Business

Matthew Wright: Like heavy metal icons, Japanese firms still rock and roll on investment returns

The triumphant return of iconic heavy metal rockers Iron Maiden with the release of their album Senjutsu, which loosely translates as “strategy and tactics”, has delighted legions of fans across the globe.

Between selling more than 100 million records and completing 25 world tours, the endlessly theatrical and bombastic Iron Maiden has played across Japan – even within Japan’s famous Ryōgoku Sumo Hall. Aside from rock’s cognoscenti, few would necessarily notice the analogous linkages between the band’s success and Japanese investment…but let me explain further.

Age is no barrier to innovation.

All of the bandmates are sexagenarians, having spent their lives touring the globe. Few other bands can claim such longevity nor such a record of innovation. Similarly, Japan is home to some of the world’s oldest companies and many of our oldest holdings remain truly innovative businesses.

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 provide best-in-class gaming hardware through the Switch console.

Similarly the world’s largest tyre manufacturer, Bridgestone, was created in 1931 in Fukuoka, Japan. During its early decades, Bridgestone was the first to sell rayon cord and nylon tyres, and became a leader in radial technology. Today it harnesses TomTom Telematics and is expanding into the burgeoning tyre re-tread market.

Customer first.

Bruce Dickinson, the band’s entrepreneurial frontman and polymath, argues that companies “need to make themselves indispensable for their customers” through world-class service.

Many of our Japan holdings put client service, or omotenashi, at the heart of their offering. ABEMA, CyberAgent’s smartphone-age television service, is accessible anytime and anywhere. It has been designed to leverage CyberAgent’s traditional strengths in creativity and technology to cater to the changing preferences of Japan’s youth.

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E-commerce company Rakuten is seeking to disrupt Japan’s mobile phone industry by offering a low-cost, high-quality network. BASE allows merchants to seamlessly set up online storefronts and digital payment capabilities that allow brand owners to deal directly with the end-user.

And finally there’s Keyence, which manufactures automation sensors and vision systems and has pioneered a consultancy model that designs unique solutions for clients’ specific needs. This has been a key driver in sustaining Keyence’s impressive 55 per cent profit margins.

Define a niche.

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

Standout examples include Fanuc, which holds a commanding place in the robot and CNC industries and whose FIELD platform will allow all forms of robots to communicate with one another. It is in great position to drive, and benefit from, the industrial internet of things (IoT).

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Peptidream, a biotech company focused on designing and manufacturing synthetic peptides, is pioneering an entirely new treatment beyond what is currently addressable by conventional therapies. Although there are no completed phase three trials, Peptidream hypothesises that tumours can be treated through peptides which selectively deliver payloads to targeted cells with improved efficacy and reduced toxicity.

Another company with a disproportionate position in a niche market is TOTO. Established in 1917, TOTO is Japan and China’s leading brand for high-end lavatories. Such is its investment in R&D that it can reasonably be claimed TOTO is the world’s first provider of “Smart-Loos,” providing more than 70% of lavatories 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 enormously popular 1986 hit single, Wasted Years, but the reality is somewhat different. Asset managers armed with a long-term view, a differentiated approach and insightful perspectives can uncover pockets of radical growth within Japan’s economy. The trick, as Iron Maiden reminds us, lies in Senjutsu – strategy and tactics.

Matthew Wright is client services manager with Baillie Gifford.

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