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When I arrive at Hakuhodo’s Granpark Tower offices in Tokyo, five

minutes before my scheduled interview with the chairman of the board,

Takashi Shoji, Bob Hasegawa, the agency’s international business

director, is flapping around in reception, mobile phone in hand.

’I was just calling London to see what had happened to you,’ he

frets.

Lesson number one - five minutes early is late, 15 minutes early would

have been on time. This frosty welcome sets the tone for what proves to

be the most formal and guarded of all my Japanese interviews.

Once Hasegawa has gathered himself together, I’m led into an office by

two of the agency’s corporate PR staff - who perch, quite literally, on

the edge of their seats and scribble notes for the entire two-hour

duration of the interview.

I am told where to sit and we all wait for Shoji - me with an increasing

sense of foreboding as I recall all the warnings from Hakuhodo’s London

office: ’Don’t cross your legs, it’s very disrespectful. Don’t touch

your nose, it’s very rude, and when you’re handed a business card,

accept it with both hands and stare at it intently as a mark of

respect.’

Shoji enters the room a couple of minutes later, impeccably dressed and

to a standing ovation. He has the honour of being the only person in

Japanese advertising history to have switched from a creative role to

corporate presidency - not uncommon in the West, but unprecedented in

Japan.

Anyone with an interest in the Japanese advertising market will be

keeping a keen, if not a sceptical, eye on Hakuhodo. As they move into

the 21st century, Japanese advertising agencies are facing a dilemma -

whether to try to survive with the help of a foreign group or to rapidly

re-structure in order to increase their own capacities.

Since 1895, Hakuhodo has grown to become Japan’s number two in terms of

billings and the agency with the highest creative profile. It has 4,000

employees working out of 54 offices in 17 countries but faces being

relegated to third place in Japan following the Asatsu/WPP deal.

While Dentsu and Asatsu have staked their respective claims to global

expansion, Hakuhodo has remained committed to going it alone. There has

been no hint from the management that it has any intention of forming an

equity relationship with a Western group. It’s a stance that will prove

to be either very brave or suicidal, given the economic situation in

Japan.

It is clear that, by 2003, Hakuhodo will go public, but what is less

clear is what Shoji intends to do with the capital the flotation will

release and how the agency will handle the increased media transparency

that will result.

’Our main objective is to expand overseas, setting up new offices or

buying other agencies, and we are trying to time that with the speed of

expansion of Japanese clients overseas,’ Shoji says. ’Across Asia, we

see that as being five years from now and globally in ten years.

’The top multinational agencies have about 30 clients that have a

presence in about 30 countries. Hakuhodo has no Japanese client that

could be described this way, but in ten years’ time we hope to have

about ten to 20 that would have that kind of global presence.’

When I ask Shoji how the agency expects to deal with the increased level

of transparency following the flotation, he dismisses the issue as one

that is mostly raised by Western clients in Japan.

’Japanese clients have not addressed that issue yet but we know we are

going to be facing it in the near future. Maybe the media side of the

business isn’t transparent but that doesn’t mean we’re making more money

than Western agencies.’

By Shoji’s own admission, very few of Hakuhodo’s management team have

overseas experience - about 10 per cent - his reason being that only

about 10 per cent of billings come from overseas work, the rest is from

the domestic side.

The performance of the London office has been poor - launched just over

ten years ago and now with not a single member of the original team.

Shoji wants to see an even 50/50 split between Japanese and local

business in London, but admits that, at the moment, local business is

’insignificant’.

The office is run by Ruoichi Katsui, the managing director, who speaks

little more than the bare essentials of English. He needs a translator

to enable him to communicate with the agency’s second-in-command, Anne

Green, the client services director.

I ask Shoji how he can hope to make an impact on the London market when

the key staff are unable even to talk to each other without making an

appointment with a translator.

’The ability to succeed rests more on the ability of the management and

language is not the primary consideration. In Japan, we have many

Western agencies whose managing directors are not able to speak any

Japanese.

’A better way may be to invest in a local agency that has local clients

already - to establish a larger profile in the UK might take more time,’

he says.

Is Shoji worried that Hakuhodo will be left behind in the race for

globalisation?

’No, and I’m not sure how well BDM will do in terms of Japanese

clients,’ he replies. ’Dentsu/Y&R didn’t turn out the way Dentsu

expected it would.’

Originally, Hakuhodo had marked out the US as a priority for expansion,

but the agency has effectively given up trying to crack that market. Its

list of priorities now runs from Asia, then the UK, followed by Europe

then the States.

’At the moment, Japanese clients are using American agencies very well

and I don’t see the opportunity is there to take those clients away from

them, but in Asia, Hakuhodo has a potential over Western agencies.

Although it’s going to take more time, we think it’s better to take a

more independent approach to globalisation - that will not be through

mega mergers but by a more piecemeal approach,’ Shoji explains.

It is by these means that, by 2004, Shoji intends Hakuhodo to become one

of the world’s top ten major global advertising agencies - now it lies

at 13th - while resisting the advances of the advertising industry’s

giants including Interpublic Group, Publicis and Omnicom.

He insists that the single factor preventing any deal is client

conflict, but the agency’s two biggest rivals have managed to reach

deals that preclude any such worries - so why not Hakuhodo?

Would he consider re-establishing Hakuhodo’s links with McCann-Erickson

perhaps? The agencies came together in 1960 to form McCann-Erickson

Hakuhodo, which was focused on Japan. Hakuhodo sold its 49 per cent

equity stake to McCann in 1994. Any renewal of the alliance sounds

unlikely.

’In my mind, the deal was relatively successful in Japan but the primary

objectives of both agencies were not really the same,’ Shoji says.

’McCann-Erickson was looking for a way to broaden its base in Japan and

Hakuhodo wanted to draw from the latest in advertising know-how.’

It is difficult to be convinced by anything Shoji is saying when, after

nearly every question, he appears to be taking advice from the others in

the room. He doesn’t have the demeanour of a man who speaks freely.

Much of Shoji’s personality is lost through the translation and there is

little room for the more informal discussion that often supplies the

most telling insights. He provides very bland answers to the more

personal questions I ask him.

What does he enjoy most about the industry? ’Connecting the client’s

product with the consumer.’ What upsets or irritates him about the

industry?

’Nothing.’ What or who is his inspiration? ’Agencies like DDB Needham

and Ogilvy & Mather because they’ve made such a huge impact on the

industry.’

The closest you can hope to get to this man is to study his CV. After

graduating from Tama Art University, he joined Hakuhodo in 1963 and, as

you would expect, he’s been there ever since.

He made the switch from creative to management in 1976, when he became

the general manager of the fourth advertising group. Hakuhodo has seven

groups altogether, which act as autonomous agencies, enabling it to

handle conflicting business.

From then on, he moved steadily through the ranks, becoming the director

in charge of account service in 1981, the senior managing director in

1989 and then the vice-president in 1991.

For most of the past decade, Shoji has had to deal with a depressed

economy, which has forced some companies to become more export led,

while domestic consumption has been low.

At the time of writing, foreign investment is running at an annualised

rate of about dollars 125 billion, three times the rate of 1998. The

huge uptake of overseas investment has put 15 per cent of the Tokyo

stock exchange’s dollars 3.7 trillion market capitalisation into foreign

hands - this compares with 5 per cent a decade ago and surpasses the

holdings of Japanese banks.

Hakuhodo therefore needs to respond to a climate in which clients are

taking a close look at their agency relationships and how much they are

spending. What are Shoji’s intentions? ’Western clients have always

looked at their agencies as partners when they expand overseas but

Japanese clients traditionally hired locally. They thought their

technical ability and marketing know-how were the only important factors

on entering a foreign market but they have begun to see the importance

of brand strategy in the way Western clients have done for years.’

Hakuhodo’s single largest account, the car maker, Nissan - Japan’s third

largest global spender after Toyota and Sony - recently decided it

required a single global agency partner to handle its dollars 600

million account. Shoji was keen to respond and Hakuhodo is now

undertaking a joint venture devoted solely to Nissan with another of

Nissan’s roster agencies, TBWA Worldwide.

Hakuhodo handles virtually all of Nissan’s domestic business, which now

represents more than 10 per cent of its billings. Hakuhodo’s

relationships with its clients have been described as ’not

inter-breeding, but not far off’ and any threat to its hold on the

Nissan business would be cause for serious concern.

The tie up with TBWA could prove to Shoji that such alliances - which

are often as defensive as they are aggressive - are not only necessary

but effective.

Despite that fact, he remains adamant that Hakuhodo is capable of

becoming a top ten global agency and one that will handle upwards of 20

global clients without such a move.

His assumption that Japanese clients will continue to look to their own

before turning abroad is difficult to support. Add to that the poor

performance in London and suddenly Shoji’s ’piecemeal’ approach to

expansion looks very unconvincing.

Next week: Asatsu’s chairman and chief executive, Masao Inagaki.