Japan Smaller Companies: Pandemic era winners and losers

September 2021

Key points

The effects of Covid-19 were felt very differently across Japan’s smaller companies landscape. Brands such as Descente and Snow Peak strengthened where others suffered. We look at the winners and losers of the pandemic era.

© Bloomberg/Getty Images.

The value of an investment, and any income from it, can fall as well as rise and investors may not get back the amount invested.

In the chronicles of Covid-19, 2020 was clearly a year for capital light businesses: digital disruptors that benefitted from social distancing. The year 2021, promised to be more propitious for the more conventional kind: branded businesses, service providers and the masters of monozukuri (manufacturing). The patient pursuit of companies with long-term growth potential exposes us to both camps. Here we look at the varying fortunes of some of our Japan Small Cap portfolio holdings.

Branded Businesses

Descente: The largest sporting brand business held within the portfolio can capitalise on China’s rising interest in skiing. Its brand portfolio is strengthened by a joint venture with Anta Sports, China’s largest sportswear business, and supported by the involvement of Itochu, a Japanese trading house with extensive Chinese exposure. China now has over 329 ski resorts, including the world’s highest (Jade Dragon Snow Mountain, in Lijiang). The proliferation of such resorts offers many possibilities.

Snow Peak: Luxury outdoor equipment and clothing brand has benefited from the ‘glamping staycation’ trend, whereby consumers pursue domestic holidays in luxurious camping environments – usually pre-erected and well-appointed tents. This is becoming increasingly popular in Japan and the US, as a way of compensating for the enervations of urban (or ‘locked-down’) life.

Pigeon: The premium-branded provider of baby goods (feeding bottles and nipples, breast pumps, strollers etc) suffered from the pandemic-related fall in newborns. In 2020 Hong Kong, South Korea and Taiwan all posted natural population declines for the first time since comparable data became available. Mainland China is also experiencing a significant slide. Despite this, and decades of demographic decline in Japan, Pigeon continues to post strong earnings, ascribed to market share gains and an improvement in product mix. Now benefitting from unmatched economies of scale in Asia.

Medical Care

Asahi Intecc: Manufacturers and suppliers of guidewires for treating narrowed arteries. Its devices are used in minimally invasive treatments, notably percutaneous coronary intervention (PCI), resulting in reduced convalescence compared to traditional bypass surgery. Ashahi already commands dominant market positions in much of Asia and EMEA and aims to replicate this success in the US.

Nakanishi: Makes dental handpieces, but now broadening out into new areas such as brain surgery equipment, which requires high speed rotary instruments for minimally invasive procedures as an alternative to open skull surgery. The increasing occurrence of diseases such as Alzheimer’s presents a sizable market opportunity.

M3: Operates web portals for medical professionals. The provision of recruitment, operational and other services for clinical trials is an additional part of its business. Although M3 saw an explosion of interest in some of its online platforms during the pandemic – 92 per cent of all Japanese physicians are now registered with M3 – the cessation of clinical trials dented otherwise impeccable performance for the firm.


Nabtesco and Harmonic Drive Systems: Manufacturers of ‘cobots’, or collaborative robots which are contributing to and widely benefiting from the Japanese trend for ‘re-shoring’ or ‘near-shoring’ manufacturing. Their increasingly capable robots combine machine muscle with human dexterity thereby complementing – and offsetting the cost of – human capital. They are also easier to programme, compared to their larger industrial cousins, and available for a fraction of the cost. This increases their appeal to SMEs, which account for 70 per cent of global manufacturing. Both companies make speed reduction gears and other mechatronic (fusing of mechanics and electronics) products that provide cobots with precise manoeuvrability. These common components are also the most expensive and offer a high-margin opportunity.


H.I.S. and OpenDoor: Covid has had a disastrous impact on the travel industry. At the height of the pandemic 63 per cent of global passenger aircraft were grounded, which had a ripple effect on related commerce, including airport shops, hotels and restaurants. The impact was particularly pronounced in Japan. H.I.S, the country’s biggest discount travel company and OpenDoor, which operates a ‘meta-search’ travel site, both suffered in the slump. However, sentiment surrounding both stocks appears to have recovered strongly, on the assumption that they will benefit from the bounce-back post-pandemic. The increasing shift of consumers online also provides a positive backdrop to both businesses.

Risk Factors

The views expressed in this article are those of Thomas Patchett and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in September 2021 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for Profit and Loss

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

Stock Examples

Any stock examples and images used in this article are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.

This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this article are for illustrative purposes only.

Important Information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries

This document is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.


Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018 and is authorised by the Central Bank of Ireland. Through its MiFID passport, it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (‘FinIA"). It does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. It is the intention to ask for the authorisation by the Swiss Financial Market Supervisory Authority (FINMA) to maintain this representative office of a foreign asset manager of collective assets in Switzerland pursuant to the applicable transitional provisions of FinIA. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.


Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.


Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a ‘wholesale client’ within the meaning of section 761G of the Corporations Act 2001 (Cth) (‘Corporations Act’). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a ‘retail client’ within the meaning of section 761G of the Corporations Act.

This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.


Baillie Gifford Overseas Limited (‘BGO’) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this material represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.


The materials contained herein are not intended to constitute an offer or provision of investment management, investment and advisory services or other financial services under the laws of Qatar. The services have not been and will not be authorised by the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or the Qatar Central Bank in accordance with their regulations or any other regulations in Qatar.


Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.


Ref: 11143 10003068

About the authors