On a recent trip to Japan, Burgundy’s Asian equity team travelled to what is possibly the country’s sleepiest prefecture in order to meet a manufacturer of niche construction equipment. The trip was four hours from Osaka by bus, and that says a lot – when you can’t get somewhere by bullet train in Japan, you know you’re really off the beaten path. Following a tour of the company’s factory, we sat in a modest room in the adjacent headquarters to learn more about its business, which was an international success story.
The company, once an almost entirely domestic business, had transformed over the last decade to become an international leader in its industry. What’s more, it was able to take market share from overseas competitors in their home markets while charging significantly more for its products! The reason for this was a brand synonymous with product quality – the company’s machines lasted longer, broke down less and had a reputation for reliability even under extreme conditions.
With this in mind, when sitting down to talk to management we had one main question: “How did you manage to make your products so much better than your competitors?” With an amused look on his face, the manager replied, “Early on we didn’t actually know our products were better. We just had built up our business in Japan’s tough economic environment with demanding customers who wouldn’t tolerate equipment failure. Trying to succeed in the difficult domestic market eventually made us stronger overseas.”