Dentsu hits back after Asian crisis

Since Asia’s economic crisis began in mid-1997, Thailand’s advertising agencies have been at the forefront of economic misery – which often proves a valuable indicator for events elsewhere in the region.

Last year, total Thai advertising billings fell by eight per cent to 38 billion baht (610m), according to the Advertising Association of Thailand. The Association also estimates that about 20 per cent of Thailand’s 250 agencies folded last year.

For the survivors, it is not business as usual. Recession has dealt a sharp blow to the concept of traditional “full service” agencies. Many Thai companies are looking to reduce their advertising costs by turning to independent media houses – where commissions are about three to four per cent compared with the 15 to 17.65 per cent traditionally charged by agencies – and to low-cost creative or production houses for their ads. The crisis has proved a valuable aid to Western media agencies, such as MindShare, Zenith and Starcom, which have acted as catalysts of change.

Now it’s Dentsu’s turn to respond. Seventh-ranked Dentsu (Thailand) is now seeking a partner to set up a media company. According to interviews with Dentsu’s president, Kazuhiro Nobuta, the initiative is the first step in a long-term plan to overhaul the agency’s entire billing structure and move towards a fee-based system of payment.

“We are re-appraising our business and are looking for strategic partners to help survive this situation,” he says.

It is feared that if the ad industry does not move to a different system, 50 per cent of all advertising agencies in Bangkok will collapse.

While unwilling to show its hand, a spokesman for Dentsu in Tokyo concedes that “some of the Dentsu agencies in Asia are studying possible counter-measures to protect themselves against the inroads being made by media companies penetrating their business in each market”.

He adds: “This means more than just testing the feasibility of setting up a media company. It’s a much bigger issue than Dentsu in Thailand.”

Only last year, things looked very different for Dentsu. For much of 1998, the agency was talking to Tempus about the possibility of the two working together in Asia. According to one source, an Asian business model was being considered, developed from CIA’s partnership with CDP in the UK, with Tempus providing media services to a number of Dentsu agencies. Those plans, however, foundered when Tempus made it clear it would also like to open in Japan.

Working closely with an independent media company also concerned some Dentsu executives, who hesitated at the idea of outsiders becoming privy to Dentsu’s workings.

While boosting critical mass, working with local partners in a number of countries is hardly likely to improve Dentsu’s grasp of modern media planning, the service Western agencies have rapidly rolled out across Asia.

Although the planning penny has yet to drop, Dentsu is becoming a stronger competitor against international agencies in Asia. Last year – for the second year in succession – Dentsu emerged as the top agency in Taiwan.

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