ASIA: Dentsu faces up to global reality

A year of change lies ahead for Dentsu. This autumn, the privately owned agency is expected to launch with an initial price offering that could value Japan’s largest agency between ¥1 trillion to ¥1.5 trillion (£5.7bn to £8.8bn).

Already, the agency has spent a year restructuring and preparing to meet the rude forces of the world’s capital markets. Interim results for the six months to September 2000 reflected this – Dentsu reported parent-only net profit of ¥12.9bn (£74m), soaring 47.2 per cent from the same time last year, to a record high. Domestically, this is paying off. Nihon Keizai Shimbun, Japan’s leading business newspaper expects Dentsu to increase its market share to about 23 per cent. Overseas operations have been restructured and nudged into profitability by a reduction in the number of highly paid Japanese executives stationed abroad.

But the challenge for Dentsu continues to be international. Dentsu’s 20 per cent investment and partnership with BCOM3 is the key element in Dentsu’s overseas plans, according to Fumio Oshima, the senior managing director responsible for international operations.

Dentsu Young & Rubicam remains an important part of Dentsu’s international agenda – the Japanese giant needs networks outside Japan to help manage account conflicts.

However, after WPP’s acquisition of Y&R there are questions over whether the two organisations share values that can rebuild the close bonds that existed before the buy-out. Dentsu executives have yet to meet WPP Group chairman Sir Martin Sorrell.

Oshima says: “To our way of thinking, an agency needs vision and values that can be shared by staff, clients and shareholders. As management, we must increase the happiness of employees. This enables us to enhance the value we can deliver to our clients. We are interested in how WPP perceives these interrelationships.”

But despite the interest in WPP, Dentsu executives are adamant that nothing would be allowed to distract them from their strategic partnership with BCOM3. The two are in discussions about extending their work together. In Japan, they recently created a new agency, Beacon, by combining the Leo and D’Arcy agencies with Dentsu’s P&G team. Beacon is expected to become a top ten agency within two to three years.

One idea under discussion for Europe is to combine some or all of Dentsu’s agencies with BCOM3. However, Oshima emphasises this is just one of the ideas on the table and no decisions have been made about what will be done.

WPP’s acquisition of DY&R took Dentsu by surprise. Japan’s business culture does not condone hostile takeovers and only sanctions mass redundancies when liquidation is the only alternative.

However, executives accept that becoming a global operator means learning to work within global business cultures. Should market forces push BCOM3 into play, as they did Y&R, Dentsu executives say they would not sit by and watch events which were not to their liking play out.