FOCUS - JAPAN: Hakuhodo to redefine position

<p>Following the flurry of mega-alliances between Japanese and foreign </p><p>networks, Hakuhodo's new president and CEO Toshio Miyagawa has made it </p><p>his mission to redefine and safeguard the agency's position in both the </p><p>local and global market. </p><p><BR><BR> </p><p>Mr Miyagawa's guiding business principle - "Hakuhodo's basic strategy is </p><p>to be in tune with advertisers" - reflects his reputation as a </p><p>top-flight salesman. </p><p><BR><BR> </p><p>"We're building our network to provide the best to each client and </p><p>regional area. As such, we will not enter alliances or make acquisitions </p><p>out of context with advertisers' need," said Mr Miyagawa. </p><p><BR><BR> </p><p>Hakuhodo's nearest counterparts, Dentsu and Asatsu DK, respectively No.1 </p><p>and No.3 in Japan, with Hakuhodo at No.2, recently allied with global </p><p>networks. </p><p><BR><BR> </p><p>Faced with competition from these consolidated advertising </p><p>conglomerates, Mr Miyagawa told MEDIA that Hakuhodo had no plans as yet </p><p>to pursue "a merger or alliance with any multinational". </p><p><BR><BR> </p><p>However, Hakuhodo would consider forming alliances with multinationals </p><p>on an ad hoc basis, with the aim of serving special needs of its </p><p>clients. </p><p><BR><BR> </p><p>Citing the recent alliance with Omnicom's TBWA to form a global agency </p><p>designated to handle the Nissan account, Mr Miyagawa said: "This too was </p><p>based on our policy of organisation based on client requests." </p><p><BR><BR> </p><p>Agencies usually merge to form advertising Goliaths in a bid to </p><p>strengthen their global positioning; however, Mr Miyagawa said the </p><p>merger and acquisition situation "is still very liquid". </p><p><BR><BR> </p><p>Recent industrial consolidation does not necessarily mark the final </p><p>development on the advertising landscape; as Mr Miyagawa said, it "does </p><p>not preclude future unbundling through sell-offs". </p><p><BR><BR> </p><p>Advertising agencies marry for three main objectives: expanding </p><p>services, strengthening media buying clout to achieve economies of </p><p>scale, and enhancing business functions. </p><p><BR><BR> </p><p>Hakuhodo's key strategy at the moment is to provide advertisers with new </p><p>possibilities in marketing and advertising. </p><p><BR><BR> </p><p>"We've not sat down and said we would form partnerships with this </p><p>agency, but not that one. If necessary, we will talk with any agency," </p><p>said Mr Miyagawa. </p><p><BR><BR> </p><p>In the wake of the economic recession in Japan, Hakuhodo experienced a </p><p>profit dip over the past two years, with total operating profit dropping </p><p>12.6 per cent to Y7.1 billion (US$62 million) in the fiscal year </p><p>ending November 1999. </p><p><BR><BR> </p><p>However, total sales improved from 1998's negative 3.1 per cent to </p><p>1999's negative 2.8 per cent. </p><p><BR><BR> </p><p>Despite this, Hakuhodo in fact increased its market share during the </p><p>downturn. </p><p><BR><BR> </p><p>"The fundamentals of the Japanese economy have been radically </p><p>revised. </p><p><BR><BR> </p><p>I believe there will be a shift from the traditional material-led </p><p>industry toward the IT industry," he said. </p><p><BR><BR> </p><p>"The IT revolution will reduce production, distribution and other costs </p><p>associated with doing business - this will mean marketing activities </p><p>will account for a greater proportion of the total." </p><p><BR><BR> </p><p>Internet and digital broadcasting advertising will lead growth, </p><p>according to Mr Miyagawa, who said Hakuhodo planned to strengthen its </p><p>one-to-one Internet marketing skills. </p><p><BR><BR> </p><p>Founded in 1895 as an advertising space broker for educational </p><p>magazines, Hakuhodo plans to list on the Tokyo Stock Exchange in </p><p>2004. </p><p><BR><BR> </p><p>"Our plans to strengthen our business through enhanced global network </p><p>infrastructure, digital functions, and new tools in our current key </p><p>competencies will require a sizable investment," noted Mr Miyagawa. </p><p><BR><BR> </p><p>"In principle, we will fund this from profit, but if further investment </p><p>should be required, we would like to be able to respond." </p><p><BR><BR> </p><p>With more foreign players buying into Japanese agencies, Mr Miyagawa </p><p>said competition was becoming stiffer, not only from multinationals but </p><p>also local counterparts. </p><p><BR><BR> </p><p>Client servicing was a crucial part of the agency's strategy; as Mr </p><p>Miyagawa said, "the only way to beat the competition is to lift the bar </p><p>on the quality of services". </p><p><BR><BR> </p><p>Boosting the agency's global networking resources, enhancing integrated </p><p>services in the media, branding and advertising disciplines, and </p><p>strengthening Internet marketing skills are the three key areas Hakuhodo </p><p>is actively looking into, he said. </p><p><BR><BR> </p><p>Joining Hakuhodo in 1958, Mr Miyagawa is one of the agency's first heads </p><p>with a strong account servicing background. </p><p><BR><BR> </p><p>"Over time, marketing methods became more complex, and full service </p><p>Japanese advertising agencies increased their functions gradually," Mr </p><p>Miyagawa told MEDIA. </p><p><BR><BR> </p>