Senior Portfolio Manager David Mann discusses findings from a recent Japan due diligence trip, highlighting the massive catch-up potential in digital transformation, Japan’s critical role in the global AI supply chain, and the impact of a weakening Chinese economy on regional competition.
Summary:
We conducted several diligence trips recently, including to Japan, where we met with over 20 companies across different sectors.
Japanese companies seem to be lagging their North American peers when it comes to digital transformation. Do you see any opportunities here?
We see a lot of opportunities. Surveys we’ve seen show that only around 30% of Japanese companies on average are satisfied with their digital transformation, including cloud adoption. That is a lot lower than for their Western peers. We’ve identified one of our holdings to be a key beneficiary of rising digital transformation. As consultants, they help companies decide what companies should be taking digital, and then help them do it. There is a significant catch-up opportunity versus Western counterparts, particularly in adopting software services, expanding cloud infrastructure, and moving away from mainframe computers, which Japan is still very reliant on.
A.I. is powering growth across the globe. Where does Japan stand in the global A.I. race?
Japan doesn’t really have household names in AI. There’s no NVIDIA equivalent or globally recognized AI leader based in Japan. But their supply chain supporting AI is phenomenal. We met with three or four companies that each have over 80% market share in their specific niche within the technology supply chain, and that technology is critical to continued AI growth and adoption. We don’t currently own any of the direct beneficiaries, but we’re doing a lot of due diligence as a result of the meetings from this trip.
Did these meetings influence your views on any other countries or regions?
When we meet with businesses, we don’t only ask about their business—we also ask about competitors, suppliers, and customers. One thing that was apparent is that the Chinese economy is very weak. Japanese companies are seeing Chinese competitors dumping products at very low prices into Japan and other markets. This is creating pricing pressure that Japanese companies are not accustomed to, and they all attributed this new competition to weakness in the Chinese economy. In China, global businesses are having to adapt how they operate in an environment where consumers simply aren’t spending.
What does this mean for the investor?
Japan itself is largely an ex-growth economy. But the businesses within Japan are increasingly well-managed and have very strong MOATS* in what they do that allow the global economy to function as it does. For AI progress to continue, Japan needs to play a role, and we’ve identified some of the businesses in Japan to capitalize on this.
*A company’s MOAT refers to its defendable competitive advantage against competitors.
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January 2026