brand strategy remains a weakness at domestic agencies, because they are media and execution driven," he says.

Any signs of change, however, are not overwhelming. Even the growth of new media, which is not subject to such entrenched relationships with the "big three", is still dominated by Hakuhodo and Dentsu, which has 50 digital companies itself.

It's unlikely Publicis will be the last to pull the plug on Japan. "Many international agencies have failed because they have come into this market without showing the due respect that it and competitors here deserve," Ramsey says. "The competitors here are among the toughest, most sophisticated and most aggressive in the world."


As the managing director of a UK-based agency, and of Japanese origin, I can clearly see how the difficulties European agencies face when going into Japan mirror the obstacles Japanese agencies come up against in Europe.

I ran the London office of Hakuhodo for three years, and found it an incredibly challenging role.

To start with, most people found it difficult to pronounce our name. This may seem like a minor point, but it had a knock-on effect when trying to attract the right kind of people - the lifeblood of any creative agency. We sounded very foreign, and prospective clients and employees questioned our relevance in the local market.

There were also cultural and business differences. Japanese companies often operate with a consensual decision-making process. More people involved, with longer lines of communication. And Japanese clients tend to give equal emphasis to the detail of the campaign, as they do to the "big creative idea". Eventually, after a decade, we came to terms with the fact that UK businesses operate in a different way and that we needed to develop a stronger understanding of this local market.

We took a strategic decision to change our business model here and to expand through the acquisition of established local agencies, run by strong, local teams. While today we employ Japanese personnel, we very much believe in local management running the day-to-day business. My role is to maintain relations with the senior Japanese management, and new business, of course. The local team does the real work, delivering campaigns day in, day out.

- Shuji Okawa is the managing director of Nexus/H (50 per cent Hakuhodo-owned).