Generational shifts are driving change in Japan and creating growth opportunities for managers like Praveen Kumar of Baillie Gifford Shin Nippon, which focuses exclusively on high-growth smaller companies.
“Lots of changes are happening – you don’t always get to hear about them because they’re behind the scenes or not that sensational – but they are quite important,” he told delegates at a Sub35 event at The Bonham, Edinburgh.
Acute labour shortages in areas like teaching, construction and IT are having a knock-on impact on workplace reform, consumer spending and entrepreneurship.
“If you’re a company in Japan that’s really struggling to hire people what would be the first obvious thing you’d do? Try to keep hold of the people you already have,” said Kumar.
“It’s created a change in the mindset of senior bosses – a lot of them tend to be quite traditional, but because they find themselves in a tough situation, they’re actively embracing flexible working.
“We’re also seeing companies measuring their staff’s satisfaction levels – a new set of opportunities is emerging for companies who provide tools to track employee satisfaction.”
Optimistic bunch
He points to the younger generations in Japan – millennials and generation Z – as being “quite an optimistic bunch” and at the forefront of change.
Their consumption levels are positive – car ownership among 20 to 35-year-olds has grown steadily as has the amount of money this cohort spends on travel.
"The narrative that the Japanese people in general have a defeated look about them and are burdened with work was probably true 20 to 25 years ago," said Kumar. "The reality on the ground is that it’s the young generation that is driving change."
Risk taking was traditionally frowned upon in Japan, but Kumar says a renaissance for risk tolerance among younger generations is encouraging entrepreneurship.
While the most popular employers for university graduates were once “boring” insurance companies and banks, fast-growing e-commerce companies are becoming increasingly attractive.
“The whole start-up eco-system in Japan is undergoing gradual change,” said Kumar. “We are seeing quite innovative businesses within the start-up phase and that has positive implications for future IPOs [initial public offerings].”
Growth Ideas
As fundamental, bottom-up investors targeting “exciting, high growth ideas”, the team behind Baillie Gifford Shin Nippon tries to interpret these types of signals.
Kumar broadly classifies investments into two pools: global leaders (small and often relatively unknown businesses that have established some leading positions globally) and domestic champions (firms that focus solely on Japan but aim to solve practical real-world problems).
Among holdings are Asahi Intecc, number two in the field of medical products for catheter treatment in the US, and Raksul, the only company in Japan which offers cloud-based printing.
Five selling points
Baillie Gifford Shin Nippon:
- Owns fast-growing, disruptive Japanese smaller companies
- Favours companies run by young, dynamic founders who tend
to have large stakes in their business - Backs ‘global leaders’ and ‘domestic champions’
- Active share of 95% relative to the MSCI Japan Small Cap index
- Currently invests 10% of a potential 11% gearing facility