HAKUHODO'S SHOJI ON JAPAN'S CHANGING TIMES RECESSION LEADS COUNTRY TO CROSSROADS; CLIENTS REEVALUATE THE WAY THEY DO BUSINESS

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TOKYO-Takashi Shoji takes the helm at Hakuhodo, Japan's second largest ad agency, during trying times.

The unending recession in Japan that has hurt the industry saw Hakuhodo's gross income rise 9.7% to $667.8 million in 1993, but only after income fell from $655.6 million in 1991. Moreover, Hakuhodo is struggling along with other agencies to adapt to a new reality: clients that are taking a fresh look not only at how much they spend, but also at agency relationships.

In February 1992, for example, Nissan abruptly announced it was consolidating most of its advertising budget with Hakuhodo, severing long-standing links with Dentsu. Last year, Toshiba, Japan's ninth largest advertiser, reduced its agency roster from 25 shops in order to work more closely with Dentsu, Hakuhodo, and Asatsu. And this year, Japan's largest securities firm, Nomura Securities appointed a foreign agency, McCann-Erickson Inc., to create a vital campaign to rebuild the company's business.

While these changes haven't directly hurt Hakohodo and some have even helped, they are signs of a sea change to which the 61-year-old Mr. Shoji, as president-chairman, the only creative to head a major Japanese agency, must respond.

"Now [that] we've arrived at the age of saturation, the consumers are leading the market," said Mr. Shoji in his first interview with a foreign publication. "So the key question [clients ask] of an agency now is how much do they really know about consumers, how well do they really understand them."

Traditionally the role of agencies in Japan has been to act as a conduit, helping information flow from manufacturers to consumers, but that too is changing, he said.

"Now [that] the economic bubble has burst, the balance has shifted to the consumers. This is the first time ever that the consumer has achieved such importance...This makes it a time of adjustment, of difficult adjustment for everyone," he said.

Another major adjustment has been a recession that has lasted long enough to encourage clients to take closer looks at their ad budgets and tighten them virtually across-the-board.

But this tough climate is actually helping Hakuhodo to fine tune its own marketing engineering concept. "Just over 10 years ago we initiated the concept," said Mr. Shoji of the agency's consumer-oriented approach to integrate communications and research disciplines and maximize synergy. "Until now, this has largely remained a concept, but now is the time for implementation. It is a serious test of our quality, our understanding of the consumer, and our resources," he said.

Hakuhodo executives customarily decline to discuss specific examples of marketing engineering for individual clients. However the successful introduction of J. League, Japan's wildly popular new professional soccer league, is seen as one example.

J. League's introduction was preceded by a three-year development stage task force that had Hakuhodo working with the new League's management. As a result of this careful planning, the League has proved a hit with consumers as well as commercial sponsors and licensees, creating a market for League-related merchandise and services worth $1.5 billion, according to the Nippon Life Research Institute.

Hakuhodo doesn't only handle advertising on the $70 million-to-$100 million account. The agency also had a guiding hand in the awarding of licensing contracts, media and TV rights and even consultation on new soccer magazines to capitalize on J. League's popularity.

While things remain slow on the homefront, Hakuhodo is also looking for relief to overseas markets where in many instances it is still a minor player. "We're taking a fresh look at our international operations.*.*.There's no question that internationalization is important both to the growth and the development of the agency," Mr. Shoji said.

Hakuhodo has a network of agencies and offices that has grown since 1975 to cover 13 countries in Europe, Asia, Latin America and the U.S. But although Hakuhodo ranks among the top 10 in Singapore, Taiwan and Thailand, the agencies have remained tiny in other nations. And although the agencies in Asia are profitable, elsewhere Hakuhodo is at best breaking even. Overall, international contributed less than 5% to Hakuhodo's 1993 billings.

"We're not fully satisfied with [the international infrastructure] we have, but we haven't decided just what tangible steps to take in order to make progress," said Mr. Shoji.

While he wouldn't elaborate further, Mr. Shoji said he expects shortly to announce expansion of Hakuhodo's services in China.

While Japan's prolonged recession has cut into corporate profits and prompted many companies to reduce staff, Hakuhodo remains an exception.

"We are not firing people, and we have no intention of laying people off," said Mr. Shoji of the agency's 4,170 employees. "Instead, we've been looking at all our other costs to see what we can do without."

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