Dentsu sees ‘tremendous competitive advantage’ in offshoring 10,000 jobs

Dentsu International is moving thousands of jobs offshore because the agency group sees a “tremendous competitive advantage” at a time when clients need to make savings to cope with rising inflation.

The international arm of Dentsu, which employs about 45,000 people outside its home market of Japan, already has 7,500 staff or 17% of its workforce in cheaper locations. By the end of 2022,  this should rise to 10,000 or about 22%.

In a sign of the importance of offshoring, Hiroshi Igarashi, the chief executive of Dentsu Group Inc, the Japanese parent company, outlined the rationale at its recent Q2 earnings presentation.

The company has also set up a new division, Dentsu Global Services, to manage its low-cost operations, which are based in 18 “delivery centres” around the world.

Offshoring – the practice of multinationals moving work to cheaper locations – usually involves a mix of offshore locations, which are often a long distance away from a client or customer, and nearshore locations, which tend to be a shorter distance away.

Dentsu Global Services’ biggest offshore operation is in India, where more than two-thirds of its staff are employed, and it also has a significant offshore presence in the Philippines.

The division’s most important nearshore delivery centres are in Bulgaria, Portugal and Spain for the EMEA region and Argentina and Brazil for the Americas. Its other nearshore locations include the Czech Republic, Serbia and Columbia.

A slide in the earnings presentation showed a breakdown by staff numbers, with 6,000 people in India, 500 in Asia Pacific, 850 in EMEA and 300 in the Americas.

In addition to Dentsu International's existing 7,500-strong offshore workforce, Dentsu Japan employs about 700 staff in low-cost locations, taking the current global total to 8,350 and likely pushing it closer to 11,000 by the end of 2022.

Increased cost pressures

Wendy Clark, the chief executive of Dentsu International, said it is “increasingly” talking to clients about moving work to offshore and nearshore locations because “there are increased cost pressures in our business” and it is “crucial for us to have commercial viability and also access to key talent”.

She claimed its growing offshore workforce is “particularly advantageous” because it competes with some global agency rivals that have only a small percentage in the “low single digits” working in offshore locations.

“You can see that this really becomes quite a differentiator for us and certainly in a period where cost becomes more of a focus with our clients, we see a tremendous competitive advantage,” she told investors.

Dentsu International faces competition from not only global agency rivals but also consulting giants such as Accenture, which has been moving into marketing services and has a substantial workforce in India.

Michael Komasinski, the global chief executive of Merkle, Dentsu International’s customer experience agency, is the executive sponsor of Dentsu Global Services.

Dentsu has said it wants customer experience – one of three key service lines alongside creative and media – to generate 50% of international revenue by 2024 and it is thought to be a key driver for the expansion of Dentsu Global Services.

“High quality” services

Igarashi said offshoring allows Dentsu to “deliver high-quality advertising, marketing, analytics and technology services to our clients in a cost-effective manner”.

The company’s “offshore centres in India are easily scalable and provide coverage to all English-speaking markets and service lines and have 24-hour coverage”, while nearshore operations are important because they “can support regional markets that have specific language and time zone coverage needs and local data privacy requirements”.

He went on: “We have a skilled talent base ranging from recent graduates to more seasoned professionals with a short timeframe to recruit, on-board and train. This model drives benefits for clients, our people and our business.”

These benefits include diversity of thinking, increased speed to market and access to a larger talent pool and more advanced technological  capabilities as well as reduced costs, according to Dentsu.

Offshoring of jobs has potential to reshape industry

Nick Priday, chief financial officer of Dentsu International, pointed out offshore and nearshore delivery centres are “very important in making sure we’re competitive in terms of pricing for clients” but also help to improve the overall efficiency of the business.

Some internal functions such as finance and human resources can be managed at these cheaper locations, which means the agency group is able to standardise its processes in a “consistent manner at scale” globally, according to Priday.

“Obviously, that gives us much better transparency, much better control,” he said. “We use KPIs and scorecards a lot to really help with our margin improvement initiatives, really focusing on the cost-to-serve ratio across our business functions and making sure that’s fit for purpose, delivering with quality service at an appropriate cost.”

Dentsu has about 65,000 staff, including Japan, and is the world’s fourth largest agency group behind WPP, Publicis Groupe and Omnicom. Together with Interpublic and Havas, the so-called “big six” employ more than 400,000 people.

An industry-wide move to relocate jobs to cheaper locations has the potential to reshape the global marketing services sector because it could mean there will be fewer roles in more expensive, established global hubs such as London, New York and Tokyo.