Japan PE sees digitalisation as national imperative – AVCJ Forum

“This labour shortage issue is really serious. The time to digitalise is now because Japan is lagging the real wage growth that it could be having reflecting that shortage. I’m not sure we can underwrite to that for much longer,” said Mark Chiba, chairman and partner at The Longreach Group.

“When you look at Japanese labour costs, particularly on a US dollar basis, they’re very low. There should be a significant movement in labour costs at some point, and we need to build efficient digitalisation platforms now to make sure that our margins are going to be in place when those costs come through.”

Eiji Yatagawa, a Japan-based partner at KKR, represented the larger end of the market, where carve-outs dominate deal flow and digital transformation of underserved subsidiaries must be approached comprehensively.

Yatagawa said KKR’s Capstone operations unit was beefing up its digital talent base in the region to meet this challenge, which brings together various aspects of business process modernisation from back-end to front-end operations.

Even in the large-cap space, this is said to include upgrades as fundamental as the automation of invoice processing and the digitalisation of hankos, which are traditional Japanese signature stamps.

“The receptivity is there, and our portfolio companies are all aware they need to improve profitability and gain growth from new ways of marketing like digital marketing and search engine optimisation,” Yatagawa said. “But depending on the initiatives, the pace of implementation will probably be different.”

For middle-market managers, digital overhauls are usually outsourced technical support, but broader portfolio agendas could be customised with fewer resources.

T.J. Kono, a partner at Unison Capital, highlighted this effect in terms of environmental, social, and governance (ESG) policies. He described ESG as a value creation angle that allows mid-market players to be nimbler and differentiate themselves.

“We’ve gotten over this fallacy that there is going to be some kind of centralisation and standardization of ESG policy and that if we adhere to a certain thing, it’s all good,” Kono said.

“Because there’s no standardisation, that gives us far more opportunities to be proactive, do things that we believe in and then communicate that back to our LPs and get feedback from them and try to improve, rather than trying to chase some kind of number.”

Chiba tied the ESG agenda directly to digital transformation by describing the latter as “all about hiring and talent.” In this view, digitalisation is a solution to a fast-approaching social problem created by the undersized labour force, not an unemployment concern, across stages of investment.

“Big cap, small cap, mid cap – it’s the same. The great thing about these platforms is they’re increasingly cost-efficient and increasingly utility platforms,” Chiba said. “You can deploy across different portfolio companies. They’re totally accepted, and they’re urgently needed.”

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• Topics
• North Asia
• Technology
• GPs
• Japan
• The Longreach Group Limited
• KKR
• Unison Capital
• digitalization
• ESG
• AVCJ Events