WORLD: ANALYSIS - Tokyo's giants tread carefully on road to global domination

Dentsu and Hakuhodo are finding new paths to global networks, Bob Willott says.

Overlooking Tokyo Bay are two new silver and glass towers gleaming in the sun. One houses almost 6,000 employees of Dentsu - Japan's biggest marketing services group - in its 48 storeys. The other contains the head office of Japan's second-largest marketing services group, Hakuhodo.

The towers dominate the skyline, emphasising the huge influence the two agencies exercise over the marketing of products and services to Japanese consumers. Yet the earth tremors that occasionally shake the city serve as a constant reminder that no company can presume to be secure for ever.

Among the tremors that have unsettled these two Japanese agencies have been costly experiences of doing business abroad and declining domestic revenue in the wake of a recession.

Both companies first attempted to build a global delivery network for domestic clients many years ago - either by buying existing agencies or by opening offices in key territories. But neither succeeded in creating a truly global network in the way the major US agencies did. Indeed, few of the Japanese ventures made much money or delivered the creative solution that local markets required.

For example, in the UK, Dentsu bought into what was originally Collett Dickenson Pearce. Burdened with a massive lease commitment, the agency ran up a deficit of £10 million and Dentsu had to bail it out before winding it up and switching its UK activities to cdp-travissully. Hakuhodo also found that setting up its original Japanese-managed US office was less fruitful than it had hoped.

Now Dentsu and Hakuhodo acknowledge that their main priorities are to be strong at home and to expand their penetration within the Asian market as a whole. Physically, it is more accessible. And, culturally, they feel more at ease.

Dentsu already enjoys a 31 per cent share of the Japanese market, measured by billings, and ranks fifth in the world. Its tie-up with Publicis will increase its inward referred business still further. At Hakuhodo, its domestic strategy has involved the acquisition of two other domestic agencies - Daiko and Yomiko - and the creation of an integrated media buying and planning agency, Hakuhodo DY Media Partners. The enlarged group, which will have at least 20 per cent of the Japanese market, reckons it will rank eighth in the world.

But although Japan is the second-largest advertising market in the world, adspend has been falling over the past few years in the wake of the economic decline.

Nevertheless, both Dentsu and Hakuhodo claim they are able to increase income by providing a far more comprehensive and co-ordinated service offering than many of their Western counterparts or even their smaller domestic competitors. They genuinely seem to give their account directors the authority to harness all the various skills and services available from the agency - a truly integrated approach, less inhibited by some of the prejudices, quality issues and territorial barriers that have undermined similar initiatives in the UK.

They can also boost revenue and add value to clients' marketing efforts by drawing on their involvement in event marketing, content ownership and management, and the merchandising opportunities that can be exploited in parallel.

"Our continuously high profit margins are the result of the high value added to the services we offer which we call 'total communications services', which not only cover 'content marketing' but also every detail related to the communication activities of our clients," a Dentsu spokesman explained.

Hakuhodo too makes great play of its integrated and comprehensive "Powerbranding" approach to clients' marketing needs.

Like everyone else, the Japanese are investing heavily in China - so far with little return - and in other parts of Asia. Beyond Asia, the Japanese agencies' global strategies now focus on service delivery with limited financial risk or day-to-day management involvement. Dentsu's alliance with Publicis provides many of the benefits of belonging to the global club without the risk of full exposure.

Hakuhodo is pursuing a different approach. It is seeking out a limited number of partners in its key overseas markets and buying just a minority stake. So far it has bought into Mustoes and Nexus Group in the UK, as well as agencies in the US and Germany. In each case, management responsibility remains primarily in the hands of the local agencies. Hakuhodo's theory is that the local management is better motivated if it retains a big stake in the local business, and will bring to each Japanese client the benefits of a first-hand understanding of the local market.

Hakuhodo's board director Tomokazu Jimbo talks of a "syncretive" approach to overseas markets - tolerant of various cultures and bringing the best out of each. Explaining his company's recent investments in the US, he says: "We decided that in order to meet our Japanese clients' growing localisation and to serve our locally acquired clients, we needed a business model that was grounded in the US market. We came to a conclusion that investing in a proven local ad agency was the best way to achieve this goal."

It would be easy for the British to deride the current global strategies of the Japanese as a "cop out" - having failed to build their way into the Omnicom league. Yet less than 20 years ago, a number of thrusting British publicly owned agencies tried to buy their way around the world.

With one exception, none of them succeeded in creating global networks that would last. The one British success story is WPP. But unlike its rivals and the earlier Japanese initiatives, it didn't try to build an overseas network from scratch. Like Publicis, it simply bought established global businesses, and you need a lot of money to do that.

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


1998 2002 Change

Yen bn Yen bn %

Dentsu 1 1,323 1,369 3.5

Dentsu Y&R 2 44 44 0.0

Dentsu Kyushu 26 29 11.5

Dentsu West Japan 19 21 10.5

Total Dentsu Grp 1,412 1,463 3.6

[xyz]1. Strategically aligned with Publicis Groupe 2 WPP Group

holds minority shareholding.

Source: Marketing Services Financial Intelligence.


1998 2002 Change

Yen bn Yen bn %

Hakuhodo 682 694 1.8

Daiko1 155 161 3.9

Yomiko 123 106 -13.8

Total Hakuhodo Grp 960 961 0.1

[xyz]1. Interpublic Group has a shareholding interest

Source: Marketing Services Financial Intelligence.


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