Where Agencies Fear to Tread

TOKYO Japan may be the most difficult, complicated operating environment in the world for an international agency. There is the obvious disadvantage: The three largest domestic shops—Dentsu, Hakuhodo and Asatsu-DK—control 65 percent of media billings. But there are other unique challenges. The business culture in Japan still largely adheres to lifetime-employment practices; the difficulty of firing staff or making layoffs, coupled with the price of real estate, makes for higher costs of doing business. Also, there are so many strong local brands in Japan, foreign rivals must battle harder for share. A highly fragmented retail system adds another layer of complexity. And with consumers demanding constant innovation, marketers are always seeking new product ideas, and agencies are always pitching new assignments.

“Every day you go out and fight Goliath 15 times your size,” says Kevin Ramsey, president and CEO of McCann Worldgroup Japan. “You have to have a challenger-agency culture, not a big-agency culture.”

JWT and McCann have been in the market longest—since 1957 and 1960, respectively. Ramsey likens the pace of agency life in Japan to that of working in a promotions shop, because of clients’ “project” orientation. McCann handles 80-100 pitches a year and works for 160 clients.

After tepid growth, Ramsey was tapped to overhaul the Tokyo agency and has shifted its orientation from mass media to digital, communications planning and production resources. McCann changed many of its top managers and is restructuring so staffers will be incentivized by performance, not tenure. “The reason why Japanese agencies think international agencies haven’t worked here and don’t work here,” Ramsey says, “is because they see the revolving door of foreign guys—gaijin—coming into Japan as a stepping-stone to the next thing.”

At JWT Japan, new president and CEO Mark Webster is also revamping a lagging operation. Since his arrival from JWT Thailand earlier this year, he retired the general manager and creative director and added new talent while grappling with the country’s HR restraints. He is also adding new resources in digital, retail and design. “I’m trying to explore what’s possible within the confines,” he says. “International agencies are scrambling for the crumbs left behind by Dentsu, Hakuhodo and ADK.”

Hakuhodo DY Holdings posted $1.3 billion in revenue in 2006 and in its domestic market is still less than half the size of Dentsu. While Dentsu is known for its media clout, Hakuhodo positions itself through its consumer insights. It has also set itself apart from Dentsu by unbundling media and in 2003 set up a holding company and a media agency, HDY Media Partners, with two other Japanese agencies, Daiko and Yomiko. Last year Hakuhodo joined forces with TBWA because of a shared relationship with Nissan in Europe.

Japan’s third-largest player, Asatsu-DK, may be the most international and historically forward-thinking of the local agencies. WPP bought a minority stake in the company in 1998. ADK’s president and group CEO Koichiro Naganuma sits on WPP’s board and received an MBA at the University of Southern California.

For client Ikea, launching in Japan, ADK found local consumers believed European furniture was too big for their tight living quarters. So the agency created full-size glass enclosures showing Ikea rooms. After opening, Ikea posted the highest first-week sales among all of its shops in the world.