HAKUHODO, INC. History

Company History:

Hakuhodo, Inc. (Hakuhodo) is Japan's second largest advertising agency, after Dentsu, Ltd., and ranks eighth in the world in both billings and profits. The agency has extensive relationships with all aspects of Japanese media and currently secures most of its revenue from television advertising. The agency is known for its Institute of Life and Living, which was set up in 1981 to study consumer and sociological trends. Hakuhodo has extensive overseas operations and in this respect is a pioneer among Japanese agencies. Also notable is Hakuhodo's ability to rapidly respond to changing trends within the industry and its use of technology in its approach to producing advertising.

The roots of Hakuhodo can be traced back to 1895, when a young businessman, Hironao Seki, established himself as an agent for a publisher of educational magazines and books. The word 'hakuhodo' translates literally as 'news release firm' which reflected the emphasis of Seki's business--to impart information about educational services and announce the opening of new schools. Japan was in a period of great change during the late 19th century, having rapidly developed from an economy based on agriculture to a major industrial power by 1900. This transformation required a large-scale effort on the part of Japan's rulers to educate the population in Western methods and technology, and was accompanied by a huge growth in the publishing and printing industries. Although newspapers and books had been available in Japan for some centuries, the vast amount of new information being absorbed by the nation resulted in a surge of new books, magazines, and newspapers. Seki saw this as a prime opportunity to begin his agency business. At first he acted only as an agent on behalf of publishers, selling the advertising space, and was not involved in creating the advertisements themselves, but this began to change as clients requested more and more from him. The official name of his business was changed to Hakuhodo Newspaper and Magazine Advertising in 1900, reflecting the nature of Seki's work. To take advantage of the market for newspapers, Seki started a daily named Naigai Tsushin in 1910, which soon became an integral part of his business. The paper published general news, and Seki sold its advertising space.

Advertising in Japan at the time consisted largely of notice boards on public display, a method widely used by newly democratized Japan's politicians; print media were slowly emerging as a popular means of promotion. Japan's new and expanding trading companies found this to be a lucrative and successful means of selling goods. Seki's business grew steadily, and he began to produce advertisements for clients as part of his services. To raise additional funds for expansion, Seki officially formed Hakuhodo as a joint stock company in 1924, based at the location of the present day headquarters in Kanda, central Tokyo. The company was capitalized at ¥500,000; Hironao Seki was the firm's first president. At the time, Hakuhodo represented one of the largest advertising agencies in Tokyo, but it was still far smaller than its rival, Dentsu, Ltd. In 1926 Hakuhodo donated funds for the establishment of the Meiji Newspaper and Magazine Library at Tokyo University, the most prestigious university in Japan. It was a first step in establishing Hakuhodo's reputation as a specialist in research and the gathering of information.

By 1930 a substantial middle class had developed in Japan, with the business world dominated by a small number of huge conglomerates or 'zaibatsu' centered around large trading companies. It was common for smaller companies to form links with a particular conglomerate resulting in cartel-like behavior among Japanese companies. Hakuhodo, being one of Japan's first advertising agencies, was well connected with all of the major zaibatsu and commanded a good deal of influence when purchasing advertising space for its clients, who by now consisted largely of consumer goods companies.

Between 1930 and 1945 Japan was effectively at war, and the economy was geared toward the production of armaments. Consumer goods exported from the West became scarcer and the Japanese military government instituted rationing for a number of goods during the height of the war in 1944. This was not a prosperous time for the Japanese advertising industry, with many companies going out of business. Hakuhodo's advertising revenues declined during this period, but the company's publishing operations remained steady. The bombing of Tokyo in 1945 was a disaster for Hakuhodo; its building in Kanda in downtown Tokyo was severely damaged, and much of its advertising business disappeared. Overall, Japan's industry was decimated, and what remained was reorganized by the United States occupation forces into smaller units.

With its client base lacking money to spend on advertising, Seki attempted to rebuild his company from the bottom up. He formed a planning and research department to try to help his clients plan their marketing campaigns and in 1948 started a magazine entitled Hakuhodo Monthly News, in addition to the daily Naigai Tsushin newspaper. In fact, he briefly changed the name of his company in 1950 to Naigai Tsushin Hakuhodo to reflect the importance of the publications to the business. By the early 1950s Japan was rapidly recovering. One of the first products to be mass-produced by the new Japanese industry was the transistor radio by Sony and other companies. This spawned a new media and advertising industry. Hakuhodo saw this as a huge growth market and formed a radio department within his company to prepare for the introduction of commercial radio. This soon became a major source of information and entertainment for the average Japanese and engendered a new way of selling products, from city gas to household appliances. The company opened its first office outside Tokyo in 1952 with the establishment of a branch in Osaka. The company's name was changed back to Hakuhodo in 1955 as the agency celebrated its 60th anniversary and two additional offices were opened in Nagoya and Fukuoka. The advent of radio was largely responsible for Hakuhodo's rapid growth; also, the capitalization of the company had increased eightfold from 1951 to 1956. To service Hakuhodo's range of clients, which included most of Japan's largest companies at the time, a network of offices was set up nationwide to enable effective planning of advertising campaigns. The number of offices reached 12 by 1959.

The year 1960 marked a turning point in the history of Hakuhodo. A group of the agency's senior managers visited the United States, studied advertising techniques used by large American agencies, and realized how much they had to learn. As a result of this experience, the 'Hakuhodo Declaration' was announced. It stated Hakuhodo's desire to modernize its methods and create an agency based on scientific market research methods and artistic ability. The account executive system was adopted to create a continuous contact point for clients and enable better servicing of the accounts. Hakuhodo also began its now extensive overseas network in 1960 with the establishment of a representative office in New York. The function of the office was largely to gather information about United States advertising techniques and new products. Like most Japanese businesses at the time, Hakuhodo regarded the United States as an economic superpower from which much knowledge could be gained.

Also in 1960 Hakuhodo formed a joint venture with the United States advertising giant McCann-Erickson, named McCann-Erickson Hakuhodo, Ltd. The joint venture drew upon the creative and market research expertise of one of the most prestigious agencies in the United States and Hakuhodo's established network in Japan. The new venture's clients were initially McCann-Erickson's client companies in the United States, and an early success was the penetration of the Japanese market by Coca Cola, which today holds a majority share. The early success of this internationalization gave Hakuhodo the resources and confidence to expand into Asia, setting up an office in Bangkok in 1963 and in Jakarta in 1971, largely to promote its Japanese clients' products in these countries.

Hakuhodo entered the computer age in 1964 with the establishment of a data processing center in its head office in Kanda, Tokyo. Almost a decade later, an on-line marketing database was installed to provide instant information on almost any aspect of any market in Japan. In 1966 the company was restructured to cope with its growing size. Three separate accounts divisions were set up, all based in Tokyo, with client accounts split between the three. One reason for the split was to protect the confidentiality of clients within the same industry.

In 1970 the Hakuhodo Foundation was established on the 75th anniversary of the agency to provide monetary awards for students of education, mainly special education; over 1,000 have been awarded so far. That same year Ad Age magazine ranked Hakuhodo as the 15th largest agency in the world. Hakuhodo's overseas expansion continued, with the opening of an office in Malaysia in 1973 and the Jakarta office closing in the same year due to lack of business. An international planning department was set up in Tokyo, and Hakuhodo Advertising America was formed as an independent subsidiary based in Los Angeles. The New York representative office was closed.

By 1975 Hakuhodo had reached a stage of technological advancement on par with almost any advertising agency in the world. What some industry analysts felt the firm lacked was the creative power to conceive radical new advertising campaigns effectively. Concerned about this situation, Hakuhodo bolstered its creative department in 1976 by forming a creative center. Creative staff from abroad were hired in an attempt to increase the center's output. A communication center was added in 1977, located in Tokyo and combining Hakuhodo's public relations, sales promotion, and marketing divisions. In 1981 all of Hakuhodo's Tokyo offices were combined under one roof within the busy Marunouchi district of Tokyo. Also in 1981, the Hakuhodo Institute of Life and Living was set up as an independent organization. It was designed to be Hakuhodo's research center, conducting research into the behavior of Japanese society. The institute is based in Tokyo and serves Hakuhodo and its affiliated organizations.

In 1982 Hakuhodo again underwent a major reorganization. Under president Mitchitaka Kondo, who succeeded Hiromasa Seki (the founder's son) in 1975, a new approach to client service was conceived. Hakuhodo was reborn as a 'marketing engineering' company. The company now regards its staff as marketing engineers and puts together a team of specialists to design a successful marketing campaign for clients. The new approach proved confusing at first to both clients and staff, but was soon accepted as a novel and efficient approach to the business. Following this reorganization, Hakuhodo scored some impressive successes. In June 1982 it won the Grand Prize at the Cannes International Ad Film Festival and in July it was decorated with the Order of St. Sylvester by Pope John Paul II for its handling of the Pope's successful tour of Japan. An affiliation with the huge United States agency Lintas Worldwide effectively created the world's largest international advertising network. Similar agreements were formed with advertising agencies in South Korea and Taiwan in 1983. President Kondo retired in 1983 to become chairman, making way for new president Ritsuo Isobe. In 1984 Hakuhodo again walked away with a disproportionate share of the world's advertising awards, showing itself as a major creative force in world advertising. Hakuhodo's expansion has been roughly parallel with the explosion of consumer spending in Japan in the 1980s. Fierce competition in all markets, but especially consumer products, ensured that the services of Hakuhodo's extensive agency would be required.

Hakuhodo currently ranks eighth in the world in terms of both billings and profits. The company is probably Japan's most internationally oriented advertising agency, with offices set up in the United Kingdom, Australia, France, Germany, Holland, and Hong Kong since 1987. Hakuhodo sees its strengths as its extensive power within the relatively closed Japanese media industry, its extensive research facilities, and most importantly its highly skilled marketing and creative staff.

Principal Subsidiaries: Hakuhodo Lintas Co., Ltd. (50%); Community AD Hakuhodo, Inc.; Morioka Hakuhodo; Aomori Hakuhodo; Fukushima Hakuhodo; Hakuhodo Music Publishing; Hakuhodo Institute of Life and Living; Hakuhodo Services Co., Ltd.; Japan Visual Soft Network Co.; Incentive Promotions, Inc.; Hakuhodo Photo Creative; Prestige Products Promotion; McCann-Erickson Hakuhodo (50%); Hakuhodo Advertising America; Hakuhodo Germany; Hakuhodo Netherlands; Hakuhodo Malaysia; Thai Hakuhodo; Hakuhodo Singapore.

Further Reading:

Guide to Hakuhodo (company publication in Japanese), 1986. Hakuhodo's History (company publication), 1992. Hakuhodo Annual Report, 1992.

Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.

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