Japan's new ad agency group a player to be reckoned with

By Published on .

It's not fashionable to pay much attention to a becalmed Japan right now. The competitive paranoia that gave rise to a book and movie such as "Rising Sun" seems a long decade ago. But the news that Hakuhodo, the giant Japanese ad agency, has created a new $1.2 billion advertising powerhouse should make us sit up and take notice. A new holding company will include Hakuhodo, Daiko (Japan's No. 4 agency) and Yomiko (the No. 8 agency). An eventual public stock offering is planned.

The stirring of a Japanese agency giant can have repercussions for the rest of the ad world. Dentsu's earlier decision to go public and flex its muscles internationally led, indirectly, to the creation of the U.S.-based Bcom3 Group, and then, with Publicis Groupe's acquisition of Bcom3's agency networks, to the birth of the Publicis Groupe agency superpower.

Dentsu remains by far the largest group in Japan with gross income of $1.79 billion a year. However, representing some 33% of the Japanese ad industry, and already buying more than 40% of Japanese airtime, it is clear there is little room for Dentsu to grow even if Japan was booming. But Japan is in a decade-long slump with little sign of any fundamental change ahead. Japan's major corporations are stymied at home and turning to potentially lucrative overseas markets. To build a credible new international powerhouse, Japanese agencies, like their western peers, have two realistic avenues open to them: sell or stage an initial public offering.

In 1998, Asatsu (Japan's No. 3 agency) chose to sell a 20% stake to Sir Martin Sorrell's WPP Group in return for a 4% share of WPP. At the same time, Asatsu merged with Dai-Ichi, then Japan's No. 7 agency. Omnicom Group, too, made a move, buying Japan's I&S Corp.

By contrast, Dentsu has made relatively unsuccessful forays overseas. Most notable were its HDM (Havas-Dentsu-Marsteller) joint venture of the 1980s and its '90s acquisition of Collett Dickenson Pearce (almost 10 years after that storied London agency was the most renowned in the world). There was also the Dentsu Y&R venture in Asia

In 2000, Dentsu surprised many (including Young & Rubicam) by announcing its involvement in the creation of BCom3 with Leo Burnett Co. parent Leo Group and D'Arcy Masius Benton & Bowles parent MacManus Group. Dentsu's commitment to a 20% stake in Bcom3 was its largest investment to date overseas. It was funded by Dentsu's flotation last year on the Japanese stock market.

Hakuhodo says it wishes its new holding company entity to also pursue a public stock offering. For the three privately held agencies that are coming together, this is the only way imaginable that they can galvanize their businesses since, sadly, Japanese clients cannot provide enough organic revenue growth, domestically or overseas.

This move by Hakuhodo and its new Japanese agency partners is an attempt to break the vicious cycle of stagnant income and profits. It may not rock our world today, but it seems highly unlikely that this will be the end of the story-especially after a possible fall 2003 public stock offering. Hakuhodo will be a name to watch over the next two years.

Stefano Hatfield is editorial director of AdAgeGlobal.com, AdCritic.com and Creativity.

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