Importantly, not all companies are able to achieve digital transformation on their own. Consulting firms are therefore increasingly helping small- to medium- sized companies make the leap into the digital era and the Cloud. This helps firms increase efficiency and shift paperwork into an online process. Notably, we believe the winners in this growing space will be local firms, as a strong understanding of Japanese working culture and language are key barriers to entry for foreign competitors.
One digitisation example that we’re intrigued by is a Cloud and IT outsourcing company that seeks to raise companies’ operational efficiency and thereby help address several societal pain points (such as a declining population, labor shortage and increasing demand for work-life balance). By using its Cloud-based platform to take organization, filing and reporting of expense management out of companies’ hands, the firm has enabled its clients to focus on their own areas of expertise. This has the potential to reduce time spent on these activities by 80% and management costs by 65%.5
The exponential growth of high-end components (and other opportunity sets)
Japan is one of the foundations of the semiconductor industry with significant market share in semiconductor capacity (26%), CMOS sensors (42%) and semiconductor equipment (33%) and materials (>50%).6 The growth of connected devices and smart tech is therefore another potential tailwind for Japanese technology. For example, as autonomous and electric vehicles advance, automobile supply chains evolve along with them. And with this burgeoning opportunity set’s keen focus on safety — as these digital components are increasingly critical to a car’s functionality — we think Japan’s reputation as a high-end tech manufacturer is a key differentiator for buyers of components like computer chips.
Notably, new markets for high-end components are not limited to the auto industry. Smart tech’s use cases are constantly expanding. For instance, a Japanese company is helping to supply machine vision cameras for predictive maintenance on everything from train tracks to elevators. This is one of many examples of Japanese tech that is increasing efficiency and safety while reducing cost. We believe these Japanese component suppliers have huge potential as the connected device market grows.
Finally, we believe Japanese tech will be a key beneficiary of the rapid growth of the gaming industry, a trend that has accelerated during the COVID-19 pandemic. Japan is home to two of the largest players in gaming, with nine of the top-10 selling consoles in the history of the sector.7 As the industry shifts to mobile and cloud-based gaming, we believe Japanese gaming companies will evolve along with it and continue to be industry leaders.