Dentsu Inc.

1901–1995

Gross Billings: $13.74 billion (1995)

SICs: 7311 Advertising Agencies; 4899 Communication Services, Not Elsewhere Classified

Dentsu Inc. is the largest advertising company in the world, with the highest gross billings among all advertising firms worldwide for more than 20 years. Dentsu has 32 offices in Japan and affiliates or subsidiaries in 35 countries. It is the leading advertising firm in Asia, with branches or affiliates in 11 countries including China, India, Korea, Thailand and Malaysia. Dentsu also operates affiliates in Australia and New Zealand, in nine countries in the Middle East, and in Europe. Dentsu also maintains a presence in the United States through a joint venture with Young & Rubicam that comprises seven subsidiaries in New York, Atlanta, Los Angeles and New Jersey. Dentsu works with a "total communication" strategy that extends beyond the traditional parameters of the advertising business. As well as designing print and broadcast media advertising, the company does market research, including new product planning and corporate image design; it also handles publicity campaigns for such prominent events as sports contests and science expos, for which Dentsu may design everything from the opening ceremonies to personnel uniform design. Dentsu owns stock in some of Japan's largest newspapers and television networks, and the company itself is partially owned (48 percent of available shares) by Japan's two leading news services, Kyodo and Jiji.

Early History

Dentsu was founded in 1901 by Hoshiro Mitsunaga, a journalist from Osaka. Mitsunaga actually founded two closely related companies: his Telegraphic Service Company was an international news wire service, and his Japan Advertising Ltd. brokered advertising space. Mitsunaga often took payment for his wire service in the form of ad space in newspapers, then resold the ad space to his clients. The two companies merged in 1907, under the name Japan Telegraphic Communication Company (Nihon Denpo-Tsushin Sha). This compound name became shortened to Dentsu. Dentsu secured monopoly rights to distribute the United Press wire service in Japan, giving the company unique leverage over the newspapers it serviced. Dentsu was able to use its influence to get favorable rates for advertising space, and as early as 1908, the company was the acknowledged leader in Japan's communications industry. Dentsu began collecting and publishing statistics on advertising volume in 1909, the first to do so in Japan, and by 1912, the company had headquarters in Tokyo's fashionable Ginza district.

Dentsu was the largest broker of advertising space in Japan almost from its inception. However, the agency was practically dismantled in the prewar years. In 1936, the Japanese government formed its own news service, Domei, and Dentsu had to surrender its wire service. Then in 1943, the government consolidated all existing advertising agencies into 12 entities. Dentsu controlled four of the 12 agencies, but because of the war, business dwindled. Founder Mitsunaga died in 1945. There were two intervening presidents, and then the company began to rebuild under the leadership of the remarkable Hideo Yoshida. Yoshida had worked for Dentsu through the war, and he took the presidency in 1947.

Initial billings were $70 million, but this had grown to $246 million within four years.

1950–1977

Postwar Ascendence

Yoshida was known as "the big demon," and Dentsu's ad men were "little demons" for their frantic hard work. Yoshida expected Dentsu's executives to report to work one hour earlier than the rest of the staff, and required daily written reports from department heads for his personal perusal. The staff yearly tested its strength with an overnight trip to climb Mount Fuji, but Yoshida showed his management skill as much in who he hired as in what he had them do. Immediately after the war, Dentsu hired dozens of former government and military officials. Dentsu also made it a practice to recruit sons of officials and prominent businessmen, so that the company soon had a wealth of personal contacts with its corporate and government clients. Beyond this, Yoshida's most prescient step was to invest in Japanese radio and television.

Dentsu is credited with founding commercial radio in Japan. The agency submitted the first application for a commercial radio station in the country just months after the war ended, and Yoshida spoke before the Japanese Diet in 1950 on the importance of commercial broadcasting. The company invested in what later became Tokyo Broadcasting System, one of five major commercial radio networks in Japan. Dentsu invested heavily in television as well. Dentsu loaned start-up funds to local stations, found them crucial advertising sponsors, and even provided personnel to manage them. Dentsu's patronage basically made television possible in the postwar years. As a result, as radio and television grew into a modern industry, Dentsu grew too. Because of the company's complex personal and financial ties, Dentsu was given the lion's share of advertising time. Dentsu was able to set aside huge blocks of prime time television for itself&mdash much as 60 percent of lucrative prime time advertising slots. Thus the company was virtually guaranteed clients. Companies had to come to Dentsu if they wanted the best advertising exposure. Dentsu also had a similar "block buying" arrangement with major newspapers, buying from 30 percent to 50 percent of space in national dailies. Dentsu was an investor in the major daily Mainichi Shimbun, as well as in a dozen other newspapers. Overall, its position with the media was unparalleled. No other agency had anything like the access that Dentsu had to all Japan's major advertising venues. By 1957, there were close to 800 advertising agencies in Japan, and Dentsu's billings alone made up more than a quarter of the industry total.

The Japanese economy grew in double digits in the 1960s and 1970s, carrying Dentsu with it. By 1968, Dentsu's billings were just behind the leading American firms J. Walter Thompson, Young & Rubicam and Interpublic. The company had 5,000 accounts, including the biggest Japanese firms and the Japanese business of some American companies. Dentsu had made it standard practice to accept the accounts of competitive companies, for example doing advertising for both carmakers Honda and Nissan, and for rival electronics firms Matsushita and Toshiba. Dentsu handled competing accounts in separate buildings, or, if that was not possible, at least on separate floors. This arrangement seemed to work well, and it was one more way that Dentsu dominated Japanese advertising. With its enormous media clout, and its willingness to serve everyone, Dentsu surpassed every other agency in the country by a wide margin. In 1974, Dentsu overtook J. Walter Thompson and became the largest advertising agency in the world.

At least 95 percent of Dentsu's billings came from within Japan. Dentsu had opened offices in New York, Bangkok, Chicago, Los Angeles, Paris, Melbourne, Taiwan, Singapore and Hong Kong in the 1960s, but only three of these actually offered advertising services. The company was cautious about expanding abroad, even though by the late 1970s this was clearly the agency's next step. Differences between Japanese and American or European advertising style made it difficult for Dentsu to go abroad, and the company was built on Japanese-style personnel management, which included at that time lifetime guarantees of employment in exchange for corporate loyalty. In an interview with Advertising Age in 1977, Dentsu's then-president Hideharu Tamaru noted that these factors would constitute a difficulty if Dentsu were to acquire a foreign agency. Tamaru suggested that Dentsu would initiate a joint venture with an international agency in order to expand overseas.

Expansion in the 1980s

1960–1987

However, the international link was slow in coming. Dentsu found new ways to extend its market in Japan, designing huge events like the celebration of America's bicentennial in Japan, an International Ocean Exposition, and completing a government commission for a new museum of telecommunications. Dentsu worked on the design of shopping centers, specializing in aspects like people movement patterns. It worked with the government, compiling information on leisure time, doing public opinion surveys, and working for such government agencies as the National Railways. The domestic market still was not big enough for Dentsu, however, and by the end of the 1970s, advertising spending began to dip in Japan. The proportion of Dentsu's billings from television advertising began to decline, while the company increased its billings from sports and other large promotions. Without the high earnings from television, Dentsu's overall profitability began to sink.

It was clear that Dentsu had to move beyond Japan to tap more lucrative markets. One result of Dentsu's effective lock on domestic advertising was that its competitors had already established international partnerships. Japan's number two agency, Hakuhodo, had been involved in a joint venture with the American firm McCann-Erickson since 1960, and a dozen other Japanese ad agencies had similar partnerships by 1980. In 1981, Dentsu finally made its move and announced a joint venture with Young & Rubicam. The arrangement, called DYR, gave Young & Rubicam entry into Japan and let Dentsu access Young & Rubicam's expertise in the American and European markets. Initial billings were $70 million, but this had grown to $246 million within four years. Dentsu also opened a Shanghai office in 1981. China was not seen as a particularly promising market at that time, but Dentsu saw growth potential. The company worked patiently to make itself known in China. It planned and promoted a huge "popular concert for youth," televised in both China and Japan, with 300 Japanese musicians performing for a crowd of 30,000 young Chinese in Beijing.

Dentsu used its contacts with Young & Rubicam to enter the American and European markets. It established Young & Rubicam-Dentsu offices in New York and Los Angeles in 1983, and in 1984 formed DYR S.A., a joint management company to administer the company's international sales network. Dentsu opened its own subsidiaries in France and Great Britain in the next few years. In spite of this, the company's profits fell in the mid-1980s. Though still leading the world in billings, by 1984, Dentsu's profits had fallen behind that of Young & Rubicam. Despite all its efforts, in 1984 still less than five percent of Dentsu's billing was from export advertising. Japanese companies were spending billions of yen on advertising abroad, but it was mostly placed through foreign agencies. Dentsu got a new president in 1985, Gohei Kogure, and he reaffirmed the agency's commitment to international expansion. He resolved to cut costs at home by reducing staff, and he engineered a new image for Dentsu, with the slogan, in English, "Communications Excellence Dentsu."

In 1987, Dentsu and Young & Rubicam retooled their earlier link, teaming up also with Eurocom France, Europe's leading ad agency. The new, three-way partnership was called HDM Worldwide. The new company linked 39 cities in Asia, Europe and the United States. Dentsu hoped to win new clients, and to increase its percentage of overseas billings to 20 percent. Dentsu also opened another subsidiary in the United States in 1987, DCA Advertising, and established offices in Germany and the Netherlands.

While Dentsu looked abroad for new, profitable markets, the company also changed the way it did business in Japan. In 1987, Dentsu premiered the first comparison ad on Japanese television. Advertising in which one product is directly compared to a rival had not been done in Japan, as it was considered in poor taste. A Japanese Fair Trade Commission issued guidelines in 1986 stating that comparative advertising was allowable, and Dentsu was the first to try it out. In a $1 million campaign for All Nippon Airways, Dentsu's ads claimed that All Nippon's seating was more comfortable than that of unnamed "others." Mild by American standards, the ad nevertheless demonstrated that Dentsu was willing to explore new techniques. The agency did well in the late 1980s, riding a boom in consumption in Japan.

The 1990s

1990–1996

Eurocom left the three-way joint venture HDM in 1990. The venture was renamed Dentsu, Young & Rubicam Partnerships, concentrating on Asia, America, and Australia and New Zealand. To make up for the loss of its European partner, Dentsu invested in another European advertising network, the London-based Collett Dickinson Pearce International Group. Dentsu then began a streak of acquisitions and investment partnerships, buying part or all of nine agencies in Europe between March 1990 and September 1992. Only a week apart in September 1992, Dentsu acquired 100 percent of BLD Europe, a Brussels firm, and a minority stake in another firm called Publi-Graphics. Publi-Graphics was based in Paris but handled advertising primarily in the Middle East, with such large clients as Johnson & Johnson, Seiko, Nintendo, Eastman Kodak, and Nestle.

Two years later, Dentsu's international expansion plans changed direction. Many multinational companies had initially expanded to Asia because of low-cost manufacturing, but by the mid-1990s, the consumer markets in Asian countries were also attracting interest. Dentsu began investing in Asian advertising agencies and expanding its own offices to Asian cities in order to capitalize on this trend. In 1994, Dentsu formed a joint-venture in China with two advertising firms there. The joint-venture was named Beijing Dentsu, with offices in Beijing and Shanghai. The company began with only one client, a personal products company called Kao Corp., but Beijing Dentsu expected to bill $10 million in its first year, and grow by 15 percent to 20 percent annually. Dentsu also invested in ventures in Singapore and Malaysia.

Besides looking to Asia for new growth, Dentsu turned to new technologies as a source of future income. In 1996 Dentsu launched a new subsidiary in Japan, called Dentsu Tec Inc., with the Tec standing for "Technology for Exciting Communication." This company aimed to develop new promotional opportunities using digital and networking technologies. Dentsu also founded Japan's first firm specializing in Internet advertising. The joint venture with Tokyo's Softbank Corporation was called Cyber Communications Inc., or CCI. CCI planned to buy and resell advertising space on the Internet and to help develop and deploy Internet technology in Japan.