Dentsu Inc.

views updated May 29 2018

Dentsu Inc.

11-1, Tsukiji
Chuo-ku, Tokyo 104-8426
Japan
Telephone: (81) 3-5551-5111
Fax: (81) 3-5551-2013
Web site: http://www.dentsu.co.jp

Private Company
Incorporated: 1907 as Nihon Denpo-Tsushin Sha
Employees: 10,841
Sales: $2.46 billion (2000)
NAIC: 54181 Advertising Agencies

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.

Early History

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.

Postwar Ascendance

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—as much 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.

Expansion in the 1980s

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.

Company Perspectives:

For almost 100 years we have pursued a single mission: to offer our clients the most innovative, distinctive, and diversified communications solutions. The Total Communications system, which Dentsu pioneered, is the key to creating integrated platforms that address each client’s specific needs. We are fully committed to creating new solutions that effectively capture the public’s imagination through a wide range of communications tactics and activities.

Dentsu’s communications solutions are built upon insights into our global marketplace, and upon in-depth knowledge of consumer behavior. These insights give rise to creative ideas that have the power to influence people and, at times, to even impact the structure of the market. Our top priority is to tap this creativity to ensure that even more great ideas see the light of day.

The ideas and the creativity are made possible by the people of Dentsu, the company’s greatest asset, and the best assurance that Dentsu clients everywhere will continue to succeed and prosper. Worldwide, the people of Dentsu give the company its special presence, the unique combination of intellect, sensitivity, imagination, compassion and vitality. It is the people of Dentsu that have made the company what it is today, and will continue to do so in years to come.

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.

The 1990s

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 Londonbased 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 jointventure in China with two advertising firms there. The jointventure 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.

Key Dates:

1901:: Hoshiro Mitsunaga founds Telegraphic Service Company and Japan Advertising Ltd.
1907:: Telegraphic Service Company and Japan Advertising Ltd. merge to form Nihon Denpo-Tsushin Sha (later shortened to Denstu).
1936:: Domei news service is formed.
1945:: Hoshiro Mitsunaga dies.
1947:: Hideo Yoshida becomes president.
1981:: Dentsu enters into joint venture with Young & Rubicam.
1987:: HDM Worldwide is formed.
1994:: Beijing Dentsu is formed.
1998:: Dentsu acquires minority stake in Leo Burnett.
2000:: Bcom3 Group, Inc. is formed.

New Business Models for the 21st Century

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 Mac-Manus 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.

Principal Subsidiaries

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).

Principal Competitors

Hakuhodo Incorporated; Omnicom Group Inc.; WPP Group plc.

Dentsu Inc.

views updated May 29 2018

Dentsu Inc.

11, Tsukiji-cho, 1-chome
Chou-ku, Tokyo 104
Japan
03-544-51111

Private Company
Incorporated: 1901
Employees: 5,662
Billings: $3.9 billion

Dentsu Advertising of Japan is the second largest advertising company in the world; only Young & Rubicam does more business. Until 1985, when it was replaced by Young & Rubicam, Dentsu was the top advertising firm, a notable distinction it had held proudly since 1973. Yet Dentsu is rarely mentioned in either American or Western European business journals. Even Advertising Age, the advertising trade magazine, covers Dentsu’s affairs and enterprises only when they encroach upon American and European advertising markets. Many people are familiar with advertising firms such as Doyle Dane Bernbach and J. Walter Thompson, but hardly anyone outside Japan or the industry itself has heard of Dentsu. Few know that it does the advertising for all three of Japan’s major automobile manufacturers (Nissan, Toyota, and Honda) or that it services a variety of smaller clients, including Sapporo Beer and Kikkoman Soy Sauce. In 1985 Dentsu had billings of more than $3.2 billion. How can such a large and successful company go unnoticed?

The answer is that Dentsu operates almost exclusively in the Orient where it has been the preeminent agency since before World War II. Until very recently this market had been growing fast enough to allow Dentsu a continuous and profitable rate of expansion; therefore, the company did not feel inclined to venture outside the East. In the last few years, however, it has attempted to establish a presence in the West in order to lessen the effects of an economic recession in some Oriental countries.

Regardless of the particular medium, whether print, television, or radio, Dentsu is the leading communications and advertising firm in Japan. Its influence is unparalleled and extends beyond the traditional parameters of the advertising business. It owns stock in some of Japan’s largest newspapers and television networks; the company itself is partially owned (48% of available shares) by Japan’s two leading news services, Kyodo and Jiji; and it also handles the largest Japanese accounts, including those of the various departments of the Japanese government. Dentsu does so much advertising that many magazines and newspapers sell Dentsu large blocks of ad space in advance; they know Dentsu will easily find the clients necessary to fill them. There are no advertising agencies in the United States or Europe which command such comprehensive control over their respective markets.

Dentsu, which derives its name from a contraction of the Japanese words for “telegraph” and “communications,” was first established in 1901. At that time it was both an advertising firm and news service agency, and though the two enterprises appeared to be separate, Dentsu created an arrangement in which they were tightly connected. The company would trade its news stories to newspapers in return for advertising space and then sell the ad space to clients at a profit. The whole system was quite convenient but, as events quickly proved, not permanent. The military government which came to power in Japan during the 1930’s brought all information services under its control and severely restricted the amount and types of advertising produced in Japan. Dentsu was nearly put out of business. Only after World War II, when the Japanese economy began to rebuild, was Dentsu able to reorganize and perform to its potential.

Much of the credit for Dentsu’s resurgence and subsequent success belongs to the compány’s fourth president, Hideo Yoshida. Under his leadership Dentsu absorbed 16 smaller competing agencies, created a reputation as an aggressive business, and established its position at the top of the industry in Japan. Yoshida also made a point of hiring the sons of powerful business and political leaders, entertained clients lavishly, and was known to give expensive gifts to those whom he hoped to influence. Yoshida conducted business the old-fashioned way: he believed in “wining and dining” potential customers, establishing personal contacts, and cementing professional relationships with private promises of loyalty.

During the late 1940’s and 1950’s Dentsu emerged as one of the most visible companies in Japan. Those who worked at the firm were referred to as the “Demons of Dentsu,” a phrase which, though meant to be unflattering, was nonetheless received with pride by the staff. The Dentsu trademark was its red and blue flag, and hundreds of flags could be seen waving from the executive limousines which crowded the Ginza at night.

Hideo Yoshida’s greatest accomplishment, however, extends far beyond his ability to win clients. Dentsu, under Yoshida’s direction, almost single-handedly developed the Japanese television industry and has benefited a great deal from this original investment of time, energy and money. At the end of World War II Japan had only one radio network, which was owned by the government, and no commercial television. However, Yoshida knew that commercial television would not only be possible but also highly profitable in Japan if he could arrange the initial capitalization it required. Yoshida used Dentsu’s influence and resources to attract investors, promising them generous advertising exposure. Moreover, Dentsu often underwrote fledgling networks until they achieved some semblence of financial independence. Yoshida and his company remained firmly committed to keeping the Japanese print, radio, and television media solvent.

The positive effect that this relationship has had upon Dentsu’s advertising business cannot be overstated. The firm is viewed by the television and radio networks as a “godfather,” and as customs of loyalty dictate, Dentsu has often received preferential treatment. Dentsu commands more prime-time (7 to 10 p.m.) advertising space than all the other agencies combined.

By associating itself with the birth of Japanese television, Dentsu emerged as the pioneer agency in television advertising. Before any other company learned to do so, it successfully developed ways of using the new media in campaigns for its clients. No other company has found the means to compensate for Dentsu’s head start. As television has flourished in Japan, so has Dentsu flourished with it. Ninety-nine percent of all homes have televisions, and there are 98 commercial stations carrying programs produced by five networks. It is quite possible that Dentsu’s advertising is seen by every Japanese at least once each day of the year.

The Dentsu advertising company of today operates according to procedures slightly different from those of any other advertising firm in the world. Chief among these are the practices of “block-buying” and holding competing accounts. Dentsu buys “blocks” of television, radio, or print space, often before the clients needed to fill these blocks have been contracted; it purchases the space for itself and then resells it to its customers. Few other firms have the financial resources to speculate in this way. In addition, most magazines, newspapers, and television stations prefer the continuity and quality of Dentsu’s clients to those of any other agency, and usually give Dentsu priority. One result of this favoritism has been to allow Dentsu to significantly undermine competing advertising companies.

The second practice, that of holding competing accounts, has long been an accepted one in Japanese advertising. No American advertising firm would handle the accounts of Ford, General Motors, and Chrysler at the same time, but Nissan, Toyota, and Honda are all Dentsu clients, and none of the three seems to care that they share the same advertising firm. Dentsu claims that its particular system of compartmentalism allows it to hold competing accounts without compromising trade secrets. Dentsu commands a large share of the Japanese advertising market (25%), and clients are willing to forego professional jealousy in order to have the widest exposure for their products. This attitude, despite encouragement from the executives of American and European advertising agencies, has yet to be adopted by clients outside of Japan.

The actual advertisements which Dentsu produces for its clients differ stylistically from those of Western advertising campaigns. The “Japanese look” in advertising tends to stress art over copy. Says international creative director Toshio Naito, “The Japanese prefer to look at entertainment types of advertising, and they don’t like to be pounded with logic.” The point is neither to persuade the consumer to purchase a particular product nor to purposely degrade the competition. The Japanese consider this form of advertising, which is prevalent in America, to be distasteful.

The list of the staff at Dentsu reads like a “Who’s Who” of Japanese society. The sons of prominent Japanese businessmen work with sons of members of the Diet (the Japanese parliament). Women, however, are hired only in secretarial capacities. Dentsu built itself upon “old boy networks” and has remained male dominated. The firm hires the brightest young men it can find immediately after their graduation from college and then trains them in the Dentsu tradition. This includes moving the new employee from department to department in order to familiarize him with all facets of the business. One observer likened it to the way members of the military are shuttled from base to base. Dentsu executives feel this training is important in maintaining continuity and expertise at the firm. Rarely, if ever, does the agency hire staff away from other companies.

As is true in most other Japanese companies, no matter what the industry, teamwork is stressed above individual achievement. There are no creative “stars” at Dentsu, and the firm prefers it that way. Each year all Dentsu employees at the Tokyo office, including the president, make a journey to Mt. Fuji. The trip is meant to symbolize the “team ethic” at the agency and instill a sense of solidarity. Though Dentsu does not offer salaries as high as those given by U.S. firms and does not encourage individual “ladder climbing,” the company does offer financial security. Once they become members of the Dentsu staff, most employees stay for life. They are paid considerably more than the average Japanese professional, have access to the nine company-operated vacation lodges at minimal cost, can obtain maid service for $2 a day, and receive generous bonuses twice a year.

Dentsu is not without its critics. The firm has drawn criticism for undermining competition in advertising, for tampering with news information, for meddling in politics, and for pressuring newspapers and magazines not to publish stories considered damaging to Dentsu or its clients. A sociologist, Kinji Ino, has written that Dentsu “threatens a free society, threatens freedom of the press, and makes it difficult for potentially good products to succeed in the market.” The agency has been called Japan’s kuroko, after the stage hand who manipulates puppets in the banraku theater. In spite of these and other negative reports, the everyday functioning of the company continues without interruption. Clients and the various Japanese communications media are content with their present relationship with Dentsu, and show few signs of wanting to change the status quo. Dentsu’s real challenge comes not from its critics but from the conditions of the market itself.

Since the day it emerged as the largest worldwide advertising agency in 1973, Dentsu has been losing ground to the concerted efforts of American agencies to expand internationally. Unlike Young & Rubicam or McCann-Erickson, Dentsu had a slow start in the international market. In 1974 Dentsu had 14 offices outside of Japan, and only three of them were in the United States. This insularity has created problems for the company. The most important is that Dentsu has had difficulties holding on to multinational clients when they decide to advertise abroad.

Its failure to establish itself in markets outside Japan is only one of Dentsu’s long-range problems. The Japanese market itself is no longer as secure and as lucrative as it used to be. Japan is thoroughly saturated with advertising. The Japanese economy, which in the 1970’s expanded impressively, has been experiencing a slowdown recently. These conditions have produced a much narrower profit margin for Dentsu.

Present Dentsu president and chief executive officer Gobei Kogure has begun efforts to reduce the company’s comparatively high operating costs, particularly its payroll. In 1984, for example, Dentsu paid more in bonuses to directors ($1.2 million) than it paid in dividends ($759,000) to its shareholders. Labor costs the firm 60% of its profits. Kogure, however, plans to reduce the staff by hiring fewer new people and letting attrition take its course. More importantly, Kogure must find a way to prevent Japanese multinational companies from spending their large advertising budgets abroad. In 1983, 46 major Japanese companies purchased $1.3 billion worth of foreign advertising (mostly in the U.S.). And because Dentsu receives only 5% of its income from foreign advertising, it received a very small portion of this new business. If this trend continues, Dentsu will not be able to reclaim the title it lost to Young & Rubicam as the largest advertising firm in the world.

The irony is that the two agencies have recently come together in a joint advertising venture—DYR of Japan. With Dentsu’s assistance, Young & Rubicam hopes to gain and maintain a foothold in the Orient, where it has previously failed to generate much business. With Young & Rubicam’s help, the management at Dentsu thinks it will be able to establish itself more firmly in such markets as New York, London, and Frankfurt. Annual billings for DYR have already exceeded $100 million, but most of the business has come from increased spending by clients already within the respective folds of Dentsu and Young & Rubicam. The real test of this team effort is whether or not it will be able to attract new international clients.

International Directory of Company Histories

Dentsu Inc.

views updated May 14 2018

Dentsu Inc.

11-1, Tsukiji
Chou-ku, Tokyo 104
Japan
(03) 5551-5111
Fax: (03) 5551-2013

Private Company
Incorporated: 1901
Employees: 5,910
Gross Billings: $13.74 billion (1995)
SICs: 7311 Advertising Agencies; 4899 Communication Services, Not Elsewhere Classified

Dentsu Inc. is the largest advertising company in the world, with the highest gross billings among all advertising firms worldwide for more than 20 years. Dentsu has 32 offices in Japan and affiliates or subsidiaries in 35 countries. It is the leading advertising firm in Asia, with branches or affiliates in 11 countries including China, India, Korea, Thailand and Malaysia. Dentsu also operates affiliates in Australia and New Zealand, in nine countries in the Middle East, and in Europe. Dentsu also maintains a presence in the United States through a joint venture with Young & Rubicam that comprises seven subsidiaries in New York, Atlanta, Los Angeles and New Jersey. Dentsu works with a “total communication” strategy that extends beyond the traditional parameters of the advertising business. As well as designing print and broadcast media advertising, the company does market research, including new product planning and corporate image design; it also handles publicity campaigns for such prominent events as sports contests and science expos, for which Dentsu may design everything from the opening ceremonies to personnel uniform design. Dentsu owns stock in some of Japan’s largest newspapers and television networks, and the company itself is partially owned (48 percent of available shares) by Japan’s two leading news services, Kyodo and Jiji.

Early History

Dentsu was founded in 1901 by Hoshiro Mitsunaga, a journalist from Osaka. Mitsunaga actually founded two closely related companies: his Telegraphic Service Company was an international news wire service, and his Japan Advertising Ltd. brokered 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, and 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 the presidency in 1947.

Postwar Ascendence

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 who 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 modem 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—as much 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.

Expansion in the 1980s

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 aspects like 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 had grown 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.

Company Perspectives

Dentsu Inc. is a full-service communications company. Its objectives are 1) to open new opportunities in communications and to fill communications needs wherever they exist; 2) to enrich the life-styles of people around the world using Dentsu’s unique communications capabilities; 3) to encourage an atmosphere where employees are free to develop their own talents and ambitions in cooperation with Dentsu’s corporate activities.

Dentsu used its contacts with Young & Rubicam to enter the American and European markets. It established Young & Rubi-cam-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 still leading the world in billings, by 1984, Dentsu’s profits had fallen behind that of Young & Rubicam. Despite all its efforts, in 1984 still less than five 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, in English, “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, DC A 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, as 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 out. 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 boom in consumption in Japan.

The 1990s

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 Nestle.

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.

Principal Subsidiaries

Dentsu Inc. Kansai; Dentsu Inc. Chubu; Dentsu East Japan Inc.; Dentsu West Japan Inc.; Dentsu Inc. Fukuoka; Dentsu Inc. Hokkaido; Dentsu Tohoku Inc.; Ad Dentsu Tokyo Inc.; Dentsu Tec Inc.; Dentsu, Young & Rubicam Inc.; Dentsu USA Inc.; Dentsu Europe Ltd.; Dentsu Holdings B.V. (The Netherlands); Dentsu (Thailand) Ltd.; Taiwan Advertising Co., Ltd.; Kuohua Inc. (Taiwan); Beijing Dentsu Advertising Co., Ltd.; Dentsu Mandate (Malaysia) Sdn. Bhd.; Pt. Inter Admark (Indonesia); DCA Advertising (USA); Nova Promotion Group Inc. (USA); Dentsu Burson-Marsteller Inc. (USA); Travis-Sennett-Sully-Ross Ltd. (England); BLD Europe S.A. (Belgium); CCP Positioning S.R.L. (Italy); Schuster & Partner Gmbh (Germany); NAP-TV Kft. (Hungary); ISL Marketing AG (Switzerland); Dentsu Oceania Pty. Ltd. (Australia); SSB Advertising Pty. Ltd. (Australia).

Dentsu Inc.

Dentsu Inc.

Early History

Postwar Ascendance

Expansion in the 1980s

Company Perspectives:

The 1990s

Key Dates:

New Business Models for the 21st Century

Principal Subsidiaries

Principal Competitors

Further Reading

Dentsu Inc.

Dentsu Inc.

Dentsu Inc.

Dentsu Inc.

Early History

Postwar Ascendence

Expansion in the 1980s

Company Perspectives

The 1990s

Principal Subsidiaries

Further Reading

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Dentsu Inc

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