[Tokyo] Compulsively cautious Hakuhodo, Japan's No. 2 ad agency, is taking small-but-determined steps to build its international revenue and client base with deals like this month's investment in Los Angeles agency Mendelsohn/Zien.
Since last September, Hakuhodo has bought into small agencies in countries as diverse as the U.K. and India, as well as Germany, France, China and Malaysia.
The master planner behind the strategy is 61-year-old Tomokazu Jimbo, corporate executive officer in charge of global operations. Although the agency opened in Tokyo back in 1895, Mr. Jimbo is playing catch up both internationally and at home to agency giant Dentsu, more than twice Hakuhodo's size. In the executive suite he has to contend with a conservative, aging corporate culture and lingering memories of unhappy international alliances.
"They are extremely insular," said an Omnicom Group executive in Tokyo. "Japanese agencies are not known for their flexibility, but Dentsu has nevertheless shown its ability to look beyond its own brand for opportunities. I don't think Hakuhodo has ever been committed enough to change to link up with a bigger group, other than to put the occasional toe in the water."
Overseas, Hakuhodo now has an Asian network in place and a small but useful presence in the largest European markets. In the U.K., for instance, Hakuhodo late last year bought a 49% stake in Mustoe Merriman Levy, a $65 million London agency with about 50 staff that handles Nickelodeon and Lycos in the U.K.
In the U.S., Hakuhodo's 2002 revenue from a tiny service office in New York was just $1.3 million, a 14.8% drop from the previous year.
"There is more to do this year," said Mr. Jimbo, refusing to comment on further U.S. acquisition plans. "We would like to keep a competitive positioning and we would like to be major global players."
Less than 5% of Hakuhodo's total billings-for marketers such as Hitachi, Honda, Konica, Matsushita, NEC, Sharp and Suzuki-are from outside Japan. Through investments such as Mendelsohn/Zien, Mr. Jimbo expects that figure will top 10% this year, and, he hopes, reach 15% by 2005.
Worldwide, Hakuhodo ranks as the eighth-biggest ad organization, between Grey Global Group and Cordiant Communications Group, with 2002 revenue of $860.8 million, down 1.1% from 2001. Dentsu is No. 5.
A personable, cautious and sometimes wily dealmaker, Mr. Jimbo has helped manage Hakuhodo's international operation since 1993, thanks to his knowledge of English and Western advertising practices, acquired at Hakuhodo's New York office in the early 1970s.
These days, he's studying Mandarin, but the advent of sudden acute respiratory syndrome has cut short his expansion plans for mainland China. Besides SARS's impact on the economy in North Asia, Hakuhodo has banned its executives from visiting cities such as Hong Kong and Beijing.
"Globalization is not so simple and straight," said Mr. Jimbo, who is fond of quoting Beatles' songs. "It's like `The Long And Winding Road.' There are many, many obstacles."
If SARS is his latest obstacle, a bigger one is Hakuhodo's aging board of directors, whose youngest member is 54. As the company's only prominent internationalist, Mr. Jimbo must tiptoe carefully around a highly conservative corporate culture to turn Hakuhodo into a global player.
He must also forgo the kind of global relationships that Dentsu and Japan's third-largest agency, Asatsu-DK, have created with Publicis Groupe and WPP Group, respectively.
Although Hakuhodo became a corporate trailblazer in 1960, when it forged a joint venture in Japan with Interpublic Group of Cos.' McCann-Erickson Worldwide, the arrangement ended in 1994, said a long-time Tokyo advertising executive, "when IPG bigwigs steamed in one day and wondered why they were giving away income. They severed the relationship very abruptly, which soured Hakuhodo's view of foreigners."
"The agency's board is very old and conservative, and a bit xenophobic," he added. "The thing they're most concerned about is becoming just another element in a big group rather than being able to control that group themselves. For example, they don't see the value in [WPP's investment in Asatsu-DK] from Asatsu's point of view."
Hakuhodo does have a global partnership with Omnicom Group's TBWA Worldwide, called G1, which handles Nissan around the world. It also has a joint venture in Japan with Interpublic's Lowe & Partners Worldwide, called Hakuhodo:Lintas, which works with clients such as Unilever, Johnson & Johnson and Peugeot. But both deals are intentionally limited to specific clients and geographic boundaries.
To maintain the board's support, Mr. Jimbo has carefully plotted a course of partnerships with small, independent agencies, largely created to handle Japanese clients, and until now mostly in Asia. "We can understand very easily China, Korea, Thailand, Singapore and Vietnam, [they are] very similar to Japanese, [and] have the same type of culture."
This approach, which Mr. Jimbo has labeled "mega-independence," eliminates the danger of Hakuhodo once again losing face-a Japanese taboo-and power to foreigners.
"We want to be independent, but not alone. We want to be connected to partners, such as independent agencies, in each country through the world, [but] it's important to create independence for our own network," he said.
That strategy puzzles many industry observers. "I don't understand what they're doing," said the managing director of a rival agency in Tokyo. "They haven't aligned with any single global company. Buying into small agencies as they've been doing, especially in the U.S., seems to be an attempt to establish some form of a global presence, but I'm not sure how effective that will be."
Hakuhodo's biggest deal is a local one, and preserves the agency's independence. Hakuhodo in December engineered a merger with two other top 10 local agencies, Daiko and Yomiko, to form a joint holding company and a separate media operation to better compete with Dentsu in Japan. A listing on the Tokyo Stock Exchange is planned for October 2004. So far there are no plans for a U.S. listing, unlike Dentsu, which is eyeing the New York Stock Exchange.
A Publicis Groupe director in Tokyo said, "Dentsu has never hesitated to play at a high level, while Hakuhodo has just followed clients overseas. I've never sensed aggressiveness from them about non-Japanese clients."