At the start of August, WPP announced it was forming a strategic alliance with Japan’s #3 agency, Asatsu Inc. Asatsu meanwhile is merging with Japan’s #7 agency Dai Ichi Kikaku. WPP is buying 20% of the enlarged Asatsu for about US$ 200 million while Asatsu will make a similar investment in WPP (equivalent to about 4% of WPP).

The merger will consolidate Asatsu’s position as the third largest agency in Japan, following Dentsu Inc. and Hakuhodo Inc. The merged agency should record billings of 345.51 billion yen ($2.43 billion), pretax profit of 6.99 billion yen and net profit of 2.79 billion yen for the year ending this December and is expected to bill at least 370.33 billion yen in the year to December 2000.

As part of the agreement, Martin Sorrell, CEO of WPP and Masao Inagaki, chairman/founder of Asatsu will sit on each other’s boards of directors.

Additionally, Asatsu and WPP will work together to provide services to Japanese clients worldwide and to non-Japanese clients in Japan.

WPP and Asatsu will also form a joint venture company in Japan next year, which will explore joint business opportunity. This is expected to provide WPP the opportunity to launch MindShare, its media buying and planning specialist agency, in Japan.

 Commenting, Yutaka Narita, president of Dentsu Inc., Japan’s #1 agency said: "I feel the new wave of global competition has at last arrived to the Japanese ad industry. I foresee an even more competitive situation in the near future, the competition in providing better service to the client. So these new events are rather welcome because altogether they will lead to an overall expansion in the level of competitiveness within the Japanese advertising industry."

 David Kilburn interviewed Martin Sorrell about WPP’s advance into Japan.

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Q: Why did you opt for a partnership relationship with Asatsu rather than buying a Japanese agency - especially when a number of them appear to be for sale? Could your % of Asatsu go up one day?

Martin Sorrell: We preferred a partnership with a strong company rather than control of a weak one. It is unusual in Japan for a strong business to be prepared to sell a substantial part of its equity. Asatsu has a fine creative and professional reputation and we have known Inagaki-san [ Asatsu’s president ] for over 20 years. In addition, Asatsu is now merging with Dai Ichi Kikaku, which is itself a very fine agency and which we have also known for over 20 years. Not only are both these businesses successful professionally but they are the first and third most profitable agencies in Japan. Asatsu's revenue growth has been twice the industry's average ever since it was floated in 1986. Even this year Asatsu has been the fastest growing agency in Japan whilst the market has been flat to down. In essence we want a strong partner. Our stake in Asatsu could increase as long as management agrees.

Q: What do you expect to achieve via the partnership with Asatsu that you could not achieve in any other way? And within what period of time? What could this mean for WPP’s revenues?

Martin Sorrell: Asatsu will help us develop relationships with Japanese multi-nationals and in turn we can enable Asatsu develop similar powerful relationships with non Japanese companies eager to expand their businesses in Japan. In addition Asatsu and WPP will be able to develop a major media planning, buying and research company in the Japanese market which to date has been dominated by Dentsu and Hakuhodo. This would probably be under the MindShare brand. Whilst I am happy to lay out these objectives it would be unwise to put a time frame on them! It is difficult to put a precise figure on incremental new growth as a result of these initiatives but we believe that it will significantly increase our growth rate in the Japanese market.. The combined business will have a 7 to 8% market share. Finally, there will be a number of other areas which will benefit from mutual co-operation, e.g. sales promotion, identity and branding, healthcare, market research, etc.

Q: How has this changed your competitive position versus other western agency groups, and other large Japanese agencies?

Martin Sorrell: As a result, the combined Asatsu WPP operation will be clearly the third largest in Japan and much closer in size to Dentsu and Hakuhodo. I am not aware of any other non Japanese group having a similar market position to the Asatsu/WPP combination.

Q: How will the Asatsu relationship enable you to enhance service for your current clients in Japan? And win new ones?

Martin Sorrell: Clearly Asatsu capabilities in Japan will give us a much stronger offer for Japanese multi-nationals and vice versa for Asatsu with foreign based multi-nationals (this is really a repeat of a previous question). Asatsu has a number of common clients with WPP, e.g. AIG, Unilever, Bandai, Warner Lambert, etc.

Q: Will WPP’s future initiatives in Japan be solely through the Asatsu partnership or, for instance, might you make acquisitions independently of the Asatsu joint venture?

Martin Sorrell: In all likelihood we will try and work as closely as possible with Asatsu in developing our joint business in Japan and outside. 

Q: How will the Asatsu relationship affect your current brands in Japan , O&M, JWT, etc? Could they be competing or collaborating with Asatsu to win new /(keep existing) assignments?

Martin Sorrell: They will be co-operating and competing - punching and kissing. Asatsu will most likely take a 10% stake in Ogilvy & Mather Worldwide Japan and J Walter Thompson Company Japan. Our objective is to have competing brands that co-operate when it benefits either clients or our people.

Q: What plans are there to strengthen your existing brands in Japan? Is the loss of Ford business in Japan to Dentsu a serious blow ?

Martin Sorrell: Our $200 million investment in Asatsu is an ample statement of our determination to build our business to an even more successful level in the world's second largest market. The loss of the creative portion (not the whole business) of the Ford business in Japan was a disappointment but we continue to work for Ford in the Asia Pacific region very successfully with all its brands and are determined to increase our market position.

Q: To what extent, and in what ways, could WPP and Asatsu be co-operating outside Japan?