ANALYSIS: Advertising - Asatsu ponders life after Mitsubishi. Asatsu has turned to a new president to get it back on its feet after Mitsubishi's defection

Within weeks of losing its biggest client, Japan's third-largest advertising agency Asatsu-DK installed a new chief at the helm to remake the agency after the defection of Mitsubishi Motors to rival Dentsu. Asatsu, owned 20 per cent by WPP, is facing its toughest test ever. The loss of Mitsubishi, with billings of US$85 million, coincided with yet another imminent contraction of the economy following Japan's so-called "lost decade" of stagnation. On top of this, last month's terrorist attacks on the US have darkened Japan's economic outlook significantly. However, Koichiro Naganuma, who replaced Tsutomu Takeda shortly after Asatsu lost Mitsubishi, is putting on a brave face. The new president has drawn up an action plan to remake the agency. Naganuma - a fluent English speaker, a rarity in the top echelons of the Japanese agency world - plans to buy back shares, grant stocks to staff, and invest more in the agency's core business rather than shareholdings in clients. Margins and profitability will be emphasised more. The agency's head count will go down from the current 2,009 as a leaner, flatter organisation emerges in the months ahead. However, there was no indication given as to the number of people who might be laid off. "I intend to push more authority downstream, I want people who work on the business to be able to take more decisions, to take more responsibility and be accountable," promises Naganuma. Replacing Mitsubishi Motors is a priority. Naganuma is currently eyeing more business from existing auto clients such as Subaru and Toyota, but the goal is to be the lead agency for a major automaker again. Targets could include Mazda and Honda. In addition, Asatsu hopes to merge with another large Japanese agency, but no deal is in the offing. "It would be wonderful if that happened," says Naganuma. "We'd probably create a holding company and operate the agencies as separate brands." Growth will also come from the development of specialist communications companies, an under-developed part of the industry in Japan. Currently, about 34 per cent of Asatsu's business comes from non-media activities. Naganuma expects to work closely with WPP in this area. There'll also be more co-operation with WPP's agency networks inside and outside Japan wherever there are no account conflicts. However an increase in WPP's current 20 per cent stake in the agency is not on the agenda. Asatsu's six per cent market share pales in comparison to Hakuhodo's 12 per cent and Dentsu's 23 per cent. Naganuma intends to narrow the gap. New non-media businesses as well as winning more classic advertising accounts could take Asatsu much of the way. But it will be hard work. Naganuma has rolled his sleeves up to pitch for the Singapore Airlines account and is using his WPP links to forge new partnerships in Tokyo to pitch for Richemont. "In a new wave agency, the president must lead from the cutting edge." Meanwhile, Naganuma believes that because of the terrorist attacks on America, the overall industry picture in Japan will get worse before it gets better. "At best, I'm expecting advertising spends to be flat for the second half of this year. Next year, the outlook is no better. I don't foresee growth higher than one or two per cent under the most optimistic scenario, and we could witness a decline." Max Gosling, president of McCann-Erickson Tokyo, also voiced concern. "Immediate effects of the attacks were more muted in Japan than in the United States since Japanese advertisers still must pay for their bookings even if they cancel. The real worry is run-on effects of a recession in America which may be triggered by these events." Japanese advertisers are already struggling. Sony has cut predictions for group net profit by 40 per cent and computer giant NEC expects to tumble into the red as the attacks magnify the slowdown. "Japanese advertisers usually set their advertising budgets based on available funds rather than taking a task-oriented approach. With stagnation at home, many companies were relying on exports for growth. The slowdown in the US was already making this difficult and now the terrorist attacks will delay recovery. Many advertisers are seeing their profits severely hit and so budgets will decline." The pressures on advertisers and agencies in Japan will get more severe, leading to more account consolidation, Naganuma says, adding: "The strong will get stronger, the weak weaker."

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