Daiko deal offers IPG little spin-off

IPG’s planned purchases of a stake in Daiko will catapult parent company Lowe Lintas into a prime position in Japan. But capitalising on this new clout may prove a challenge.

Interpublic’s (IPG) planned purchase of 20 per cent of Japan’s fifth largest agency, Daiko, will catapult parent company Lowe Lintas to a prominent position in Japan’s advertising industry. But it will also leave some loose ends and unanswered questions.

Daiko will be Lowe Lintas’ third platform in Japan. The Lintas merger bequeathed the new agency a minority joint venture with Hakuhodo – Hakuhodo:Lintas – whose main client is Unilever’s Japan subsidiary, Nippon Lever. It also has another minority joint venture with Standard Advertising, now less than a year old. Some rationalisation may be in order in the months ahead.

Daiko, according to sources, is an opportunistic buy. For much of last year, IPG was busy trying to re-establish the relationship with Hakuhodo which it abruptly terminated when it dissolved the McCann-Erickson Hakuhodo joint venture early in 1994, but Hakuhodo would have none of it. And so when the financially troubled Kintetsu Railway company decided to offload most of its equity in Daiko, IPG was quick to act.

On paper at least, the purchase consolidates IPG’s position as the leading foreign agency group in Japan. Apart from McCann-Erickson, Japan’s tenth ranked agency, IPG also owns IPR, the second largest PR firm after the Dentsu PR Centre, and Infoplan, a leading market research company.

But delivering the performance this greater clout promises may not be easy.

Daiko is a deeply conservative media-oriented agency with little international exposure. Now that Kintetsu has largely withdrawn, the Asahi Shimbun newspaper becomes the dominant shareholder. Daiko is important to the Asahi for the help it gives in selling ad space in the newspaper across Western Japan. But, according to Asahi sources, the relationship is a financial millstone for Daiko. A couple of years ago the Asahi forced Murdoch to sell back equity he had acquired in Asahi TV, a related company. Times have changed, but Asahi executives are not overjoyed at the arrival of another foreign partner.

The benefits of partnerships with major Japanese agencies can be slow in coming. Last year, I&S Corp, although 49 per cent owned by Omnicom and aligned with BBDO, temporarily scotched plans to launch OMD in Japan and aborted Omnicom’s plans to open a new brand strategy consultancy. More recently, BBDO’s proposal that the agency’s account executives stop calling themselves “salesmen”, was vetoed in a popular vote. And even WPP Group is said to be occasionally frustrated at the slow pace of developments with Asatsu, of which it also owns about 20 per cent.

IPG’s investment at least guarantees the future of Daiko, but whether IPG will be able to persuade its partners to restructure the agency to improve profitability and productivity is questionable. As one senior executive in a major Japanese agency put it: “Daiko will be greatly strengthened by IPG’s investment, but it may be a long time before IPG sees any benefit itself.”

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