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

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