The advertising industry in Japan reached a turning point after the 1990s. In concrete terms, advertising expenditure in Japan did not show much growth after the bursting of the bubble economy, the development of information technology diversified media, and mega-agencies compete in the advertising market. These changes led to restructuring of the Japanese advertising industry. This paper aims to show how environmental changes surrounding the advertising industry affected the organization and interfirm linkages of advertising-related companies (advertising agencies and advertising production companies) and discusses the agglomeration dynamics of the advertising industry in Tokyo. In 1980, advertising-related companies were concentrated in five central wards (Chiyoda, Chuo, Minato, Shinjuku, and Shibuya), especially in the Ginza and Tsukiji area in Chuo ward. Advertising agencies must be in close contact with advertisers, media companies, advertising production companies, etc. It was therefore advantageous for advertising-related companies to locate in the Ginza and Tsukiji area where many major advertisers and media companies had offices. In 2010, advertising-related companies continued to be located in those five central wards, but several changes occurred. First, the number of foreign advertising agencies in Tokyo increased. Second, in Shibuya, which is known as an agglomeration of Internet-related companies, a new agglomeration of Internet-based advertising companies appeared. Reorganization of major advertising agencies resulted in the formation of an agglomeration of corporate groups in the five central wards. Dentsu, Hakuhodo DY Holdings, and Asatsu-DK were traditionally dependent on commissions from the mass media (newspapers, radio, magazines, and television), although they expanded their business services. However, since the 2000s, due to changing advertiser needs, they have sought to internalize the production of advertising, which was generally outsourced to advertising production companies, established subsidiaries, and bought out companies specializing in specific domains. Because of the strength of organizational relations and business domains, most companies in a group are concentrated around the parent company. In terms of interfirm linkages in advertising production, some advertising production companies have broadened their business fields. However, not all have integrated advertising-related services. They flexibly form linkages with specialized firms to meet client needs. Although their organizations and interfirm linkages are changing, they make a point of face-to-face communication with clients and partners, and thus their interfirm linkages remain concentrated in central Tokyo, leading to continued agglomeration of the advertising industry. These findings suggest that the transaction cost remains an important factor in the formation and maintenance of agglomerations of advertising-related companies. On the other hand, environmental changes have led to a concentration of corporate groups and fusion of the advertising industry and Internet-based industry inside agglomerations, thereby transforming the agglomeration of the advertising industry in Tokyo.
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