Going for growth: industrial pioneers

As with all investments, your capital is at risk

When investing in leaders in industrial efficiency, understanding 'soft' cultural qualities counts at least as much as knowing what gives firms a hard technical advantage in specialised markets.

With products and services vital to the smooth running of modern life, International Growth's industrial pioneer holdings include Sweden’s Atlas Copco (vacuums, compressors, tools, power) and Japan’s Keyence (sensors, machine vision, automation and consultancy). In their different ways, both companies share an enduring strand of family and founder influence, aligned with an ownership model that benignly influences culture and flow of dividends.
 
Other holdings have included global leaders in temperature and air quality sensors, energy cables and vacuum valves and many others.

Out of sight and out of mind for many, the global industrial automation and control systems market was estimated to be worth $206bn in 2024. It is projected to reach $379bn by 2030. Demand for efficiency, precision and safety across manufacturing industries is growing at an annual 11 per cent, in an age sometimes dubbed the ‘fourth industrial revolution’ or ‘Industry 4.0’. It involves multiple digital technologies, machine learning, the Internet of Things and the construction tools much in demand for upgrading tired or obsolete infrastructure, particularly in the US. 

Industrial automation allows businesses greater consistency and accuracy, facilitating better, faster and around the clock operations, as robots tackle ever-more complex parts of the manufacturing processes.

Serving widely different markets, the industrial pioneers in our portfolio tend to share strong relationships with their industrial partners, whose specialised needs they understand and anticipate. As investors, we value the knowledge gained from these close links, their investment in research and development and their opportunistic awareness of adjacent opportunities. 

Behavioural and cultural qualities make them formidable competitors and allow them to consolidate high margins, to ramp up profitability, and erect high barriers against would-be disruptors – all prized attributes for investors.

Take Atlas Copco, Sweden’s largest company by market capitalisation and nearly 50 per cent larger than the next biggest, Volvo. Founded in 1873 to service the railways, the firm has a daunting competitive edge in a sprawling array of industrial componentry, thanks to its knowledge, scale, and a lean, decentralised culture. For 77 years of that history, it has been chaired by members of Sweden’s powerful Wallenberg family, whose long-term interests have ensured cultural continuity.  

Atlas’s equipment is essential to industries as diverse as medical research, food production, and renewable energy. Its secret ingredient is a decentralised structure that promotes agility with a crucial ability to collaborate with its customers. Atlas aspires to be one of the “unsung heroes” of modern manufacturing, “whose products power the machines that power the world.” Its equipment provides behind-the-scenes workhorses that make industrial processes safe and efficient. For example, its air compressors drive tools and machinery in factories and construction sites. Its vacuum pumps create controlled environments for delicate tasks like electronics manufacturing or food packaging. Its tools, whether precise or heavy-duty, help assemble everything from cars to appliances quickly and accurately and speed up maintenance and repairs.

Meanwhile, Atlas’s radically decentralised structure empowers employees with autonomy and responsibility, encouraging them to respond swiftly to market changes. Each business unit is accountable for its own results, fostering trust and alignment with company goals, chiefly the importance of continuous improvement. Many businesses claim that as a virtue, but Atlas’s longevity and growth trajectory speak volumes.

Osaka-based Keyence is a more recent portfolio addition. It is a leading supplier to the world’s factories of super-advanced automation and inspection equipment designed to make manufacturing smarter and more precise. Its products include minutely sensitive sensors that detect the flow and pressure of liquids or gases, sophisticated machine vision systems that inspect and identify defects or guide robots, and precision measuring instruments used for dimensional checks and quality control. It’s one of Japan’s most profitable companies.

Founded in 1974 by Takemitsu Takizaki, its 3-D scanners can reverse-engineer components to allow the rapid creation of replacements, while its laser markers etch codes or labels on products, digital microscopes reveal microscopic details, and barcode readers improve tracking and traceability. Keyence components have become integral to manufacturing industries including electronics, semiconductors, automotive, packaging, and pharmaceuticals, anywhere where exact measurement, rapid inspection, or automation is critical. 

But Keyence stands out for its direct-sales-derived focus on understanding customer needs – chiefly the need to avoid disastrous production line failures. Outsourcing its own manufacturing, its focus is on developing salespeople and product support teams, which are tasked with understanding ‘the needs behind the needs’, including companies’ ‘pain points’, which help it anticipate and develop future products. This dynamism was embedded by the founder, specimens from whose personal collection of fossils adorn Keyence HQ as an implicit warning of the dangers of complacency. Takizaki has continued to exert influence in an honorary chairman’s role, and by holding a substantial stake in the company.
 
As one of the best-paying companies in Japan, Keyence can attract top talent. As with Atlas, that’s useful for enriching depth of product knowledge. It works hard at promoting the values of honesty, transparency, and fairness, focusing not on individual sales targets but on actions that will promote the greater good of the whole.

For the best pioneering industrial companies, the strength of their intellectual property and the decades over which they’ve refined their cultural intelligence prime them to benefit most from the massive growth opportunities brought in the current wave of industrial innovation wherever AI and other technologies, still in their infancy, may lead.  

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