Dentsu Inc. is the largest advertising agency in Japan, with a domestic market share of over 20 percent and an extensive network of overseas subsidiaries. The company also has strong ties to Japanese media, with shares in a number of newspapers and television networks. It is also the leading advertising company in Asia, with offices in 11 countries. For over 20 years Dentsu has maintained seven subsidiaries in the United States through a joint venture with Young & Rubicam. The company further strengthened its international position in 2000, when it assumed a 20 percent stake in Bcom3 Group, Inc.-the result of a merger between advertising firms The Leo Group and The MacManus Group--the fourth largest advertising holding company in the world.
Dentsu traces its origins to 1901, when Hoshiro Mitsunaga, a journalist from Osaka, founded two closely related companies: Telegraphic Service Company, an international news wire service; and Japan Advertising Ltd., a broker of advertising space. Mitsunaga often took payment for his wire service in the form of ad space in newspapers, then resold the ad space to his clients. The two companies merged in 1907, under the name Japan Telegraphic Communication Company (Nihon Denpo-Tsushin Sha). This compound name became shortened to Dentsu. Dentsu secured monopoly rights to distribute the United Press wire service in Japan, giving the company unique leverage over the newspapers it serviced. Dentsu was able to use its influence to get favorable rates for advertising space and, as early as 1908, the company was the acknowledged leader in Japan's communications industry. Dentsu began collecting and publishing statistics on advertising volume in 1909, the first to do so in Japan. By 1912, the company had headquarters in Tokyo's fashionable Ginza district.
Dentsu was the largest broker of advertising space in Japan almost from its inception. However, the agency was practically dismantled in the prewar years. In 1936, the Japanese government formed its own news service, Domei, and Dentsu had to surrender its wire service. Then in 1943, the government consolidated all existing advertising agencies into 12 entities. Dentsu controlled four of the 12 agencies, but because of the war, business dwindled. Founder Mitsunaga died in 1945. There were two intervening presidents, and then the company began to rebuild under the leadership of the remarkable Hideo Yoshida. Yoshida had worked for Dentsu through the war, and he took over the presidency in 1947.
Yoshida was known as 'the big demon,' and Dentsu's ad men were 'little demons' for their frantic hard work. Yoshida expected Dentsu's executives to report to work one hour earlier than the rest of the staff, and required daily written reports from department heads for his personal perusal. The staff yearly tested its strength with an overnight trip to climb Mount Fuji, but Yoshida showed his management skill as much in whom he hired as in what he had them do. Immediately after the war, Dentsu hired dozens of former government and military officials. Dentsu also made it a practice to recruit sons of officials and prominent businessmen, so that the company soon had a wealth of personal contacts with its corporate and government clients. Beyond this, Yoshida's most prescient step was to invest in Japanese radio and television.
Dentsu is credited with founding commercial radio in Japan. The agency submitted the first application for a commercial radio station in the country just months after the war ended, and Yoshida spoke before the Japanese Diet in 1950 on the importance of commercial broadcasting. The company invested in what later became Tokyo Broadcasting System, one of five major commercial radio networks in Japan. Dentsu invested heavily in television as well. Dentsu loaned start-up funds to local stations, found them crucial advertising sponsors, and even provided personnel to manage them. Dentsu's patronage basically made television possible in the postwar years. As a result, as radio and television grew into a modern industry, Dentsu grew too. Because of the company's complex personal and financial ties, Dentsu was given the lion's share of advertising time. Dentsu was able to set aside huge blocks of prime time television for itself--asmuch as 60 percent of lucrative prime time advertising slots. Thus the company was virtually guaranteed clients. Companies had to come to Dentsu if they wanted the best advertising exposure. Dentsu also had a similar 'block buying' arrangement with major newspapers, buying from 30 percent to 50 percent of space in national dailies. Dentsu was an investor in the major daily Mainichi Shimbun, as well as in a dozen other newspapers. Overall, its position with the media was unparalleled. No other agency had anything like the access that Dentsu had to all Japan's major advertising venues. By 1957, there were close to 800 advertising agencies in Japan, and Dentsu's billings alone made up more than a quarter of the industry total.
The Japanese economy grew in double digits in the 1960s and 1970s, carrying Dentsu with it. By 1968, Dentsu's billings were just behind the leading American firms J. Walter Thompson, Young & Rubicam, and Interpublic. The company had 5,000 accounts, including the biggest Japanese firms and the Japanese business of some American companies. Dentsu had made it standard practice to accept the accounts of competitive companies, for example doing advertising for both carmakers Honda and Nissan, and for rival electronics firms Matsushita and Toshiba. Dentsu handled competing accounts in separate buildings, or, if that was not possible, at least on separate floors. This arrangement seemed to work well, and it was one more way that Dentsu dominated Japanese advertising. With its enormous media clout, and its willingness to serve everyone, Dentsu surpassed every other agency in the country by a wide margin. In 1974, Dentsu overtook J. Walter Thompson and became the largest advertising agency in the world.
At least 95 percent of Dentsu's billings came from within Japan. Dentsu had opened offices in New York, Bangkok, Chicago, Los Angeles, Paris, Melbourne, Taiwan, Singapore, and Hong Kong in the 1960s, but only three of these actually offered advertising services. The company was cautious about expanding abroad, even though by the late 1970s this was clearly the agency's next step. Differences between Japanese and American or European advertising style made it difficult for Dentsu to go abroad, and the company was built on Japanese-style personnel management, which included at that time lifetime guarantees of employment in exchange for corporate loyalty. In an interview with Advertising Age in 1977, Dentsu's then president Hideharu Tamaru noted that these factors would constitute a difficulty if Dentsu were to acquire a foreign agency. Tamaru suggested that Dentsu would initiate a joint venture with an international agency in order to expand overseas.
However, the international link was slow in coming. Dentsu found new ways to extend its market in Japan, designing huge events like the celebration of America's bicentennial in Japan, an International Ocean Exposition, and completing a government commission for a new museum of telecommunications. Dentsu worked on the design of shopping centers, specializing in such aspects as people movement patterns. It worked with the government, compiling information on leisure time, doing public opinion surveys, and working for such government agencies as the National Railways. The domestic market still was not big enough for Dentsu, however, and by the end of the 1970s advertising spending began to dip in Japan. The proportion of Dentsu's billings from television advertising began to decline, while the company increased its billings from sports and other large promotions. Without the high earnings from television, Dentsu's overall profitability began to sink.
It was clear that Dentsu had to move beyond Japan to tap more lucrative markets. One result of Dentsu's effective lock on domestic advertising was that its competitors had already established international partnerships. Japan's number two agency, Hakuhodo, had been involved in a joint venture with the American firm McCann-Erickson since 1960, and a dozen other Japanese ad agencies had similar partnerships by 1980. In 1981, Dentsu finally made its move and announced a joint venture with Young & Rubicam. The arrangement, called DYR, gave Young & Rubicam entry into Japan and let Dentsu access Young & Rubicam's expertise in the American and European markets. Initial billings were $70 million, but this grew to $246 million within four years. Dentsu also opened a Shanghai office in 1981. China was not seen as a particularly promising market at that time, but Dentsu saw growth potential. The company worked patiently to make itself known in China. It planned and promoted a huge 'popular concert for youth,' televised in both China and Japan, with 300 Japanese musicians performing for a crowd of 30,000 young Chinese in Beijing.
Dentsu used its contacts with Young & Rubicam to enter the American and European markets. It established Young & Rubicam-Dentsu offices in New York and Los Angeles in 1983, and in 1984 formed DYR S.A., a joint management company to administer the company's international sales network. Dentsu opened its own subsidiaries in France and Great Britain in the next few years. In spite of this, the company's profits fell in the mid-1980s. Though Dentsu still led the world in billings, by 1984 its profits had fallen behind those of Young & Rubicam. Despite all its efforts, still less than 5 percent of Dentsu's billing was from export advertising. Japanese companies were spending billions of yen on advertising abroad, but it was mostly placed through foreign agencies. Dentsu got a new president in 1985, Gohei Kogure, and he reaffirmed the agency's commitment to international expansion. He resolved to cut costs at home by reducing staff, and he engineered a new image for Dentsu, with the slogan 'Communications Excellence Dentsu.'
In 1987, Dentsu and Young & Rubicam retooled their earlier link, teaming up also with Eurocom France, Europe's leading ad agency. The new, three-way partnership was called HDM Worldwide. The new company linked 39 cities in Asia, Europe, and the United States. Dentsu hoped to win new clients, and to increase its percentage of overseas billings to 20 percent. Dentsu also opened another subsidiary in the United States in 1987, DCA Advertising, and established offices in Germany and the Netherlands.
While Dentsu looked abroad for new, profitable markets, the company also changed the way it did business in Japan. In 1987, Dentsu premiered the first comparison ad on Japanese television. Advertising in which one product is directly compared to a rival had not been done in Japan, since it was considered in poor taste. A Japanese Fair Trade Commission issued guidelines in 1986 stating that comparative advertising was allowable, and Dentsu was the first to try it. In a $1 million campaign for All Nippon Airways, Dentsu's ads claimed that All Nippon's seating was more comfortable than that of unnamed 'others.' Mild by American standards, the ad nevertheless demonstrated that Dentsu was willing to explore new techniques. The agency did well in the late 1980s, riding a consumption boom in Japan.
Eurocom left the three-way joint venture HDM in 1990. The venture was renamed Dentsu, Young & Rubicam Partnerships, concentrating on Asia, America, and Australia and New Zealand. To make up for the loss of its European partner, Dentsu invested in another European advertising network, the London-based Collett Dickinson Pearce International Group. Dentsu then began a streak of acquisitions and investment partnerships, buying part or all of nine agencies in Europe between March 1990 and September 1992. Only a week apart in September 1992, Dentsu acquired 100 percent of BLD Europe, a Brussels firm, and a minority stake in another firm called Publi-Graphics. Publi-Graphics was based in Paris but handled advertising primarily in the Middle East, with such large clients as Johnson & Johnson, Seiko, Nintendo, Eastman Kodak, and Nestlé.
Two years later, Dentsu's international expansion plans changed direction. Many multinational companies had initially expanded to Asia because of low-cost manufacturing, but by the mid-1990s, the consumer markets in Asian countries were also attracting interest. Dentsu began investing in Asian advertising agencies and expanding its own offices to Asian cities in order to capitalize on this trend. In 1994, Dentsu formed a joint-venture in China with two advertising firms there. The joint-venture was named Beijing Dentsu, with offices in Beijing and Shanghai. The company began with only one client, a personal products company called Kao Corp., but Beijing Dentsu expected to bill $10 million in its first year, and grow by 15 percent to 20 percent annually. Dentsu also invested in ventures in Singapore and Malaysia.
Besides looking to Asia for new growth, Dentsu turned to new technologies as a source of future income. In 1996 Dentsu launched a new subsidiary in Japan, called Dentsu Tec Inc., with the Tec standing for 'Technology for Exciting Communication.' This company aimed to develop new promotional opportunities using digital and networking technologies. Dentsu also founded Japan's first firm specializing in Internet advertising. The joint venture with Tokyo's Softbank Corporation was called Cyber Communications Inc., or CCI. CCI planned to buy and resell advertising space on the Internet and to help develop and deploy Internet technology in Japan.
By the late 1990s Dentsu was still looking for ways to establish a strong international presence. The company's revenues outside of Japan totaled $315 million in 1996, a small sum compared to $1.93 billion in domestic earnings. Furthermore, the prolonged slump of the Japanese economy was starting to change the nature of advertising in Japan, in a way that threatened Dentsu's dominance at home and made overseas expansion even more critical to the company's future growth. Traditionally, while Japanese agencies might devote a certain amount of energy to promoting the reputations of their clients, the bulk of their efforts went to securing advertising space and time slots. In this regard, Dentsu's extensive media ties had always given it an enormous advantage over the competition. However, a significant drop in consumer spending in the mid-1990s forced agencies to look toward the American advertising model, based on building customer loyalty through the development of brand-name recognition, for ways to gain larger market share. This increased attention to the creative aspect of the business exposed Dentsu's weaknesses; in 1997, only 12 percent of the company's employees were in creative development.
Nor was the rising demand for distinctive advertising the only development that threatened Dentsu's supremacy. The proliferation of new media including cable TV and the Internet, while not yet nearly as popular in Japan as in the United States, promised a wider range of options for companies seeking new advertising avenues. While the growth of these technologies also promised new opportunities for Dentsu, the broadening of the overall availability of ad space posed a definite threat to the company's 22 percent market share. At the same time, advertising conglomerates from Europe and the United States. were beginning to gain a foothold in Japan, driving home the point that global reach was becoming a key factor in uncovering new opportunities.
Dentsu adopted two basic strategies to help it confront these changes in the industry. In January 1998 the company announced plans to go public, with listings on both the Tokyo and New York Exchanges, by 2001. Dentsu hoped that the increased investment capital would bolster its relatively weak overseas subsidiaries, enabling them not only to compete for new accounts, but also to provide a higher level of service for established Japanese clients with extensive international operations, including Sony and Toyota. By offering on the New York Stock Exchange, the company would not only make its shares available to investors from around the world, but would also make great strides toward developing its reputation as an international company.
In reaction to the growing threat from multinational advertising conglomerates, Dentsu became more aggressive in its pursuit of a powerful international alliance of its own. The company finally found a good match in December 1998, when it acquired a minority stake in Leo Burnett (later reorganized as The Leo Group), an American firm with an established international network and a number of high-profile clients, including Coca-Cola and McDonald's. This partnership took on a whole new dimension when The Leo Group merged with The MacManus Group in November 1999; the three firms formed a new holding company with a potential market value of $2 billion, with Dentsu becoming the majority shareholder with a 20 percent interest. The companies formalized the agreement the following March, and officially became known as Bcom3 Group; in April Dentsu announced its decision to consolidate its U.S. agencies under the Bcom3 name. With a potentially powerful international alliance in place, a conceivable initial public offering (IPO) in 2001, and plans (albeit postponed until 2002) for an IPO of Bcom3 stock as well, Dentsu appeared poised to take a commanding position in the new century as an advertising giant of global proportions.
Dentsu East Japan Inc.; Dentsu West Japan Inc.; Dentsu Kyushu Inc.; Dentsu Hokkaido Inc.; Dentsu Tohoku Inc.; Dentsu Okinawa Inc.; Ad Dentsu Tokyo Inc.; Ad Dentsu Osaka Inc.; Ad Dentsu Inc. (Nagoya); Ad Dentsu Inc. (Hokkaido); Dentsu Eye Inc.; Dentsu Tec Inc.; Dentsu, Young & Rubicam Inc.; Dentsu Public Relations Inc.; impiric dentsu Inc.; Dentsu Research Inc.; Dentsu Casting and Entertainment Inc.; Information Services International Dentsu, Ltd.; Dentsu Music Publishing Inc.; cyber communications inc.; Creative Associates Ltd.; Dentsu.Com, Inc.; Music Gali Inc.; B2i inc.; K.K. DENTSUmarchFIRST; iWeb Technologies Japan KK; Dentsu Kosan Service Inc.; Dentsu Management Services Inc.; Dentsu Holdings USA, Inc.; Dentsu Business Development Holdings, Inc. (U.S.A.); Dentsu Business Development Group, LLC (U.S.A.); DCA Advertising (U.S.A.); Dentsu Communications Inc. (U.S.A.); Renegade Marketing Group, LLC (U.S.A.); Sports Culture Excellence Inc. (U.S.A.); DCC Communications Inc. (Canada); Dentsu Holdings Europe Ltd. (U.K.); Collett, Dickenson, Pearce UK Advertising Ltd.; Sharp Image Creative Services Ltd. (U.K.); Travis Sully Harari Ltd. (U.K.); Cayenne Werbeagentur GmbH (Germany); indigo Werbeagentur GmbH (Germany); BlueChip Agentur für Public Relations & Strategie GmbH (Germany); Dentsu Business Development Europe SA (Netherlands, Germany); BLD Europe S.A. (Belgium); Production Concepts S.A. (France); CCP Positioning srl (Italy); Rose Abascal, S.A. (Spain); Phoenix Communications Inc. (South Korea); PDS Media Inc. (South Korea); Beijing Dentsu Advertising Co., Ltd. (China); Beijing Dentsu Shanghai Branch (Dentsu Shanghai, China); Beijing Dentsu Guangzhou Branch (China); Shanghai Oriental Rihai Advertising Co., Ltd. (China); Beijing Oriental Rihai Advertising Co., Ltd. (China); Dentsu (Taiwan) Inc.; Media Palette (Taiwan) Inc.; Dentsu Commex, Inc. (Taiwan); Kuohua Inc. (Taiwan); Dentsu Singapore Pte. Ltd.; Dentsu (Thailand) Ltd.; Pro Q Ltd. (Thailand); Taiwan Advertising Co., Ltd.; Kuohua Inc. (Taiwan); Beijing Dentsu Advertising Co., Ltd.; Dentsu (Malaysia) Sdn. Bhd.; Pt. Inter Admark (Indonesia); NAP-TV Kft. (Hungary); ISL Marketing AG (Switzerland); Dentsu Oceania Pty. Ltd. (Australia); Dentsu Pacific Pty Ltd. (Australia); SSB Advertising Pty. Ltd. (Australia); Advertising Investment Services Pty Ltd. (AIS) (Australia); AIS Media (South) (Australia); AIS Media (Queensland) (Australia); AIS Media (Adelaide) (Australia); Mediactive Pty Ltd. (Australia); Great White Light Pty Ltd. (Australia).
Hakuhodo Incorporated; Omnicom Group Inc.; WPP Group plc.
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- A. Woodward; Update: Stephen Meyer