Letter from Tokyo: The Big Picture

Dentsu president Yutaka Narita's agenda can be summed up in two words: global reach. Addressing his legions in January, Narita predicted: "If we miss the opportunity to globalize our business, we will have to be content with being the No. 1 Japanese local agency. We then run the risk of losing our advantage in the domestic market." The irony is clear: While Japan is brilliant at exporting goods to the West, it's been less masterful at marketing and media. Narita hopes to change that. He sees the digital revolution as key, believing it will usher in a new information-based society and hasten the convergence of broadcasting, communications and computing. This media triple play will pave the way for an advertising explosion. Narita envisages a time when global rules and massive competition will reshape the marketing communications industry in Japan and the world. That era may be here. Consider: In 1996, on a nonconsolidated basis and including Dentsu Young & Rubicam, a shared joint venture, only 13 percent of Dentsu's billings came from outside Japan. According to Nobuo Momose, the executive vice president charged with orchestrating Dentsu's rise as an international player, a minimum target of 30 percent is now envisioned. Indeed, Momose sees that figure as essential if Dentsu is to compete with WPP, the Interpublic Group, Omnicom and Young & Rubicam as one of the global agencies that will dominate the ad industry's future. How will it be done? To begin, Dentsu has said it will go public in 2001. Fresh capital is now being raised to fund international growth. A second strategy is to export Dentsu's European success to U.S. soil. After all, Dentsu's European agencies have improved markedly in recent years. CDP, the British hub of Dentsu's European network, has been transformed from the faded star Dentsu bought in 1990. By 1997, billings were $90 million and new clients such as Honda, Panasonic, Jergens and MGM were added to its roster. In addition, a '97 independent survey of U.K. marketing directors for a leading trade magazine showed that key clients had radically changed perceptions of CDP. "The most dramatic mover in the reputations league table this year is CDP. It has leaped up the rankings by 20 places or more in every category," the survey noted. Further, "Its rise from 43rd in the overall table to 9th is the most comprehensive improvement by an established agency in the history of the survey." Mark Lepere, group development director of Dentsu Europe and agency deputy chairman, proudly notes: "This would not have been possible without investment by Dentsu." To understand why its U.S. counterpart hasn't fared as well, a brief history lesson is in order. Account conflicts in the U.S. hindered the growth of Dentsu Y&R ventures there. In addition, HDM (Havas, Dentsu, Marsteller), a European partnership with Y&R and Eurocom, briefly gave Dentsu a major European network in 19 countries in 1988. The partnership dissolved at the end of 1990 when the French opted out, deciding HDM was the wrong vehicle for its own global expansion. Can Dentsu's global aspirations be taken seriously now? "We should be frank in admitting that Dentsu made mistakes overseas," says Momose. For example, there were errors in personnel and training. Second, Dentsu possessed a flawed belief that the strength of its brand name in Japan, rather than the quality of service, would win and retain business overseas. Third, the company failed to understand the real needs of Japanese clients abroad. Finally, Dentsu adopted an outmoded management model that encouraged direct day-to-day control from Tokyo, instead of relying on local empowerment and entrepreneurial leadership. Ironically, Dentsu became the negative mirror of its Japanese self overseas--which taxed the tolerance of the U.S. market. The pain threshold rose each year as staff defected, clients deserted and agencies imploded. Then in 1990, a group of staffers dismissed from Dentsu Corp. of America took their grievances to the Equal Employment Opportunity Commission and sued. Out poured tales of cultural insensitivity, alienation and misunderstanding. Little wonder that when Narita became president in 1993, international operations were a sea of red ink. Soon, worldwide management was replaced and Momose took the helm. "In the last few years, we've been working very hard in the U.S. and Europe to find out why some companies were losing so much money. We've worked to stop this. And with few exceptions, we've done reasonably well," Momose says. "We are now at the second stage of re-engineering." This effort entails building the resources each agency can provide, as well as engaging in extensive networking. Momose adds that Dentsu's U.S. infrastructure is solid; once their U.S. agencies equal or surpass domestic rivals, Dentsu believes it will match U.S. competition. "It is networking that helps create critical mass as people from different agencies pool their skills to work on projects," admits Lepere. Yet despite its overseas improvement, Momose sees Asia as Dentsu's top priority. Fortune has smiled on Dentsu here. The partnership with Y&R, a small joint venture that began in 1981, has blossomed. Despite four name changes, Dentsu Y&R has grown to become the second-largest multinational agency network in Asia, billing $1.2 billion in 1996 from an equal mix of Japanese, Western multinational and local clients. The Dentsu relationship "is very important to Y&R. We are totally committed to it. [Dentsu's] understanding of Western business and our growing understanding of Asia have lifted the level of communication and cooperation between us," says Tim Pollak, Y&R Advertising's vice chairman, worldwide director, client services. "It's been very successful in meeting our needs in Asia, and we attribute a great deal of that to Dentsu." While Dentsu is quick to second those sentiments, Momose adds that "it's not possible to isolate Asia from developments in Europe or the U.S. We must consider issues from a global as well as a regional point of view. Overall, Asia is growing. Some major clients have plans for Asia and there are many opportunities. Also, the level of competition is rising." Thailand, Korea, China, India and Vietnam are all seen as key markets in Dentsu's future. The company also depends on parallel networks--DY&R and its own--to resolve conflict issues in the region. For example, Matsushita, Hitachi, Toshiba and Sony are among Dentsu's electronics clients. Balancing their competing needs demands a diplomatic touch. In addition to its partnership with DY&R, there are other seats at the table. Bozell helps Dentsu market Toshiba in the U.S. In turn, Dentsu provides a media buying service for Bozell. One sign that Dentsu is adding global luster is the growing list of clients served outside Japan. In the U.S., Dentsu's agencies on both coasts have Canon assignments. So do outposts in Germany, Canada, Singapore, the U.K. and Australia. Toyota is now a client in Canada, Turkey and Taiwan, while Nestlƒ has awarded business in the U.S., the Middle East and China. Philip Morris uses DY&R in China, India and Taiwan, as well as Dentsu in Japan. In fact, Dentsu reported an impressive 13 percent rise in international business growth in '96. Another boost is the major Japanese clients willing to give Dentsu more overseas business as its individual agencies prove they can deliver. These include Kao, Sony, Matsushita, Honda and Shiseido. More business from Toyota, particularly in the U.S., would be sweet, given its history with Dentsu. Though Saatchi & Saatchi enjoys some of Toyota's U.S. business, the automaker has always maintained a multiagency policy. And a long memory. When Toyota embarked on its own international drive in 1957, their first export models flopped badly in the U.S. Clearly, Toyota was not ready to ride in the fast lane. The automaker learned its lesson; it slowly became a global force in its own industry--then re-entered the U.S. market. Dentsu is able to learn from its clients, as well as its international competitors. And it is equally determined to succeed. David Kilburn can be reached at kilburn pobox.com

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Letter from Tokyo: The Big Picture

David Kilburn

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David Kilburn