In March, the Bank of Japan made the seismic decision to raise interest rates for the first time in 17 years. The long-awaited shift to positive rates has excited some of the country’s leading chief executives, who spoke to Institutional Investor after scoring highly in II’s All-Japan Executive Team as voted for in a survey of sell- and buyside participants.
“The opportunity for Japanʼs economy to break out of the protracted stagnation of the so-called ‘thirty lost years’ has finally arrived,” said Hironori Kamezawa, chief executive of Mitsubishi UFJ Financial Group, who ranked first place among the leaders of Japanese banks. MUFG has seized the moment with a new three-year business plan to “pursue and produce growth” despite the declining birthrate in Japan limiting population growth. The plan includes new businesses, tighter productivity and deploying risk capital and digital technology to stimulate demand, Kamezawa said, heralding 2024 as “a year of capturing growth benefits.”
His fears about the economic impact of the country’s shrinking population are shared by many of the chief executives interviewed by II, including Yoshiaki Yoshida from Advantest Corp, who came in second among chief executives in the electronics precision instruments category, which includes imaging and semiconductor precision equipment. “There is concern about a shortage of labor in the future,” Yoshida said. Advantest Corp, which manufactures testing equipment for semiconductors, will begin recruiting beyond the country’s borders, reflecting the global nature of its business, Yoshida said. It’s a problem he will leave to his successor Douglas Lefever, when Lefever takes up the post of chief executive on April 1. Lefever will also inherit the task of upgrading Advantest’s supply chain management to face cyclical periods of demand, a major issue in what has been called “the world’s most vulnerable supply chain”. Yoshida highlights the potential impact of growing tensions between the US and China, since Taiwan, an independent nation considered a province by the Chinese government, is home to the world’s largest chip-maker. “We do have concerns about potential indirect impacts in the future, if Chinese customers are forced to change their business plans due to not being able to access semiconductor production equipment and relevant technology,” Yoshida said.
Toshiki Kawai from Tokyo Electron, which supplies equipment to fabricate integrated circuits and flat panel displays for the semiconductor industry, shares Yoshida’s concerns about the shortage of skilled workers. But Kawai, who ranked first in the same category, said Tokyo Electron will take a different approach of improving their company benefits, including improving the work-life balance of existing employees, and promoting women as part of a diversity, equity and inclusion initiative. As part of this drive, TEL is planning to hire and train around 10,000 new staff within five years. “Japan has an edge in the fields of semiconductor production equipment, materials, and electronic components. We believe it is important to leverage this advantage,” Kawai said.
For others, Japan’s major challenge is translating a tradition of science and research into innovation. There is the consensus that the “lost decade” of the nineties and early 2000s hurt corporate investment into research and development, creating a more conservative business environment. Takeda, a multinational pharmaceutical company headquartered in Tokyo, established the country’s first science park dedicated to pharmaceuticals by opening its research center to other organizations back in 2018. As of April 2023, the park was home to 150 companies and more than 2,000 people. Christophe Weber, who came first in the biotechnology and pharmaceuticals sector, says the park was intended to encourage startups in the hope of stimulating more innovation. “There is a growing need for Japan to accelerate its transformation into a digital economy and accelerate the diversity of its workforce, especially in light of a declining population,” he said. His thoughts around innovation are echoed by Keiji Kojima from Hitachi, who came first in the industrial electronics category. “One of Japan’s primary challenges is fostering innovation to drive growth,” Kojima said.
Hironori Kamezawa, Mitsubishi UFJ Financial Group, first place banks
What opportunities for your business do you see in 2024?
At the beginning of our new fiscal year on April 1, we launched a fresh medium-term business-plan that we define as “three years to pursue and produce growth”. Its strategies aim to connect with stakeholders through universal economic and social concerns in a time of disruptive change. We intend these connections to help bridge differences through shared values, and in the process build corporate value. Meanwhile, as Japan returns to a positive interest-rate environment, weʼll strengthen the profitability of our balance sheet and make this a year of capturing growth benefits.
What challenges are you currently facing?
Digitalization obviously transforms a broad environment, including financial services. It changes customer behavior and expands online transactions, so we need to fortify our digital services and improve user experience. Also, new online banks and non-financial players intensify our competitive environment, and generative AI will change business models across the board. We are committed to make the most of digital technology and AI to provide innovative services and explore new business models.
What are the greatest challenges for Japan in the next decade?
While the Japanese population and birthrate continue to decline, we will need to create new businesses, stimulate demand, and improve productivity over the next ten years. MUFG will supply risk capital to support Japan's economic growth and provide highly convenient services through digital technology.
How is your company innovating?
Weʼre energetically engaged in digital training and skill development of our employees; recruiting new professional talent; and collaborating with startups. Internally, weʼre reforming operations, and our employees are running new business projects hands-on, and generating a host of good ideas. Weʼre determined to speed internal reforms, create a safe environment for open minds, and build a strong, contemporary, and relevant MUFG culture as a foundation for innovation well into the future.
Keiji Kojima, Hitachi, first place Electronics Industrial
What opportunities do you see for your business in 2024?
We anticipate that the momentum in digital transformation and green transformation will continue. Investments in DX remain robust, with a growing global focus on semiconductors and data center investments. There is also a notable surge in investment in power grids and batteries to meet the rising energy demands from electrification and digitalization. Additionally, we foresee increased investments in leveraging generative AI and other advanced technologies aimed at enhancing frontline worker productivity.
What challenges are you currently facing?
Hitachi has transitioned from a decade-long emphasis on structural reform to prioritize organic growth. Currently, my challenges include consistently strengthening our business portfolio, improving the effectiveness of growth investments through M&A, implementing capital policies, and further reinforcing corporate governance practices for sustained growth.
What are the greatest challenges for Japan in the next decade?
One of Japan’s primary challenges is fostering innovation to drive growth. Many Japanese companies are now recognizing the significance of assessing the cost of invested capital, and using cash reserves for growth investments. Specifically, prioritizing investments to enhance productivity will be crucial.
How are geopolitical tensions affecting your business?
We have been fortunate to mitigate any significant negative impacts on the business thus far. However, addressing the increasingly complex geopolitical risks requires strengthening regional management. This allows us to implement growth strategies and risk management approaches tailored to the diverse characteristics of each region.
How is your company innovating?
Hitachi is driving social innovation through a combination of innovative human resources and Lumada. At the core of our innovation lies our people. With Hitachi’s overarching purpose as a social innovation business, we have a wealth of diverse global talents dedicated to this mission. Guided by Hitachi’s founding spirit of harmony, sincerity, and pioneering spirit, these talents embody a mindset essential for executing social innovation. [CC1] Lumada serves as our business framework, leveraging Hitachi's IT, OT, and products to collaboratively address social challenges with our customers. This approach not only delivers value to customers but also drives technological and business model innovation simultaneously.
Christophe Weber, Takeda, first place biotechnology and pharmaceuticals
What opportunities for your business do you see in 2024?
I believe 2024 will be a pivotal year for Takeda. We will double down on executing our strategy to deliver life-transforming therapies for patients affected by rare or more prevalent diseases in our core therapeutic areas. In 2024 we anticipate our pipeline will include up to six new molecular entities (NMEs) in Phase 3 development. These six NMEs have the potential to significantly improve patients’ lives and deliver meaningful revenue growth for Takeda. Following these six NMEs, there are several additional inflections coming in 2024 that could add more potential blockbuster (i.e. projected peak annual revenue of over $1 billion) phase 3 programs to the pipeline in 2025. Our emerging data are promising, scientific advancements are accelerating and the potential to improve patients’ lives across our core therapeutic areas is increasingly within reach. We expect our portfolio of “growth & launch” products to continue to drive performance as we enter a period with fewer generic headwinds, which will allow us to return to growth and progressively regain a competitive margin, despite continuous pricing pressure. The future is digital. It’s about creating value and building trust, to make a human impact. We are significantly investing in data, digital and technologies, including AI, to transform how we engage with patients, conduct R&D and manufacturing processes, and enable our workforce to creatively design new ways of working.
What challenges are you currently facing?
2023 was a challenging year as we faced significant headwinds due to loss of exclusivity on some of our medicines, which has affected our margin. We expect to see some lingering impact in the first half of 2024, which we will need to overcome, as well as ongoing pricing pressure, but we believe the business will rebound from the second half as the loss of exclusivity impact washes out, and we’re confident in the continued momentum of our “growth & launch” products to drive our return to growth. As we continue to follow the science to address high unmet patient needs, looking ahead we have a pipeline of around 30 new molecular entities in clinical development in around 40 indications to complement or enhance our existing portfolio, ultimately bringing hope to patients.
What are the greatest challenges for Japan in the next decade?
Japan has a rich tradition of scientific research and development. The challenge has been the translation of science into innovation. Takeda is committed to playing a role in supporting this transformation. To encourage and support startups and biotechs, we have created a unique ecosystem at Shonan Innovation Park and hope that over the coming years the cutting-edge science that exists in Japan will translate into more innovation. There is a growing need for Japan to accelerate its transformation into a digital economy and accelerate the diversity of its workforce, especially in light of a declining population.
How are geopolitical tensions affecting your business?
To date, there has been no material financial impact on Takeda’s business as a direct result of geopolitical tensions, but within this environment, our commitment to patients and the work we do to support them is even more important.
How is your company innovating?
Takeda is on a journey to become one of the most trusted, digital biopharmaceutical companies, and we are accelerating the use of digital technology and AI to reimagine the way we serve patients. This innovation is driven by our approximately 50,000 colleagues who are learning how to leverage technology. For example, we are accelerating our pipeline to serve new patient populations and innovating to provide better options for patients in existing areas of our business, all while doing our part to create healthy, sustainable solutions and ensure equitable access to medicines. In R&D, advanced technology is enabling us to design and conduct decentralized clinical trials to bring our trials to patients, ultimately increasing convenience, reducing travel burden and improving access to clinical trials. We’re building highly advanced manufacturing plants with automated visual inspections, using advanced technologies to improve efficiency and product quality. For our people, we are incorporating virtual reality into employee training programs for aseptic practices in clean rooms and we’re using artificial intelligence to streamline the onboarding experience to create more personalized experiences.
Finally, we are committed to creating an exceptional working environment through a culture of caring leadership.
Yoshiaki Yoshida, Advantest Corp, second place Electronics Precision Instruments (including Imaging & Semiconductor Precision Equipment), Yoshiaki Yoshida is being succeeded by Douglas Lefever on April 1.
What opportunities for your business do you see in 2024?
Key drivers for our business are an increase in production volume of semiconductors and complexity growth of such devices. In 2024, we expect generative AI-related semiconductor test demand will drive our business. among other applications. We are already seeing demand for memory testers for HBM, High Bandwidth Memory, which is embedded in AI features. We expect robust demand related to HBM throughout 2024. Going forward, in addition to data center-related demand, replacement demand for AI smartphones and AI PCs is expected, which could stimulate system on a chip (SoC) tester demand. [In SoC, the complete processing system is hardwired onto a circuit, unlike motherboards where components can be added using expansion cards.] Furthermore, various projects are moving forward with major hyperscalers who are working on AI semiconductor development. Toward next year onward, as the implementation of generative AI progresses in society, semiconductors are likely to grow in complexity as well as production volume, triggering a next wave of tester demand.
What challenges are you currently facing?
A challenge we are trying to tackle is to upgrade our supply chain management. While tester demand has always been cyclical, we believe such cycles are unavoidable in the future as well. Given the lessons learned from the supply chain issues we experienced from the end of 2022 up until recently, we will implement necessary reforms so that we can ride the next wave of demand in an optimal fashion.
What are the greatest challenges for Japan in the next decade?
Looking at Japan as a whole, the population is aging, and there is concern about a shortage of labor in the future. In such an environment, we believe that the problem is how to secure a competent, high-quality workforce suited to the industries that are expected to become more active in the future. In this context, we are promoting the appointment of human resources with an eye to the world, since our business field is global.
How are geopolitical tensions affecting your business?
With regards to US export control on China, we have not seen direct impacts in a significant way for the time being, as our main products are not subject to such restrictions. However, we do have concerns about potential indirect impacts in the future, if Chinese customers are forced to change their business plans due to not being able to access semiconductor production equipment and relevant technology. We will continue to monitor information around regulations and customer circumstances in a timely fashion. With regards to conflicts in Ukraine/Russia and other regions, they have led to energy and raw material price inflation, causing an increase in our cost of goods sold.
How is your company innovating?
Based on our corporate purpose and mission of enabling leading-edge technologies, we are contributing to sustainable development of the world through enhancement of quality and reliability of semiconductors which are at the very base of rapidly progressing digitalization of society. Historically, Advantest established its position as a memory tester supplier by excelling in supporting technology development of major memory semiconductor companies. Currently, sales from outside Japan account for more than 96% of total sales. By reinforcing our partnership with overseas customers who are leading innovation, we get to address their technology challenges and partake in innovation processes. Given such partnership with our customers, we assign our employees who are Japanese and non-Japanese to development and support roles. We encourage teamwork based on such diversity to tackle customers' technology challenges, and such an approach is prone to triggering innovation.
Toshiki Kawai, Tokyo Electron, first place electronics precision instruments (including Imaging & Semiconductor Precision Equipment)
What opportunities for your business do you see in 2024?
The evolution of semiconductors has not only enabled diverse electronic devices but also spawned a wide range of applications. In particular, we believe generative AI will take the lead this year in driving the demand for semiconductors. We expect the wafer fab equipment (WFE) market to reach the size of 100 billion USD in 2024, followed by double-digit growth in 2025. That could generate enormous business opportunities for TEL.
What challenges are you currently facing?
There are three challenges or key issues that we think need addressing right now:
Firstly, continuous investment in R&D and facilities. As an industry-leading company, we must keep producing technological innovations that the semiconductor industry keenly needs. Our pursuit of providing the best products and best technical service is a means to this end, and so we are making continuous investment in R&D and facilities to support our growth. R&D investment needs to be constantly reinforced so that we can grow further and become more competitive. For the five years from 2025, we plan on investing over 1.5 trillion yen in R&D and 700 billion yen in Capex. Secondly, environmental measures. To help advance digitalization and decarbonization for the benefit of the global environment, TEL declared in December 2023 that its net zero achievement target would be brought forward by 10 years to 2040, rather than 2050 as originally planned. Aiming to contribute to semiconductor technology innovation and reduce the negative impact of our operations on the environment, we are pursuing a supply chain-wide initiative. Finally, recruitment and training of human resources including prospective graduates. To ensure the medium- to long-term growth of TEL, we will continue to hire highly capable people and intensify training of human resources. We plan on hiring a total of around 10,000 people in the next five years, with the purpose of improving the work-life balance of the employees. We are also offering female employees greater opportunities to fulfill their career goals as part of our DE&I (diversity, equity, and inclusion) initiatives.
What are the greatest challenges for Japan in the next decade?
In pursuing future growth, global players are now trending to pursue digitalization and decarbonization at the same time. A crucial factor for attaining this goal is innovation in semiconductor technology. Japan has an edge in the fields of semiconductor production equipment, materials, and electronic components. We believe it is important to leverage this advantage to keep producing technological innovations that the semiconductor industry truly needs. It is also essential to implement supply chain management properly to achieve our Net Zero goal, while pursuing human resource development and DE&I initiatives at the same time.
How are geopolitical tensions affecting your business?
As a business entity, we are in no position to make a statement on geopolitical matters. We will monitor the situation closely and respond appropriately.
How is your company innovating?
The semiconductor production equipment market is characterized by rapid technological innovation and market changes. When we look at the market’s enormous growth potential and the rising importance of innovation, we are convinced that producing high value-added products our customers will need in the future is the right approach. We are working with leading-edge technology customers to co-create a 10-year roadmap. Based on this roadmap, we plan to produce the kind of technology innovations that the semiconductor industry will need.
To that end, we will invest over 1.5 trillion yen in R&D over the next five years (2025-2029) and hire about 10,000 people (2,000 people a year worldwide). Aiming for the sustainable growth of the company, we will implement solid governance and work to achieve world-class profitability. As interim goals, by 2027 we plan to attain over 3 trillion yen in sales, an operating margin of 35% or more, and an ROE of at least 30%.
Yasuhiko Saitoh, third place chemicals sector, Shin-Etsu chemical company
What opportunities for your business do you see in 2024?
We see different phases of cycles developing in various markets and industries we serve. We consider them to be opportunities for our business.
What challenges are you currently facing?
Excess production capacities in certain industries and certain countries.
What are the greatest challenges for Japan in the next decade?
Shrinking productive population and to secure more renewable energy.
How are geopolitical tensions affecting your business?
We must be mindful of export and import controls resulting from geopolitical tensions and growing misconception toward globalization.
How is your company innovating?
Through cross divisional interactions, close working relationships with key customers and various collaborations with innovative organizations. In addition, we motivate our researchers by mid-term and long-term missions.
