When Minoru Usui became chief executive of Seiko Epson Corp., in 2008, he diagnosed the world’s third-largest printer maker as stuck in a rut that was constraining performance. The Tokyo-based company had bought into the prevailing industry wisdom that maximum profitability came from marking down hardware and marking up replacement ink cartridges.
It was also chasing growth primarily in the mass market, focusing not only on printers but also on such technology as liquid-crystal-display panels for mobile phones and other devices. But like Japan’s consumer electronics sector more broadly, Epson found profits flagging as tightening competition drove down prices on its flagship products. In the fiscal year through March 2008, net sales slumped 4.8 percent year over year, to ¥1.35 trillion ($13.5 billion).
If Epson was to avoid falling further into the malaise affecting the industry, Usui reasoned, then it would need a new strategy. In March 2009 he unveiled a plan that aimed for nothing less than “changing the direction of the company,” the 60-year-old recalls.
“In the past our company was too focused on looking at what competitors were doing and perhaps making a printer that was a little bit cheaper or a little bit faster than theirs,” Usui explains. “What we did was look at what the market’s actual needs were, focused on our strengths, and that enabled us to completely subvert the traditional business model. That’s been very successful.”
Epson began moving resources away from laser printing to focus all of the company’s printing efforts on its inkjet technology, which the CEO considered the future of the business. It also put a new focus on products targeting professional customers, especially office equipment, and turned the traditional industry wisdom on its head with its EcoTank inkjet models, which tripled the price of the hardware but reduced ink-refill costs by some 60 percent, on average.
Flipping the profitability model in this way invites customers to print without prohibitive cost concerns, Usui says. “It took a long time to persuade the market that this works, but it’s finally getting through,” he reports. “It’s been very successful in a lot of countries.”
Indeed, after posting eight straight annual declines in net sales, Epson enjoyed robust growth in the past two fiscal years — and reached record revenue of ¥111 billion in the 12 months through March.
As he has subverted the printing business, Usui has also kept an eye on diversifying Epson’s broader product mix. The company, founded in 1942 as a watchmaker, is expanding its offerings in such wearable devices as monitors that track the user’s activity level, heart rate and sleep pattern. Epson is also parlaying its growing projectors business into industrial-use applications like projection mapping, as well as smart glasses for gaming and augmented reality applications.
“Our R&D is based on creating technologies that other companies simply cannot imitate,” Usui attests. “I believe this is what will make us competitive.”
Investors and analysts agree: Usui’s vision for his company sets him apart from his peers. Sell-side researchers say he is the best CEO in the Electronics/Precision Instruments sector on the All-Japan Executive Team, Institutional Investor’s exclusive annual ranking of the region’s top CEOs, CFOs, investor relations teams and IR professionals. Buy-siders award him the No. 2 spot (behind Hoya Corp.’s Hiroshi Suzuki), while Seiko Epson is No. 18 among the survey’s most honored companies.
These results reflect the opinions of nearly 350 buy-side analysts and money managers at close to 200 firms that collectively manage an estimated $640 billion in Japanese equities, and approximately 210 researchers at 30 sell-side institutions.
Click on one of the links in the navigation table at right to view the full list of companies included in this year’s results; the most highly regarded CEOs, CFOs and IR professionals in each sector; and the businesses with the best IR outreach programs.
A number of these companies also appear in II’s inaugural ranking of Japan’s Best Analyst Days.
Like Epson many of the corporations listed on this year’s roster are finding themselves adapting to rapid changes within their respective industries, the country and the global consumer landscape. Take JSR Corp., a Tokyo-based concern that develops petrochemicals used in the manufacture of plastics and synthetic rubbers for semiconductors, LCD panels and other applications. It ranks 14th on this year’s lineup.
Mitsunobu (Nobu) Koshiba, the best CEO in the Chemicals sector in the estimation of both the buy and sell sides, says that upon rising to the top job in 2009, he began an analysis of the competition to determine possible avenues of substantial growth. As he looked around he noticed a clustering he hadn’t acknowledged before: most of the companies had market capitalizations either of less than $5 billion or of more than $10 billion — almost none fell in the gap between.
“Somehow this area between $5 billion and $10 billion is unstable,” observes Koshiba, 59. Given his company’s own market cap of roughly $5 billion, he reasoned that JSR wouldn’t achieve the type of long-term development he had in mind through incremental improvements within familiar businesses. Instead, it would have to expand into something else entirely.
He determined that first, JSR would have to expand its capabilities beyond petrochemicals and fine chemicals, and he began to seek out a new business that could become what he calls a “third pillar.” He acknowledges now that the one he decided on — life sciences, or the materials used in the production of biopharmaceuticals — may at first seem outside JSR’s purview, but he insists that the segment is a snug fit.
“I see a lot of similarities between the semiconductor and pharmaceutical industries,” Koshiba says. “It kind of felt like déjà vu.” Both require cutting-edge innovation through one-on-one collaborations with customers, he adds, with multiyear development time lines.
In March 2013, JSR paid ¥4.5 billion for a 33 percent stake in Medical & Biological Laboratories Co., a Nagoya-based manufacturer of materials used in diagnostics, and earlier this year raised its stake to 51 percent, for ¥2.8 billion. In February the company announced that it would acquire a majority interest in KBI Biopharma, a U.S.-based biopharmaceuticals contract development and manufacturing company, for an undisclosed price.
Beyond ushering JSR into this new business segment, Koshiba is overseeing the company’s geographic expansion. Headquarters for its LCD materials business is moving from Tokyo to Shanghai to capitalize on rising market demand for digital materials in China. He predicts that JSR’s S-SBR unit, which helps make the rubber for fuel-efficient tires, will be the next to shift its administrative base, either to China or Thailand, to capture the growth he sees in Asia and Eastern Europe.
“Except for the life sciences business, most of the market is shrinking for us in Japan,” Koshiba says. “We can’t just stay here. You have to make a decision about where the market is. We really have to change our mentality.”
For the fiscal year ended in March, JSR reported net sales of ¥404 billion, an increase of 2.5 percent year over year — and operating profit shot up 5.6 percent, to ¥38 billion.
Expanding into faster-growing markets is also a top priority for the executive team at Omron Corp., this year’s No. 20 company. The electronics outfit is a major producer of components for automation systems as well as other technologies for use in the auto, financial services, health care and infrastructure industries.
CEO Yoshihito Yamada, who ranks second among top executives in the Electronics/Industrial sector (behind Hitachi’s Hiroaki Nakanishi), expects the Kyoto-based manufacturer to achieve dramatic growth by boosting sales in India, South Korea and other parts of Asia over the next several years. In fact, that strategy is already starting to pay off. In the 12 months through March, Omron’s sales in emerging markets had surged more than 20 percent year over year, to ¥300.4 billion.
Yamada, 53, also has grand plans for Omron’s ability to reinvent itself. He believes that revenue from new businesses related to environmental, lifestyle and social issues could expand by nearly 40 percent through fiscal 2016, to ¥90 billion. Environment is a particular focus; the CEO sees opportunities in businesses that address such issues as climate change and diminishing natural resources.
In 2013 and 2014 the company hosted four Omron Total Fairs — three in China and one in Indonesia — to show off its advances in robotics. Its most popular demonstrations included a robot that plays table tennis, designed to demonstrate Omron’s advances in sensing and three-dimensional imaging devices, among other areas.
In April the company reported that net sales had jumped 9.6 percent year over year in the 12 months through March, to a record ¥847 billion, while operating income had soared more than 27 percent, to ¥86.6 billion.
Yasuyuki Yoshinaga, CEO of eighth-ranked Fuji Heavy Industries — best known for its line of Subaru vehicles — also has a laser focus on setting his brand apart with new technologies and product offerings.
“As the auto industry is maturing, it is critical for us not to pursue business scale but to become a much more distinctive brand in order to survive,” contends the 61-year-old, rated the best CEO in the Autos sector by sell-side analysts and No. 2 (behind Toyota Motor Corp.’s Akio Toyoda) by the buy side.
Rather than focusing on building a huge corporation, Yoshinaga is bent on enhancing the quality and distinctiveness of the Subaru brand. Beginning next year, the Tokyo-based manufacturer will release a new platform for all of its models, one with a lower center of gravity and symmetrical all-wheel drive to enhance driver maneuverability. To meet tightening environmental and safety regulations in many countries, the company will also roll out automated driving systems and more fuel-efficient engines.
Yoshinaga says he plans to increase R&D spending by ¥30 billion and capital expenditures by ¥70 billion through fiscal year 2017; that compares with ¥60 billion in R&D and ¥68.5 billion in capex in the fiscal year that ended in March.
In early May, Fuji Heavy Industries reported that net sales had surged nearly 20 percent in the 12 months through March, to ¥2.88 trillion, and net income had bolted 26.7 percent, to ¥262 billion.
Nidec Corp., which captures first place for a third year in a row and is the only company to earn the top spot in all eight categories in which it is eligible to compete, is also finding new ways to differentiate itself from the competition. The Kyoto-based manufacturer of precision motors used in cameras, computers and other devices has been developing products for use in appliances, automobiles and machinery, among other applications.
Shigenobu Nagamori, the across-the-board choice for best CEO in the Electronics/Components sector, says Nidec has particular skills and proprietary technologies to leverage as the autos industry undergoes a transformation in vehicle electrification. Automakers are replacing the conventional engine-driven mechanical systems with electronic control systems that make for better fuel efficiency, he points out.
“Only a few automobile and automotive components manufacturers have the resources sufficient to keep up with this emerging technological innovation,” maintains Nagamori, 70. “Nidec holds the world’s leading sensor and controller technologies, in addition to its state-of-the-art motor technologies.”
The company has sped up its presence on the automotives scene through acquisitions. In March 2014 it bought components and sensory technology manufacturer Honda Elesys Co. for a reported $500 million. Nagamori says the purchase was instrumental in Nidec’s development of advanced driving assistant safety systems, such as autonomous braking.
Nidec’s forays into the automotives space have been a major contributor to its eighth consecutive quarterly profit increase, he adds, which it achieved in the first three months of 2015. In the fiscal year that ended in March, Nidec reported net sales of ¥1.03 trillion and its best ever operating income, at ¥111 billion.