Here is Part II of a roundtable talk with three members of Cool Japan Fund’s Value Creation team engaging in the enhancement of corporate value of invested companies. They explain their specific activities.
Click here to read Part I.
To the invested company, Cool Japan is part of a strategy
Q. To the invested company, what does it mean to work with Cool Japan?
Koji: It depends on the company. To the invested company, working with Cool Japan means developing and strengthening the pillars of their business operations. For example, we invested in EMW with the aim of expanding the market of Japanese sake in China. The launch of the Japanese sake business means a lot to EMW. The company wanted to offer attractive alcohol products such as Japanese sake and wine to well-known hotels, which are its clients. However, EMW had difficulty procuring Japanese sake to clients before CJF started to work together. The Japanese sake business is part of EMW’s growth strategy for establishing the second and third pillars of its operations after wine.
Toyoaki: Cross-border business is difficult for companies in any country. However, working with us should enable EMW to quickly approach Japanese sake specialists who are different from the company in terms of language and culture. This is a huge advantage for EMW. For example, EMW explored how to reach Japanese sake before we started investing, partly to meet the needs of many different customers. In general, some Chinese companies may suddenly try to contact a Japanese Sake brewer in an attempt to start to deal in Japanese sake, but this will take a lot of time in terms of negotiation and entails a high risk of misunderstanding due to communication problems. We can go between the two parties and support them, which can help the negotiation progress quickly.
Takahiko: To Sentai, the connections we have in the Japanese anime industry and our portfolio companies are very important. Tokyo Otaku Mode is one of the companies we invested in that handles e-commerce for goods relating to Japanese pop culture. The two companies cooperated in conducting a promotion and, as a result, increased the number of subscribers to the video streaming service managed by Sentai. We kept monitoring the progress, so we were happy to be able to see the results of collaboration between the companies in which we invested.
Focus on specific areas, neutrality and mid- and long-term perspective, leverage strengths of a sovereign wealth fund
Q. PMI* is generally said to be difficult. Why has Cool Japan Fund been successful in this?
(*PMI: An abbreviation for post-merger integration. It refers to the process of post-M&A integration and the activities aimed at business growth.)
Koji: Our investment mainly focuses on four areas, including “media and content,” “food and service,” “fashion and lifestyle” and “inbound”. For each area, we have an accumulation of knowledge about PMI as one of our strengths. Our know-how and successful practices in digital marketing and DX, accumulated through investments, are aggressively shared with and vertically extended to the invested companies, and sometimes turn out to be novel and meaningful ideas for the investees. As a sovereign wealth fund, we also have a strong network with local governments. Consequently, we can easily advance business matching with business operators all over Japan. This is our substantial strength.
Takahiko: I believe there are two things of key success factors of PMI. One is that the team members have competency of PMI and another one is that they understand the industries of the invested companies. For the former, our staff members have extensive expertise before and after entering this company and the company also enjoys an accumulation of knowledge. For the latter, we also have an accumulation of industrial knowledge, having focused on the four areas. Moreover, we understand the industries and have connections that make us sufficiently competitive in the industries. This is the strength of a neutral sovereign wealth fund. For example, Sentai has extensively built relations with Japanese contents holders because it has no attributes of a specific conglomerate or corporate group.
Toyoaki: Another difference from a private investment fund is that we see investees more from mid- and long-term perspectives. Instead of trying to cut off business resources to increase enterprise value, we take the mid-long time to create added value. This is why we can see how the local company staff become fond of Japan. Even after we finish our role and close our investment, the local company staff who have become fond of Japan advertise positive things about Japan all over the country continuously. This cannot be achieved by just spending money on a transient promotion. We can do it because we are a public-private investment fund willing to take the mid-long time to work with investees in creating the Cool Japan business.
Koji: Let me define success as consistently achieving a strategy formulated with an investee. Before making an investment, we have a thorough discussion with an investee about what we will achieve. We make realistic investments. Whenever we doubt the feasibility of a project, we share it with the investee and seek a solution. In that sense, our Value Creation team may be able to increase the likelihood of our success by vigorously exchanging views with an investee for making the project more feasible.
Now that the groundwork has been completed, we will join the invested companies in the pursuit of continued growth
Q. It has been less than a year since the start of the team specialized in Value Creation. How far have you come? How will you proceed?
Koji: We are finally getting on track, but we still have a long way to go. In the last year, we have focused on building the infrastructure by defining and designing a template for sufficiently communicating with the invested companies. If you liken it to a house, we have just completed the groundwork. Laying the groundwork is very important and takes a lot of trouble. Beyond that, we are supposed to achieve financial growth and the political goal that we expect to reach. Considering these, we still have a long way to go.
Takahiko: Investing in an overseas company unavoidably takes a lot of time. In some respects, we have slid backwards due to the COVID-19 pandemic. If we were to rate ourselves on a 100-point scale, now we are at 20 points. As Matsuda said, we have just finished establishing company’s foundation that is very important and hard things. Earning the remaining 80 points should be much easier than what we have done up to the present. I have a positive outlook on this. Since nearly half of Sentai is still operated offline, we still have many things to do in accordance with changes in trends, such as increasing the online part of the operations, improving the company’s video streaming and reducing inventory.
Toyoaki: In the last year, I visited China several times and stayed there for a long time working with EMW. I learned to understand more about the detailed processes of EMW’s activities and the company’s organizational structure. Also, I understood the skills of EMW members. Taking one year to deepen my understanding enabled me to quickly grasp the changes in situations within EMW and has helped to develop an environment for Cool Japan Fund to do what needs to be done. In the future, I want as many companies as possible to benefit from our investment. In the past, EMW was totally led by its founder before beginning to work with us and thereby becoming capable of running its organization as a bigger enterprise. Hopefully we will make more companies have similar experiences.
Koji: Reaching 100 points should require us to consider the effects of the COVID-19 pandemic, correctly understand changes and trends in the world and learn a lot more to expand our capabilities. Correctly identify changes in technology and in people’s minds, and reflect them in the business of the invested companies. We will stay focused on this challenge.