Dentsu's Culture hinders International Growth

Dentsu's culture hinders international growth

by David Kilburn

Dentsu's calendar has been much the same in recent years year. New Year begins with a stirring speech from Yutaka Narita, the agency's president that emphasizes the need to go both global and digital. This refrain recurs in the summer on founder's day. As autumn leaves begin to fall, there are rumors of developments outside Japan - this year and last, about partnership with Leo Burnett.

Dentsu's international agenda - to become a major global player - has been in place for over a decade. Its dominance at home, where it holds 23% of the world's second largest advertising market, ranks it as the world's largest agency brand, but extending that power outside Japan has proved difficult.

International goals were formalized in an International Development Plan at a Dentsu board meeting as far back as April 1990. Most of that plan's objectives were to be accomplished within five years. These included increasing overseas billings, which accounted for roughly 10% of Dentsu's total in 1989, to 20%.

To achieve this, Dentsu's planners reckoned they needed not one but three international networks in order to handle overseas the many competing brands Dentsu serves at home. Winning as many of these as possible overseas was crucial if goals were to be met.

Fortune smiled in Asia. Partnership with Y&R, first broached in 1975 and which led to a small joint venture in Tokyo in 1981 blossomed. Despite four name changes, DY&R has grown to become the third largest multinational agency network in Asia, trailing McCann Erickson and JWT. DYR's Asian billings topped US$ 1.1 billion in 1998 from an equal mix of Japanese, western multinational, and local clients. Separately, Dentsu's network of wholly owned agencies has grown in parallel and rank in the top ten in most of their Asian markets.

Elsewhere, the going has been difficult. Account conflicts in the USA hindered the growth of Dentsu/Y&R joint ventures. HDM, a European partnership with Y&R and Eurocom briefly gave Dentsu a major European network in 1988. But this dissolved at the end of 1990 when, with Gallic sang froid, the French opted out, and went ahead to build Euro-RSCG Worldwide by themselves. CDP meanwhile neither regained its former lustre in the UK nor became a major springboard to Europe. Par for the course.

Patience about international was allowable while domestic business was good and margins wide. But now the Japanese market is shrinking, margins are under pressure, and competition in Japan from international agency brands is increasing.

That patience is no longer permissible, according to Fumio Oshima, the Dentsu Managing Director who won control of international this July. "In two years we'll become a public company. The goals [my predecessors] set are best described as long term intentions. Now we must decide both what is truly feasible and how we will achieve it."

While new targets have yet to be set, at least the starting point has been defined. For calendar year 1998, according to Oshima, Dentsu's gross billings outside Japan was Yen 229 Billion, dropping to Yen 139 Billion an equity-adjusted basis. By comparison, Dentsu has consolidated gross billings for fiscal 1997/98 (the closest period for which comparable data is available), were Yen 1,568,528 million. Against this yardstick, equity adjusted international billings register only 8.9%.

Considering that Dentsu has spent at least US$ 1 billion (a figure executives do not challenge) over the past decade, striving to build not one but three strong networks, this is not a major achievement.

In fact, Dentsu's major clients have been so much more successful overseas that the pressures to perform better outside Japan are heightening. "Our major Japanese clients have developed into global enterprises whose budgets outside Japan are bigger than those at home. Take Toyota for example, we reckon their overall communications budget outside Japan is over US$ 3.5 Billion. Our share of this is less than 10%," says Oshima. In contrast, Toyota Japan's largest advertiser and, also considered Dentsu's largest client, spends most of its US$ 1 Billion domestic advertising budget through the agency.

The implications are profound. "It is only a matter of time before one of our major clients decides to run in Japan a campaign created originally for the USA or elsewhere. We have to become global ourselves, the alternative simply is not an option," explains Oshima.

Why has so little been achieved internationally? "Dentsu's dominance in Japan is unchallenged," says Mark Gault, McCann Erickson's regional director for Japan and North Asia. " In Japan, you do not have a choice other than to respect them. In media buying terms, they are formidable. They have contacts and connections most other agencies can only dream about, and which they use ruthlessly. But exactly this dominance of their home market has not driven Dentsu to break out of its Japan-centric, insular culture," adds Gault.

Dentsu's major stumbling blocks have been cultural. There were mistakes in personnel, training. A flawed belief that the strength of the brand name in Japan would win and retain business overseas. And an outmoded management model that encouraged direct day-to-day control from Tokyo rather than local empowerment. The US was especially intolerant. The pain threshold rose each year as staff defected, clients deserted, and agencies imploded. One dark day, in 1990, a group of staffers dismissed from DCA took grievances to the EEOC and sued. Out poured tales of cultural insensitivity, alienation, and misunderstanding. These problems have progressively been fixed since Narita became Dentsu president in 1993.

However, there are still many cultural differences between Dentsu and its international peers which may yet limit what can be achieved outside Japan. "Other groups have been more aggressive in M&A, but in Japan we don't really do things that way - buying and selling companies is not part of our culture in the way it is in the West, especially in the communications industry. That is why, many years ago, we decided to form a joint-venture with DYR and why now why we are seeking a partnership with Leo Burnett," says Oshima.

Additionally, Dentsu's board of directors is an exclusively male club, mostly of graduates of the agency's media department. No non-Japanese ever been a candidate for board membership. "There are no foreign candidates fluent in Japanese," says Oshima.

"In many ways, Dentsu is still a deeply conservative organization," says Hotaka Katahira, professor of Marketing Science at Tokyo University. "Even so, it is a highly creative company, but while their culture allows many divergent views to flourish creatively, they have been less good at focussing all that energy to achieve specific goals," Katahira added. International is a case in point.

There is no intrinsic reason why a strategy based on partnerships rather than ownerships should fail to deliver. Perhaps all it needs is a more open culture to evolve in Dentsu's bureaucratic Tokyo headquarters.

Evolution is also the name of the game for Y&R, Dentsu's international partner for so many years. This July, Y&R took equity control of DY&R's Asian agencies while Dentsu took the majority of their three joint ventures in Tokyo (DY&R Japan, Dentsu Wunderman Cato Johnson, Dentsu Sudler and Hennessy). Overall, the joint venture continues as a 50:50 partnership but with Y&R now, for the first time having equity control of a significant Asian network.

"Y&R, as a global agency, needs a network in Asia. In addition to DY&R we have a network of our own agencies in Asia, and now we are negotiating with Leo Burnett as well. We are going to have three networks in Asia, but for Y&R, DY&R is their sole network in Asia and they only held 50% of this which, to some [client's] eyes, looked weak. Therefore, we agreed to re-arrange our equity relationships. To Western minds it might seem that our relationship is weakening, that we are drifting apart, but this is not so," emphasizes Oshima.

Though a year has passed since Dentsu and Burnett began to explore an alliance, the two have started working together. This August, the two formed a media agency in Seoul to handle P&G's AOR for South Korea. The new shop, called, Unison PDS is a 50:50 jv between Leo Burnett and Phoenix, one of Dentsu's Korean agencies. 'PDS' stands for Phoenix, Dentsu, Starcom. Could more such ventures be imminent? "We have not finalized things, but I am sure we will be signing an agreement within a few months," says Oshima.

But perhaps the defining difference between Dentsu's approach to international expansion is that after over ten years of planning and investment, it is in a board room in Chicago, not Tokyo, that the critical decisions will be taken that will determine much of Dentsu's international future.

Published in Marketing Week in September 1999