Reshaping the Future: The Impact of International Investment on Japanese Companies Communication Strategies (Updated)

The Japanese stock market has witnessed a significant influx of international capital in recent years (driven by the government’s efforts to encourage investment, coupled with economic reforms), including Warren Buffet’s investments in Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui, and Sumitomo Corporation, the launch of ValueAct’s Japan Master Fund, and the highest monthly inflows to the Nikkei since the Fall of 2017 approaching $17B. As institutional, private equity and hedge fund investors from around the world increasingly recognize the potential in the Japanese market, companies face the need to develop new strategies for effective communication with these investors. Establishing strong lines of communication and understanding between companies and international investors is essential for maximizing the benefits of this capital inflow, diversifying their shareholder base and fostering strong relationships that elevate their value.?

Most recently, Japan has outpaced China in investment banks' equity fees revenue for the first time in nearly 25 years due to global investors' wariness of Chinese markets and a sustained rally in Japanese stocks. These companies are capitalizing on their booming domestic market to list new companies and raise capital. The strong performance of the Japanese market is expected to continue with a series of IPO deals moving forward in the coming months, indicating a robust demand for new Japanese equities, which will have important implications for international investor engagement strategies:

1. Enhanced Attractiveness: Japanese companies are now positioned in a more favorable light compared to their Chinese counterparts due to regulatory hurdles in China which will attract incrementally more foreign investment.
2. Increased Capital Raising Opportunities: The domestic market in Japan provides a solid platform for Japanese companies to raise capital through IPOs, follow-on share sales, and convertible bonds which will also attract new international investment driving an increased need for new types of communication and engagement.
3. Showcasing Strong Performance: Companies can highlight the strong performance of the Tokyo Stock Exchange and the robust demand for new Japanese equities as a selling point to international investors.
4. Demonstrating Resilience and Growth: Amid global uncertainties, showcasing the resilience and growth of Japanese markets can be a cornerstone of engagement strategies to build investor confidence.
5. Adaptation to Global Economic Shifts: The shift towards an inflation economy and the strategies Japanese companies are employing to "de-risk" their supply chains amidst US-China tensions are crucial narrative points that will be in focus with international investors to demonstrate adaptability and foresight.

Strategies for Effective Engagement and Communication:

Impactful strategic communication plays a crucial role in building trust, understanding, and transparency between companies and their investors. With the increasing diversification of their shareholder bases, companies will benefit from the differences that may exist between their current approach and what their new investors need. By bridging these gaps through effective communication and engagement, companies can ensure that their key messages are accurately conveyed, investment decisions are well-informed, and mutual expectations are aligned.

1.?????Proactive Investor Understanding:?Companies should conduct in-depth market research to analyze the investment trends, preferences, and strategies of new international investors. This type of market intelligence or strategic sentiment analysis (Perception Study) is a key initial step to updating the investor strategic communications and engagement program and by including the full range of cross-investor perspective can be a critical driver to working impactfully across diverse stakeholders and audiences.?Demonstrating a commitment to listening and incorporating stakeholder feedback can be an important pillar of the strategy.

2.?????Investor Education: Companies should proactively educate international investors about the unique aspects of their business, industry, and the market. This can be achieved through on-boarding presentations, roadshows, conferences, and analyst days that provide valuable insights into the company's operations, growth strategies, capital policy, market advantages and long-term vision. By enhancing investor knowledge, companies can instill confidence in current holders and attract new long-term investment.

3.?????Transparency and Disclosure: Maintaining a high level of transparency is critical to fostering trust with new investors. Companies should adhere to international best practices in corporate governance and provide timely, accurate, and comprehensive disclosure of financial and non-financial information. This includes clear and easily understandable reporting in English, which helps international investors make informed decisions and increases their confidence in the company's management.

4.?????Investor Relations (IR) Functions: Companies should establish new or enhance their existing IR functions to address specifically to the new needs of international investors. This may involve hiring professionals with experience in international finance and investor relations to ensure effective communication or engaging with leading internationally focused advisory firms. This level of experience can facilitate direct communication and engagement channels, respond promptly to investor inquiries, and organizing meetings and conferences tailored to the needs of international investors.

5.?????Tailor Presentations: When pitching to international investors, tailor presentations to address their specific investment preferences and highlight aspects of the company that align with their investment style.?An investor presentation, posted to a company’s website provides an incremental opportunity to communicate directly with a wider audience and address and questions or concerns that may have emerged through the Perception Study.?

6.?????New Communication and Engagement Expectations: Recognizing and understanding new expectations is critical in effectively communicating with international investors for any company in any country.?Companies should be focused on how different communication styles, business practices, and expectations that may exist, particularly as it relates to investment time horizon, capital allocation, effective governance and “sum of the parts” discounts driven by a difficult to understand or less transparent operating structure. By adapting communication and engagement approaches that focus on these differences, companies can foster stronger relationships and enhance mutual understanding with their international investor base and attract incremental levels of capital.

7.?????Capital Allocation:?Emphasize the company’s long-term vision and strategy focused on sustainable growth over short-term gain.?Outline how capital allocation decisions align with long-term goals and how they will create shareholder value over time and how the company has considered prioritization related to research and development, acquisitions, share buybacks, or debt reduction with clear and unambiguous language.?

8.?????ESG Reporting: Environmental, Social, and Governance (ESG) considerations are gaining prominence globally, and investors are increasingly looking at ESG performance when making investment decisions. Companies must align their communication strategies with ESG reporting standards and disclose their efforts in sustainability, diversity, corporate social responsibility, and ethical business practices. Transparent and comprehensive ESG reporting can enhance a company's reputation and attract socially responsible investors.

9.?????Digital Engagement: Embracing digital platforms and technologies is essential for reaching and engaging international investors. Companies can leverage their websites, social media channels, and digital presentations to share relevant information, updates, and intelligence and insights. Webcasts and virtual meetings can be organized to facilitate direct interactions and foster a sense of connectivity between the companies and their international investors, particularly during the initial on-boarding period.

10.??Crisis Management and Reputation Protection: In the event of a large investor involvement or crisis, companies need to respond swiftly and transparently. Developing a crisis communication plan that includes clear messaging, designated spokespersons, and a coordinated response across various communication channels is crucial. Effective communication during crises can help protect the company's reputation, reassure stakeholders, and minimize the impact on business operations.

As the Japanese stock market experiences an influx of international capital, effective communication and engagement between companies and international investors becomes paramount. By developing new strategies to enhance communication, companies can leverage the potential of this capital inflow, attract long-term investors, and foster strong relationships. By educating investors, ensuring transparency, enhancing their IR functions, building audience specific materials and communications, and embracing digital engagement, companies can navigate the potential complexities of a broader and potentially different shareholder base successfully. By doing so, they will not only maximize the benefits for their own organizations, contribute to the overall growth and continuing development of the Japanese Capital Markets ad elevate their value through sustainable growth and success with international investors.