The Expanding Global Advertising Market Globalization and Convergence Are Key

Dentsu Inc. Aegis Network (DAN), Dentsu Inc.'s overseas headquarters, was launched in March 2013. In an interview conducted during CEO Jerry Bullmann's visit to Japan, he spoke about his outlook for 2015, his thoughts on Japanese companies aiming for global expansion, and his strategy for the future.

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2015 will be another year of major change

Two trends will have a major impact

──How do you see the global advertising market in 2015?

Bullmann: I expect it to grow at a similar level to 2014, with an increase of 4.5 to 5.0%. Amongst this, digital advertising is expected to grow by around 15%, with social media, mobile, and video in particular expected to see significant growth of around 50%. In 2015, convergence through digital media will continue to progress rapidly, and the market as a whole will grow. Regionally, growth is expected in countries with strong economies, such as the UK and the US. In South America, Brazil will continue to grow ahead of the 2016 Olympics, while in Asia, China will be the market driver. As the advertising market expands, two trends—convergence and globalization—will have a major impact on advertisers, advertising agencies, and media companies.

──What about changes in consumer purchasing behavior?

Bullmann: The biggest change is the shift to digital media. Along with this, the e-commerce market is expected to expand further worldwide in 2015. China, in particular, will become the world's largest market. Convergence brought about by the progress of digitalization is shortening the process from communication with consumers to purchase to an infinite extent, and integrating it. This holds great potential for advertisers. With the spread of social and mobile media and increased access to video content, the spread of e-commerce is a major trend.

What capabilities do advertising agencies need to respond to these changes?

Bullmann: As the communication environment becomes increasingly complex and intertwined, I believe the areas in which advertising agencies can demonstrate their expertise are expanding. We are now conducting business in a new ecosystem where everything is connected in real time via the Internet. We must not only connect all media channels, but also understand purchasing behavior. The same applies to search engine optimization (SEO), content management, maximizing the data generated from the communication ecosystem, and providing comprehensive services. Mega agencies have vast digital assets, but the important thing is how to utilize them. In other words, the key is how to utilize this new ecosystem more effectively, how to achieve a return on investment in the digital field, and how to provide better comprehensive services to clients.

DAN's capabilities are constantly evolving

―─What were the results of 2014, the year DAN truly took off?

Bullmann: Dentsu Inc.'s acquisition of the Aegis Group in 2013 was one of the largest acquisitions in the advertising industry. It is particularly noteworthy that DAN achieved the highest internal growth in the industry in 2014. The growth rate was approximately 10%, which is two to three times the industry average, significantly outpacing competitors and proving the success of the acquisition. Not only did we satisfy our clients, but we also achieved success in new businesses around the world. Advertising agencies are a "momentum business," and building strong momentum allows them to attract talented people and clients. We have that momentum. This success is the result of DAN's talented people, its unique management strategy, and its sophisticated services. The brands under the DAN umbrella are truly powerful. DAN operates under its unique collaborative business model, "One P/L"*, enabling its brands to work together for the benefit of clients. This brings significant benefits to both DAN's business growth and its shareholders.

──What are DAN's capabilities?

Bullmann: Our capabilities are constantly evolving. DAN has strengths in the digital field, particularly in SEM (search engine marketing) and SEO strategies. Our brands understand the dynamics of our clients' businesses, emphasize the need to connect new digital content with consumers, and are well-versed in utilizing data and content. This allows us to discover new insights. We also have high-quality insights in programmatic advertising (automated, data-driven ad space trading), one of the fastest-growing fields. Within this new communication ecosystem, advertisers have business opportunities to significantly increase added value, and our mission is to support them in doing so. To achieve this, we need to evolve our administrative work, services, and data management methods on a global scale, while reducing the costs incurred in the process through new management programs. Over the past 14 years, DAN has made substantial investments in infrastructure, IT, and data management. This approach—driving convergence and globalization for our clients' benefit—is how we conduct our business.

What developments do you have in mind for 2015?

Bullmann: To gain an advantage in a rapidly changing market, we need to execute our strategy quickly. DAN made 17 acquisitions in 2014. Some of these brought entirely new capabilities. For example, Brazil's NBS is a large, successful digital agency that has helped us expand our business locally. In 2015, my focus will be on outperforming our competitors through organic growth and talent acquisition, and continuing to rapidly develop media and services in the areas of social media, mobile, video, programmatic and performance advertising, and outdoor advertising.

Japanese companies in the global market
Focusing on high-growth markets also yields results

—Please give us some tips on how Japanese companies with excellent products and services can achieve sufficient results in the global market.

Bullmann: Once Japanese companies made a decision, they were excellent at implementing it. There were advantages to taking time to make decisions. But now, the pace of change is rapid. As I mentioned earlier, it is necessary to respond quickly to the business opportunities created by globalization and convergence. The pace of growth varies around the world. We are focusing on rapidly growing regions and reaping many benefits by expanding quickly into them.

Which countries and regions are promising for Japanese companies?

Bullmann: Developing countries are promising markets. The Asia-Pacific region, South America, and parts of Europe are also promising. Furthermore, if Japanese companies offer high-quality, high-specification products and services, which they excel at, there are also great business opportunities in developed countries. I believe the United States and China will become the two new superpowers. Success in the US and China, which together account for 60% of the advertising business, means you have achieved 70% of the path to success in global business. In Europe, the UK is a promising market due to its economic growth. With Japan's economy struggling, opportunities for growth lie overseas. The key is to promote globalization and convergence, focus on rapidly growing markets, and secure a strong business foundation in the US and China.

What kind of support do you provide to Japanese corporate clients in the global market?

Bullmann: DAN offers a range of highly competitive services on a global scale and has built networks in Asia, Europe, and North America. Forty-five percent of our sales come from the digital field, which is higher than our competitors. Whether it's creative, brand, content, media, sports, or other marketing services, we can provide truly comprehensive services by connecting them. I believe DAN can provide significant added value to Japanese companies' businesses in terms of efficiency, effectiveness, and competitive advantage. We already have many good examples of this.

―─What is the best collaboration between Dentsu Inc. and DAN?

Bullmann: The important thing is a corporate culture based on the same vision and values. There are many different cultures in the world, but in business, if you build a corporate culture, nationality and geographical differences don't matter. DAN's powerful values of Agile, Pioneering, Ambitious, Responsible, and Collaborative are shared with Dentsu Inc. DAN's vision of "Innovating the Way Brands Are Built" is forward-looking. Through innovation, we aim to increase value by approaching business in new and better ways. Dentsu Inc.'s corporate philosophy of "Good Innovation." resonates with "Innovating the Way Brands Are Built." Sharing the same values means we can build a global business. Japan is one of the world's leading economic powers. The fact that Dentsu Inc. and DAN, sharing the same values, have a strong foundation in Asia is unique and gives us a significant advantage in the market. We face no obstacles. We have pursued acquisitions, advanced collaborations, and focused on performance. We aim to further expand our market share over the next three years.

How do you communicate your vision to the companies you acquire?

Bullmann: The best vision should be easy to understand, and that's true of DAN's vision. We need companies that can add value in new and better ways. It's not just about scale. The most important thing in acquisitions is people. It's also about winning over the people who work there and their enthusiasm for their work. The important questions are: Do they want to be part of our group? Can they share our vision? Can they significantly enhance the value of the business? If the answer is yes, then the acquisition will add to our corporate culture, positioning, and the value of the company as a whole.

—So they can have a bigger vision.

Bullmann: That's right. And they also gain tools to move their business forward more quickly. Speed is essential in this market. The changes over the past 20 years have been revolutionary. Historical revolutions generally take 10 to 15 years; they don't happen quickly. The media revolution is no different. Change is rapid, and convergence and globalization are advancing rapidly. We are fortunate to be able to do business in this environment.

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*One P/L: A unique system that limits competition within the group and promotes collaboration by managing profits and losses on a country-by-country basis. It combines horizontal organizations and specialists within the group to provide the best possible service to clients.