Print Published in 2001

Dentsu’s defensive debut

Japan’s biggest advertising agency group has dominated its domestic market for many years, but has failed to become a truly global player. Now competition in its own back yard has driven the group to obtain a stock market quotation and become more acquisitive.

For many, many years Dentsu’s dominant position also benefitted from very high profit margins and intimate shareholder relationships with the media owners.  Competition from abroad posed no threat to its cosy trading environment. But all that is changing now.

Dentsu’s Japanese market domination is under challenge as Omnicom Group, The Interpublic Group of Companies and WPP Group have acquired sizeable shareholdings in its domestic competitors. The growing impact of aggressive media buying agencies owned by the multinationals may also upset Dentsu’s comfortable relationships with domestic media owners, eventually driving down commissions and undermining Dentsu’s magical 20% profit margin.

To date Dentsu has failed to build a truly global client base. Instead it has relied upon its indigenous clients and on servicing inward advertising needs of multinational clients – many of whom may gradually desert to their principal global agency networks. Dentsu’s international achievements have been limited to little more than the establishment of a modest international delivery network for its domestic clients. In the latest financial year only 5.3% of Dentsu’s sales revenues were derived from outside Japan.

If Dentsu wants to remain among the top players it cannot afford to adopt the traditional Japanese longterm approach to building its international business, relying solely on its strong domestic trade and its equally strong balance sheet. It is time for a giant leap forward. And that means buying big, rather than growing organically. But buying big requires more cash than even Dentsu’s healthy balance sheet would allow. The company needs to be able to offer marketable shares in addition. Hence the end-November flotation of its shares on the Tokyo Stock Exchange at a price of 420,000 yen per share.

Read how Dentsu got to where it is today and the challenges it faces in our Special Report “Dentsu’s Defensive Debut” available free to susbcribers by following the instructions below.