Investing in Japanese Companies: The Texas Connection

In his global travels, Commonwealth Funds President and Head Portfolio Manager Rob Scharar has observed first-hand that identifying investment opportunities is about much more than just numbers?. Investors interact daily with ideas, services, products and companies, yet often fail to effectively link their success to investment opportunities. The connections between Texas and Japan illustrate this point especially well, where Japanese companies are making employing capital in Texas and the US to make a significant impact.

For example, Daikin Industries LTD is a Japanese air conditioning manufacturer headquartered in Osaka, Japan. In 2012, Daikin purchased Houston-based Goodman Global, Inc. for $3.7 billion, creating the world’s largest air conditioning manufacturer. Recognizing an opportunity, the company embarked on an ambitious plant construction project in 2015. Rising from pasture on acreage near the Harris and Waller county lines, the enormous plant, which opened in 2017, is one of the largest industrial buildings in the United States. Employing thousands of Texans, the plant manufactures the bulk of all Goodman, Daikin and Amana air conditioners and furnaces sold in the US and Canada. The economic impact of the plant on the Houston area has been sizable, with annual forecasts ranging as high as $4 billion.

Another Texas-based project with a strong Japanese connection is the proposed high-speed rail that when completed, will allow travelers from Houston to reach Dallas in a mere 90 minutes. The 240-mile rail line, under the leadership of Texas Central Partners, LLC, is based on the Japanese Shinkansen, or bullet trains. Hitachi, one of the leading builders of rail cars, has recently expressed interest in partnering to build rolling stock. Construction of the line is planned to start as early as 2020 and be completed in 2026, employing thousands of people throughout the construction process.

Perhaps the best-known Texas-Japan connection is Gulf States Toyota, a Houston-based company that is one of the world’s largest independent distributors of Toyota vehicles and parts. Founded in 1969, the distributor serves more than 150 Toyota dealerships across a region that includes Texas, Louisiana, Arkansas, Oklahoma and Mississippi.

Many other Japanese public companies have amassed significant capital and obtained access to debt financing in their efforts to become more global. At the same time, they’re increasing their sales while leveraging their technological advantages. While the aggressive global expansion has been undervalued by some investors who cling to outdated notions of Japan, it’s clear that these companies are and will continue to be a global force.
Daikin, Hitachi and Toyota are just a few of the companies that make up the investment portfolio of Commonwealth Funds Japan Fund. To learn more about the Fund or our investment philosophy, visit commonwealthfunds.com or call 888.345.1898.

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