Daiko hunts for foreign partner

Another of Japan’s large business groups is preparing to bow out of the advertising industry, thereby giving an international agency group the opportunity to build its franchise in Japan. Daiko Advertising, based in Osaka, is Japan’s fifth-largest agency and the largest agency in West Japan. Withdrawing from the fray is Kinki Nippon Tetsudo, Japan’s largest private railway operator and the core company of the Kinki Group, which includes department stores, convenience stores, and leisure facilities among its 160-or-so companies.

Kinki is the largest shareholder in Daiko, holding about one third of the stock. According to informed sources, it plans to shed up to 25 per cent of Daiko equity to focus on its core businesses.

Since 1963, Daiko had been Grey’s partner in a joint venture agency in Tokyo. However, this August Daiko announced it was selling its 40.9 per cent stake in Grey Daiko to Grey and intended to form an alliance with a different foreign partner.

The opportunity is interesting not only because of Daiko’s commanding presence in the Osaka region, but also because its second largest shareholder is the privately-owned Asahi Shimbun newspaper, Japan’s leading quality daily with a roughly 25 per cent share of the market. The newspaper is the flagship company of a media group which includes Asahi National Broadcasting, the main station of the Asahi Television Network.

The opportunities the deal presents to enhance media-buying power, forge relationships with a heavyweight media group and some major Japanese advertisers, and develop a presence in Osaka are mouth-watering for the international agencies in Tokyo.

But there are ramifications. Daiko has an exclusive franchise from the Asahi Shimbun for the sale of local advertising in the western half of Japan, in return for which the agency operates a chain of local sales offices for the newspaper. The revenue boosts Daiko’s billings and is important for the newspaper’s bottom line.

While such relationships are not found in the advertising industry in the UK, they are an example of the symbiotic bonds important in Japanese business. Such ties, forged decades ago, are often out of kilter with the modern world. The problem is that change requires a consensus that is difficult to reach while traditions are deemed sacrosanct. Becoming a participant in Daiko’s evolution would undoubtedly help its new foreign partner gain acceptance and credibility in Japanese business circles.

When rumours first circled Daiko, the Asahi Shimbun vowed it would not be interested in selling its own equity, and so prospects for gaining control are unlikely in the short term. But there is value there if the price is right.

The $100-million question of course is: “Who will take this plunge into traditional Japan?” Three candidates cited in Tokyo are Asatsu-DK (WPP’s Japanese partner), Interpublic, and Omnicom. But a decision seems months away.