Japan under Western eyes

Japan's prolonged recession abetted by the high yen not only sent ad budgets into a three year tailspin, it also cut corporate profits and has now prompted a searching examination of agency client relationships.

"Accountability, cost effectiveness, improved efficiency, performance are watchwords for advertisers today. This is new vocabulary in Japan's advertising industry," says Mr. Hideo Ishikawa, an associate director of Hakuhodo Inc.

Most major advertisers have been quietly whittling down their roster of agencies. Toshiba, for example, who used to split their Yen 24 Billion budget between almost thirty agencies now use less than a dozen, with most of the money going through Dentsu, Hakuhodo, and Asatsu. The changes could spell opportunity for international agencies operating in Japan.

Despite their 40-plus year history in Japan, international agencies have so far made little progress in building the strong positions in Japan that they enjoy in Europe or the rest of Asia. Only one, McCann Erickson has reached Japan's top ten. With the exception of Leo Burnett-Kyodo Inc, Dentsu Young & Rubicam, and J.Walter Thompson, the rest rank well below 20th.

"Japanese clients are now facing in Japan the problems their counterparts are facing in other advanced countries. These are Western style problems. Problems of increasingly competitive offerings to the consumer, price competition, changes in distribution channels, the battle for shelf space, the growth of private brands, consumer confusion. All the things that the Western marketing world has experienced in the last ten years have now arrived and are clearly evident in the Japanese market. We understand how these problems have arisen and we have experience in responding to them. Japanese advertisers. We bring a frame of reference that combines an intimate understanding of the Japanese marketplace and consumer with a global perspective - we know what's going on in the rest of the world. This is a combination that enables us to deal with the current business situation in Japan. Growing client business today is more difficult than ever before because the environment is changing. Japanese advertisers are more interested in some non-conventional solutions." says John Fitzgerald, president of McCann Erickson in Tokyo .

"One of the major differences between Japanese and foreign agencies is found in the way advertising is developed. In Japanese agencies, there is no concept of an account planner dedicated to solving questions of strategy, positioning, based on analysis of the characteristics of target groups. The planning concept is also absent in the media department of Japanese agencies which often maintain their own inventories of media space and time which they must sell to their clients. We, like other foreign agencies in Japan, do not carry any media inventories. In contrast to Japanese agencies, we focus on buying the most efficient media plan rather than trying to sell from a media stockpile," says Gus Iizuka, president of J. Walter Thompson Japan Ltd.

Traditionally, obtaining good quality space and time has been a problem for Japanese advertisers since demand has usually exceeded supply. Today, with total spending at roughly the same level as 1989, there's little problem getting the budgets away. Rather the question is one of how and where to spend, and how much to pay. Agency commissions overall in Japan are estimated to be around 13%. Though this is higher than in the USA, the trend is similarly downhill.

"International agencies are becoming more competitive versus Japanese agencies. As advertising standards and practices in Japan get closer to worldwide standards, I think we'll see more business will move from Japanese agencies to the internationals. Nike's decision to move from Dentsu to McCann is an example of this. The international agencies have a more developed concept of strategic creative development and strategic media planning than do the Japanese, and they have more experience at this too," Brian Sheehan, president Saatchi & Saatchi Japan

Despite the opportunities, Japan remains a difficult market, says Bill Smith, president of Leo Burnett Kyodo. "The major Japanese agencies control so much of the market, that the environment is always a difficult one for both new comers, and for smaller agencies. Right now one of the challenges is that some large agencies are discounting media very steeply. "

At McCann Erickson, 70% of the clients numerically are Japanese companies. This demonstrates that Western disciplines of planning and strategy can build business in Japan for Japanese and Western clients alike.

David Kilburn