Matthew Wright: Like heavy metal icons, Japanese companies keep rocking on ROI


The triumphant return of iconic heavy metal rockers Iron Maiden with the release of their album Senjutsu, which loosely translates to “strategy and tactics”, has thrilled legions of fans around the world.

Between selling over 100 million records and completing 25 world tours, the endlessly theatrical and explosive Iron Maiden have performed across Japan, even at Japan’s famed Ryōgoku Sumo Hall. Few rock connoisseurs aside, few would necessarily notice the analogous links between the band’s success and Japanese investment… but let me explain more.

Age is not an obstacle to innovation.

All the members of the group are in their sixties, having spent their lives traveling the world. Few other groups can claim such longevity or such a record of innovation. Likewise, Japan is home to some of the oldest companies in the world and many of our oldest holdings remain truly innovative companies.

Nintendo was founded in 1889 and originally produced handmade hanafuda playing cards. Today, it owns some of the most iconic family entertainment franchises (Donkey Kong, Super Mario, Pokemon, Animal Crossing) while continuing to deliver best-in-class gaming hardware through the Switch console.

Similarly, the world’s largest tire manufacturer, Bridgestone, was established in 1931 in Fukuoka, Japan. In its early decades, Bridgestone was the first to sell rayon and nylon cord tires, and became a leader in radial technology. Today, he operates TomTom Telematics and is expanding into the growing tire retreading market.

Customer first.

Bruce Dickinson, the group’s entrepreneurial leader and polymath, argues that companies “must make themselves indispensable to their customers” through world-class service.

Many of our Japanese holdings place customer service, or omotenashi, at the heart of their offering. ABEMA, CyberAgent’s smartphone-era television service, is accessible anytime, anywhere. It was designed to leverage CyberAgent’s traditional strengths in creativity and technology to meet the changing preferences of Japanese youth.

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E-commerce company Rakuten seeks to disrupt the Japanese mobile phone industry by offering a high-quality network at low cost. BASE enables merchants to seamlessly set up online storefronts and digital payment capabilities that allow brand owners to transact directly with the end user.

And finally, there’s Keyence, which manufactures automation sensors and vision systems and pioneered a consultancy model that designs unique solutions for specific customer needs. This has been a key factor in maintaining Keyence’s impressive 55% profit margins.

Define a niche.

Pioneering the new wave of British heavy metal, the galloping riffs of Iron Maiden and the screaming, soaring tenor of Dickinson seem to define the genre. Many Japanese companies are similar: they have identified critical niches within international supply chains, often in high-quality, hard-to-replicate technologies, and now dominate those positions.

Among the most notable examples is Fanuc, which is prominent in the robot and CNC industries and whose FIELD platform will allow all forms of robots to communicate with each other. It is in an excellent position to pilot and take advantage of the Industrial Internet of Things (IoT).

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Peptidream, a biotechnology company focused on the design and manufacture of synthetic peptides, is at the forefront of an entirely new treatment beyond what is currently addressable by conventional therapies. Although there are no completed phase three trials, Peptidream hypothesizes that tumors can be treated with peptides that selectively deliver payloads to targeted cells with improved efficacy and reduced toxicity.

Another company with a disproportionate position in a niche market is TOTO. Founded in 1917, TOTO is the leading brand in Japan and China for premium toilets. Its investment in R&D is such that it can reasonably be said that TOTO is the world’s leading supplier of “Smart-Loos”, supplying more than 70% of the toilets for hotels in Las Vegas and 80% for those in Japan.

Wasted years.

For the uninitiated, Japan’s economic performance over the past three decades may remind them of Maiden’s wildly popular 1986 hit single Wasted Years, but the reality is somewhat different. Asset managers armed with a long-term view, a differentiated approach, and a shrewd outlook can uncover pockets of radical growth within the Japanese economy. The trick, as Iron Maiden reminds us, is in Senjutsu – strategy and tactics.

Matthew Wright is Director of Client Services at Baillie Gifford.


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