World: Analysis - Dentsu faces new challenges as chief executive steps down

Can Tateo Mataki realise all of his predecessor's global ambition?

Appointing a new chief executive for Dentsu used to be an event shrouded in secrecy and surrounded by rumour. However, this May, the agency obligingly posted a notice on its website to say that the current president/chief operating officer, Tateo Mataki, would become the chief executive when the 74-year-old Yutaka Narita retires as the chairman/chief executive on 29 June.

Narita has been the chief executive since June 1993, presiding over far-reaching changes for the agency that has led Japan's ad industry for most of the past century.

He transformed the privately owned Dentsu into a public company, listing on the first section of the Tokyo Stock Exchange in November 2001. In doing so, he forced through standards of disclosure, financial control and accountability for the agency that were hitherto unknown in Japan's advertising industry.

The following November, the agency moved from its traditional homeland in a hotch-potch of overcrowded buildings near the Tsukiji fish market to a state-of-the-art high-rise in central Tokyo, replete with restaurants, galleries and shopping arcades occupied by many of Dentsu's retail clients.

Narita's biggest challenge on becoming president was achieving Dentsu's ambition to become a global player strong enough to serve its major Japanese clients overseas. His predecessor had poured millions into unsuccessful opportunistic ventures around the globe, many of which required cash infusions to stay afloat. Under Narita's stewardship, Dentsu invested first in Bcom3 and later in Publicis, which is now Dentsu's main international partner.

At the same time, Narita has maintained Dentsu's involvement in DY&R, its Asian alliance with Young & Rubicam, and has developed a cordial relationship with Sir Martin Sorrell and WPP.

Narita's most lasting legacy may prove to be his most recent. This June, Dentsu and Asatsu-DK announced a joint venture to explore next-generation advertising in Japan and Asia. It sounds innocuous enough, but it is the culmination of eight months of manoeuvring in which both Dentsu and Hakuhodo DY Partners sought to lure Asatsu into their camps. Asatsu's 6 per cent market share is enough to bring Hakuhodo DY's share almost to Dentsu's 24 per cent, and enough also to give Dentsu an unassailable lead over Hakuhodo DY's 17 per cent share.

According to sources, Dentsu and A-DK also discussed linking their media activities and taking cross shareholdings in each other, but felt the time was not ripe for either move. Dentsu denies these reports as "hearsay", just as it dismissed advance reports about the new joint venture. A-DK declined to comment.

The joint venture carries no implications in itself for WPP and its 20 per cent shareholding of Asatsu. However, whether it presages a new international grouping that would see WPP and Dentsu move closer or a conflict as Dentsu seeks a greater say in Asatsu's affairs is a story yet to unfold.

The 65-year-old Mataki, like Narita, is a graduate of Dentsu's powerful newspaper division. Like Narita, he speaks no English and has not worked overseas. He will also face much of the same challenges as his predecessor.

More than 40 years have passed since Dentsu first opened offices in the Americas and Europe. In both regions, Dentsu has still to achieve the international credibility that, say, McCann Erickson, Ogilvy or J. Walter Thompson have possessed for decades. Partnership with Publicis, and earlier Bcom3, has not changed its fortunes much.

But rather than re-fighting the old battles, Mataki will continue pursuing Narita's goal to become the leading agency in China. By the end of next year, the agency hopes for billings of Y60.6 billion from China and has already launched a slew of ventures to help achieve this well before the 2008 Olympics. China is just as much a priority for Dentsu's major clients, who are more willing to work with Dentsu as a pioneer in China than as a latecomer in the West. At the same time, the agency hopes to build on its already strong position in Asia and achieve significant market share in India.

Despite the alliance with Asatsu-DK, Dentsu still faces challenges in Japan that Mataki must manage adroitly if it is to retain its crown.

Chief among these are client pressures for greater accountability and transparency. In many of Dentsu's Japanese clients, there are now senior managers who have worked overseas and wish to bring international best practice to Japan.

Sony, for example, recently recruited Billetts to conduct a worldwide media audit of its advertising spending. The goals are simply to get better returns from the global budgets and to move media planning on to a more consistent footing in each country. Japan is excluded from the current brief but, according to Frontage, the Sony part-owned agency overseeing the process, the ultimate goal is to achieve the same standards in Japan that apply worldwide.

Mataki also faces the same pressures on margins that agencies and holding companies face in the West. However, these are tougher issues in Japan where it is much more difficult to trim payroll costs.

Global ambitions, global problems, global trends. Unlike all his predecessors, Mataki takes office when Japan is no longer economically isolated but, indisputably, part of a worldwide industry.