November 2022
At the beginning of September, Walter Scott investment managers Alistair Ceurvorst and Fraser Fox went on a two-week research trip to Japan. Here, Alistair Ceurvorst shares insights from the meeting where they met with 32 companies in three cities – Tokyo, Osaka and Kyoto.
Tokyo feels less busy than the last time I was here in December 2015, which is likely the result of changes in people’s working habits. I was surprised by the number of companies that mentioned rethinking their floor space requirements and adopting flexible work options to retain employees and adapt to a post-Covid world. Home apartments tend to be small, so I always assumed working from home in Asia wouldn’t be popular. This new set up poses obvious questions for some companies that own real estate in and around Tokyo and the rest of the country.
Japan’s ageing demographic is also forcing companies to evolve. When you look around it’s quite noticeable the average age is higher than in the US, even on the weekends when children aren’t in school. Not only is Japan grappling with how to look after and pay for a growing number of elderly people, but the workforce is shrinking, which in turn is increasing the competition for talent.
Inflation has reared its ugly head in Japan as it has around much of the globe. The country has been desperately trying to manage inflation for decades. Unfortunately for the Bank of Japan, now that they finally have some inflation, everyone is complaining about it. The weak yen has significantly increased the cost of imported goods. This has come on top of a sharp rise in energy and raw material costs, creating a very painful cost-of-living squeeze for the Japanese.
Despite these challenges, the Japanese are finding ways to drive efficiencies and improve productivity. That is, they are good at figuring out how to do more with less. For example, factory automation and aiding customers via digital tools and processes. We experienced this first hand while dining at a café where we chatted with, and were served by, a robot. What’s more, we learned that the robot was operated by a young disabled woman 1,000 miles away. This is a prime example of technology allowing someone to work who may not have been able to otherwise. There is still an important role for talented human beings, but clearly machines are helping to fill some voids.
Overall, the quality of company meetings was exceptional. We heard companies talk about returns, returns on equity, returns on cash to shareholders and environmental, social and governance (ESG). A very productive and insightful trip.
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MARK-323617-2022-11-22
