WORLDWIDE ADVERTISING: Turning Japanese - The world's second-largest advertising market is rapidly changing. David Kilburn looks at Japan's creative standards, ads and media

Japan's advertising industry is paying a price for the country's economic decline. Total adspend dropped 0.9 per cent last year to Y6,058 billion ($47.2 billion), a small decline considering the severity of the country's economic problems. But the aggregate figure masks a grimmer picture. While spending on sales promotions was almost unchanged, media advertising dropped 2.1 per cent.

"The market is soft and forecast to decline a further 3.2 per cent this year, much in line with the uncertainties surrounding the Japanese economy,

Max Gosling, the president of McCann-Erickson in Japan, says. "The biggest issue is the lack of consumer demand. There's a real need for the government to give people the confidence to spend again."

The rapid-fire introduction of new or improved products no longer prompts purchase. Instead, advertisers are trying to extract more value from smaller product ranges.

Brand-building is now the key issue facing management in Japan.

"Japanese companies used to rely on the company name to provide an umbrella brand for all their product lines,

Hotaka Katahira, the professor of marketing science at Tokyo University, says.

Though this approach continues to work for a few companies, such as Sony and Honda, "for most it has become an increasingly outmoded approach", Katahira adds. In a research study of well-known Japanese companies, Katahira found that nearly 60 per cent say they are focusing on brand-building.

The intention may be there, but an evening spent watching Japanese television does not suggest that many Japanese agencies have solved the problems of putting brand-building into practice.

For example, although fewer Hollywood stars grace Japan's television screens, many commercials still feature Japanese celebrities. Undoubtedly consumers enjoy the entertainment values, but within the 15-second format that dominates commercial time the stars often overpower the brands.

"Star-studded commercials make it easy for advertisers to develop the campaigns to provide point-of-purchase support for retailers and adapt them for use by distributors,

Toshiaki Nozue, Dentsu's executive director, says.

In Nozue's view, the time constraints of an unaided 15-second spot do not readily lend themselves to building brands. The agency has therefore been developing more 30-second spots than ever. But the tide has yet to turn.

There's greater interest in working with international agencies that have more experience of building brands. McCann-Erickson Japan earns half its annual revenue from Japanese clients, including Japan Airlines, Asahi beer and Tokyo Disney World, and vies with one or more of Japan's top-three agencies - Dentsu, Hakuhodo and Asatsu-DK - on most new-business pitches. International agencies, such as McCann, are also taking the lead in developing relationship marketing, healthcare advertising and other specialist communication practices.

Perhaps in reaction to bleak times, many Japanese commercials sparkle with humour, and the country has been nicknamed the most creative nation in Asia-Pacific in the Gunn Report. Regionally, the nation topped the list of most-awarded countries, while Dentsu emerged as the most-awarded agency.

The agency's "running woman

television spot for Wowow TV was the second-most-awarded commercial in Asia-Pacific last year. The spot shows a woman who runs away from a prospective suitor and pushes a man off a bridge in her rush to get home to watch Wowow.

Even so, few Japanese advertising campaigns travel outside Japan, except to awards festivals. "It is much more common to shoot a pool of footage which agencies will use in several countries,

Nozue admits. Would Japanese humour strike a chord with consumers in other countries? Nozue is sceptical: visual humour may travel, but humour bound up in the niceties of language and culture usually does not translate too well in different cultures.

Finding ways to persuade people to part with their cash is difficult when unemployment is rising, real estate values are falling, banks are paying almost zero interest, and the stock market has a worrying tendency to explore new lows.

However, this is not the only problem for agencies. The tradition of providing lifetime employment means that declining billings and narrowing margins are squeezing the finances of Japanese agencies, and this is leading to some restructuring.

Under pressure at home, many advertisers are hoping revenues earned outside Japan will make a greater contribution. And so Dentsu's decision to take a 15 per cent minority stake in Publicis, following the latter's acquisition of BCom3, has been well received by clients, as well as investors and analysts, according to Fumio Oshima, the senior managing director responsible for international business. "Our international clients such as Nestle and Procter & Gamble have also welcomed the deal,

Oshima says.

The Publicis link is expected to help Dentsu expand its own presence in Europe and the Americas, as well as helping Publicis in Japan and Asia.

The role of the Dentsu and Young & Rubicam joint venture in Asia remains unchanged.

"We remain committed to it. DY&R is working successfully for a number of our Japanese clients and makes money,

Oshima confirms.

Dentsu now has the strongest international presence of all Japanese agencies.

Hakuhodo, which has no major international partnership, continues to make small acquisitions overseas, while Asatsu-DK struggles to turn a profit from its own small international network.

But all three will be working hard to boost consumers' confidence in the near future.