Dentsu currently derives 85% of its $14 billion in billings from Japanese operations but hopes to expand billings outside Japan from 15% to 25% over the next five years.
That's an optimistic projection given Dentsu's dismal record in the U.S., which includes charges of placing Japanese "spies" at agencies, failing to deliver on promises to executives, a discrimination lawsuit and a glaring inability to develop a substantial agency network.
"We have been the main beneficiary of economic growth in Japan for decades," said Megumi Nimura, Dentsu's Tokyo-based regional director for America and Europe. But a slow-growing Jap-anese economy in the mid-1990s, combined with changes in the global economy and the digital revolution, has forced Dentsu to rethink its marketing strategy.
"We finally realized how important international business is going to be," said Mr. Nimura. "We are still way behind in terms of international expansion. In this business, status quo is not an option."
Although Dentsu is usually tight-lipped about its plans, Mr. Nimura flew to New York last week to meet with Advertising Age for this story.
POTENTIAL FOR U.S.
The U.S. accounts for $95 billion, or 35%, of worldwide advertising spending. Yet Dentsu in 1995 derived only 2.1% of its total billings, or about $300 million, from U.S. business.
The figures reflect only the tip of the iceberg of Dentsu's challenge in North America. Although Dentsu first established a U.S. presence in the mid-1960s, it has been unable to establish a strong U.S. agency operation and has been bedeviled by management instability.
At its Los Angeles shop alone, Dentsu has run through five agency names and eight general managers in about 10 years.
Dentsu also has been unable to win a major Japanese auto account, with one exception. In 1992, Lord, Dentsu & Partners, a joint venture with Young & Rubicam, won Mazda's proposed upscale Amati automobile. But within months, Mazda terminated the division.
Recently, Dentsu has been struggling with the implosion of its Rogge Effler & Partners, Santa Monica, Calif., which last year moved into posh new offices and proceeded to lose almost $70 million in billings. Among the clients that left the agency were Dole Foods' juices; AST Research; Best Western International; and Countrywide Home Loans.
"They didn't have a creative director for a year and I wasn't getting work done. I'm surprised I waited as long as I did" to fire the agency, said Andy Bielanski, director of marketing for Countrywide and a former managing director of Rogge Effler's predecessor agency, Lord Dentsu.
Last April, Dentsu paid an estimated $1.8 million to $2.8 million for Young & Rubicam's 50% stake in the Los Angeles office of Lord Dentsu, renaming it Rogge Effler & Partners. President Pat Rogge took over duties formerly held by Mr. Bielanski, while Don Effler, a former co-owner of agencies in Boston, Los Angeles and New York, took over as chairman.
The re-christened agency did not even make it to the final rounds in the pitch for American Honda Motor Co.'s Acura account, despite hiring Paul Katzka, an automotive expert, to help it win the account. There were also widespread rumors in Los Angeles that Dentsu and Honda executives in Japan-where Dentsu handles Honda-had preordained Rogge as the victor in the pitch.
"Dentsu's been trying for years to get a foothold in the United States and they haven't accomplished anything," said Eric Conn, American Honda's senior manager of automotive advertising. "How would that record encourage us to have a relationship with them?"
Remaining accounts at Rogge Effler include the $10 million Suzuki motorcycle business, some Dole business and the California Avocado Commission. The agency currently is pitching a small piece of Japanese business, Taisho Pharmaceuticals' LipoVita vitamin drink.
Despite the problems, Mr. Nimura said some losses were due to management changes on the client side and insisted Dentsu has confidence in its "local [U.S.] leaders," particularly Mr. Effler.
Other local leaders include Doug Fidoten, exec VP-strategic planning director, and Steve Penchina, exec VP-executive creative director at DCA Advertising, New York; and Jim Hood, CEO of the Lord Group, New York, a joint venture with Young & Rubicam.
Mr. Nimura said Mr. Effler's "glorious achievements" in advertising, including the win of a piece of Toyota truck business for Dentsu-Cadence Can-ada, Toronto, earned him the confidence of Dentsu executives.
"We finally seem to have come to a point where we have a small number of very good leaders who can dedicate themselves to the cause of development of business," said Mr. Nimura.
Dentsu will rely on them to help it expand and will not look to acquire major U.S. agencies, he added.
Mr. Nimura denied plans to fold Rogge Effler, but wouldn't rule out a name change or an eventual merger into another Dentsu shop, possibly Hajjar & Partners, Marina Del Rey, Calif., which handles Canon Computer Systems.
"Rogge Effler, we are not going to close it down," Mr. Nimura said.
Mr. Nimura said he has given Mr. Effler a short amount of time to come up with a plan for turning around the agency before the end of the year.
One way to bolster Rogge Effler could be for Mr. Effler to acquire another agency. Mr. Nimura denied reports Dentsu has talked about buying Los Angeles shop Asher/Gould, which handles American Suzuki Motor Corp.
Asher/Gould President Bruce Silverman said he might be interested in acquiring Rogge Effler's remaining business, including the Suzuki motorcycle account, but was uncertain even as to who he'd contact at Dentsu.
Rogge Effler, however, is believed to be in negotions with Larry Kopald, managing partner-chief creative officer of Fathom, the former Ketchum Advertising office in Los Angeles. Mr. Kopald is likely to take almost two dozen Fathom employees and part of the Oracle business with him.
Mel Harris, Suzuki's director of marketing, said the motorcycle division intends to keep its account at Rogge Effler as he's satisfied with the account team handling the business.
Some of Dentsu's woes seem to be cultural. At home, in an advertising climate that permits conflicts American marketers would consider intolerable, Dentsu enjoys relationships with rival marketers such as Honda and Toyota.
So great is Dentsu's grip on Japan's media that one U.S. ad executive said, "You can't advertise on prime time in Japan unless you deal with Dentsu."
The company, founded in 1901 with a name that included the Japanese words for "electric" and "communication," also owns Japan's only ad trade magazine and hosts an industry awards show.
Another cultural issue is Dentsu's insistence on maintaining Japanese nationals in oversight roles at U.S. agencies.
During a period when Lord Dentsu was losing almost $500,000 a year in Los Angeles, Dentsu installed a Japanese executive, considered a spy by local management, to keep tabs on the office. The executive, paid $250,000 a year, one former U.S. agency executive said, contributed little to the operation. Tired of having the executive question him about what he was doing to gain business, the U.S. manager one day asked, "What have you done to bring in some business from Japan?"
"The answer, of course, was nothing," the U.S. executive said.
Despite Mr. Effler's rise through the Dentsu ranks-picking up the title of vice chairman of DCA Advertising in addition to his post as vice chairman of Dentsu USA-Dentsu brought in "Charlie" Sano, a Japanese national, to oversee client services.
"They are here to nurture and help build the agencies, and are very supportive," said Mr. Effler of the Japanese executives. He noted the Japanese have given him an equity stake in the agency and put his name on the door.
FEAR OF AMERICANS
"They are so afraid of strong American management [that] they'd rather be unsuccessful as long as they have control," said one former executive.
"It is not our approach" to maintain a hands-off management style, Mr. Nimura admitted, while denying the agency plants observers in the U.S. He said it's natural for a Japanese agency to have some Japanese executives in overseas offices.
Dentsu's U.S. offices are in fact headed up by a 66-year-old Japanese, Nobuo Momose, who was unwilling to be interviewed for this story, in part because he is said to be uncomfortable with his grasp of the English language.
Making it in the U.S. ultimately has broader implications for Dentsu than saving face or expanding an already massive worldwide revenue stream. In addition to building its presence in the U.S., the agency is looking for growth in the rest of Asia, Europe and Latin America.
To be a successful global player, "We don't have to be gigantic in the United States, but we have to establish a plausible presence," said Mr. Nimura, stressing again the phrase, "status quo is not an option."
Contributing: Scott Donaton, Rebecca A. Fannin, Mark Gleason, Bradley Johnson and Laurel Wentz