2nd in Japan's market cap, 50% operating profit margin, 1st in average annual salary... 'Keyence'

[caption id="attachment_5642" align="aligncenter" width="398"] 2nd in Japan's market cap, 50% operating profit margin, 1st in average annual salary... 'Keyence'[/caption]

Do you know 'KEYENCE', a Japanese company that is not an online service company that can be said to be a representative knowledge-based industry and has an operating profit rate of 50%?

Keyence is a manufacturing company that specializes in making various measurement and control devices with a focus on sensors for factory automation (FA).

Intense competition for second place in market capitalization

Let's take a brief look at the market capitalization rankings of Japanese companies.

If you look at the market capitalization ranking as of August 24, 2021, you can see that Keyence is ranked second with about 15.98 trillion yen, after Toyota Motor Company, which is overwhelmingly number one.

It's not that Keyence's market cap surpassed Sony for the first time on the day or climbed into second place.

In fact, the competition for the market capitalization of Japanese companies has been fiercer than expected, with the exception of Toyota Motor Company, which is extremely competitive.

In particular, Keyence, along with SoftBank Group and Sony Group, has been competing with them for a long time, forming second place.

[caption id="attachment_5837" align="aligncenter" width="300"] https://japan-investourism.blogspot.com/2020/07/stock-market-update-toyota-softbank.html[/caption]

Then, from March 2020, I wanted to show the SoftBank Group showing rapid growth and establishing itself as the second-largest company, but it peaked at 20,657.8 billion yen in April 2021 and showed a sharp decline. Sony Group formed second place, and as of the end of July 2021, Keyence climbed to second place with 14.77 trillion yen, and now it is clearly maintained.

It is the first time in a year and two months since the end of May 2020 that Keyence entered the top two this time.

I think it is worth paying attention to the fact that they are drawing a growth curve together with the Sony Group, which has dominated the world economy in the past, beyond the market capitalization rankings.

What kind of company is Keyence? Now let's take a look at what kind of company Keyence is.

[caption id="attachment_5834" align="aligncenter" width="225"] https://www.forbes.com/profile/takemitsu-takizaki/?sh=71c6158e439c[/caption]

Founder and current honorary chairman, Takemitsu Takizaki, established 'Lead Electric' in Amagasaki City, Hyogo Prefecture, in May 1974 at the age of 29 at the age of Keyence.

As mentioned at the outset, Keyence is a comprehensive FA maker.

About 300,000 manufacturing companies are using it in various industries in 46 countries around the world, such as automobiles, semiconductors, electronics, communications, machinery, chemicals, and pharmaceuticals, to manufacture automatic control, measurement, and information equipment for FA as well as optical and electron microscopes.

First overseas expansion
After establishing a corporation in the U.S. in 1985,
It was inspired by 'Key of Science' in October 1986.

Changed the company name to 'KEYENCE'. If you look at the footsteps of Keyence's growth since then, you can indirectly understand how rapidly it has grown.
• 1987 Second Vice Listing on the Osaka Stock Exchange
• Listed on the second vice-list of the Tokyo Stock Exchange in 1989
• Established a local corporation in Germany in 1990
• 1990 Osaka, Tokyo Stock Exchange 1st Vice Listing
• Established local corporations in Korea and UK in 1993
• Established a local corporation in Singapore in 1996
• Established a local corporation in Malaysia in 1997
• Established local subsidiaries in France and Thailand in 1998
• Established a local corporation in Taiwan in 1999
• Established local corporations in Hong Kong and Shanghai in 2001
• Established a local corporation in Italy in 2003
• Established a local corporation in Canada in 2004
• Established a subsidiary in Switzerland in 2005
• Established a local corporation in Mexico in 2006
• Established a local corporation in Brazil and India in 2011
• Established a local corporation in Indonesia in 2013
• Established a local corporation in Vietnam in 2014
• Established a local corporation in the Philippines in 2017

In particular, what supports Keyence's growth is overseas sales, which account for about 53% of the company's growth.

But besides the sales growth, what is even more surprising is the operating profit ratio.

The difference is even more evident when comparing them together in that all of the top three companies by market capitalization are currently engaged in manufacturing.

While Toyota Motors and Sony Group are fluctuating around 10% to the maximum, Keyence maintains the 50% level and overwhelms the two companies.

Keyence's 3 strengths:

[caption id="attachment_5789" align="aligncenter" width="377"] Keyence's 3 strengths[/caption]

Keyence's strong sales force is fundamental to this rapid growth.
All.

However, the strength of Keyence is hidden behind not simply being good at sales.

He created his own high-profit model with 'direct sales' to maximize sales power, 'fabless' that does not have its own factory, and excellent product development capabilities.

Let's take a closer look at each of these strengths.

(1) Customer response based on the direct sales system

[caption id="attachment_5790" align="aligncenter" width="329"] Customer response based on the direct sales system[/caption]

In general, when companies make and sell products, they establish a network of agencies to expand sales coverage and increase distribution efficiency.

Keyence is fundamentally different in that it views the solution of needs based on direct communication with customers as a core element of corporate operation.

In other words, if you look at other companies in the same industry, the distributor is responsible for distributing the developed/produced product to the agency and selling it to the market, which has the advantage of enabling efficient product sales.

However, there are certain limitations in this case.

Distributor sales representatives who introduce various products to customers depend on the introduction materials, and the voices of customers who actually use the product only flow to the dealership, but these parts are not properly conveyed to the head office.

In contrast, in Keyence, sales representatives can directly face-to-face with customers and respond to products in detail, and at this time, they can identify needs and problems and deliver them to the headquarters directly. Motivation is also high because you can receive more systematic support.

(2) Maximizing efficiency with fabless Keyence does not have its own factory.

[caption id="attachment_5792" align="aligncenter" width="356"] Maximizing efficiency with fabless Keyence does not have its own factory.[/caption]

Equipping a factory in-house has many advantages, such as quality control, stable supply and demand control, accumulation of manufacturing know-how, and security maintenance. Disadvantages also exist.

Keyence is characterized by thoroughly maintaining the system of concentrating only on design and development and outsourcing production.

They can flexibly select a factory equipped with technology and production lines optimized for the characteristics of their products, enabling efficient and rapid mass production of high value-added products without significant impact on global market trends.

For reference, Apple, Nintendo, Nike, and Uniqlo are well known as representative fabless companies.

(3) Product development rather than basic research.

[caption id="attachment_5793" align="aligncenter" width="338"] Product development rather than basic research.[/caption]

Although Keyence is focusing on design and development, it does not operate a separate organization in charge of basic research.

It can be seen that the company has been developing so-called product development capabilities to preoccupy demand by planning, designing, and developing new products with the customer's needs collected by the sales manager as the center of attention, and then supplying them to the market quickly through partners.

By gradually upgrading this system, we were able to have more product lineups and eventually dominate the market.

In other words, it can be said that Keyence is a company that executes product strategies in line with the changing needs of customers and markets by maximizing existing technologies rather than acquiring new technologies.

The secret of 50% operating profit margin We briefly looked at the strengths of Keyence earlier, but as mentioned at the outset, it seems necessary to look more closely at the secret of the overwhelmingly high operating margin than other companies.

Personally, I think the following factors are in harmony with the above strengths and consistently show good results.

[caption id="attachment_5794" align="aligncenter" width="377"] Personally, I think the following factors are in harmony with the above strengths and consistently show good results.[/caption]

(1) Independent Pricing Strategy Pricing for a product or service can be considered simply by dividing it into customers, competitors, and the company. It can be said that there is a distinctive feature

[caption id="attachment_5795" align="aligncenter" width="300"] Independent Pricing Strategy Pricing for a product or service can be considered simply by dividing it into customers, competitors, and the company. It can be said that there is a distinctive feature[/caption]

Keyence is well-known for not only offering products quickly to meet the needs of customers and the market but also for not offering product price discounts.

Keyence appeals with the intrinsic value of the product that the customer's problems can be sufficiently solved by introducing its own product, and therefore the cost-effectiveness is sufficient. In other words, after concentrating on developing the best product that only the company can provide, the company raises trust with the logic that only the company can provide this kind of value, and avoids price competition with competitors as much as possible. It is realizing the pricing of '.

In fact, about 70% of new products released by Keyence have the modifier 'world first' or 'industry first'.

With these first products, the unfamiliarity/disparity that customers may feel is completely covered by a sales representative with professional knowledge, enabling Keyence's unique global direct sales.

In addition, various voices heard from customers in this process are used again for new product planning/development, and standard products with high versatility are created. is evolving into

(2) Thorough exclusion of waste factors

[caption id="attachment_5797" align="aligncenter" width="300"] Thorough exclusion of waste factors[/caption]

Keyence is a company that perceives low-value-added businesses as a kind of 'waste' and does not promote any related businesses.

In other words, if a business with a gross profit margin of less than 80% is not pursued from the beginning, or if profitability does not reach the expected level during implementation, it shows the determination to boldly close the business halfway.

In addition, another rule that the founders absolutely keep is that we do not accept special requests from customers, such as special orders or modifications to the product.

Adoption of a thorough fabless management method is also a choice to reduce waste as much as possible by not directly entering a manufacturing area with relatively low added value.

Of course, the fabless management method is definitely the answer, and it is not a textbook that all manufacturing companies must follow.

The fabless method is not always low-cost because there is always an issue of cost increase due to external purchases and there are also invisible costs associated with company management such as maintaining stable quality.

Keyence's adoption of fabless management method and efficient cost containment is that various factors that can affect product assembly and performance are meticulously manualized and independently developed, such as shipment inspection devices, so there are more outsourced business operators. This is possible because it has a structure that allows detailed quality control while minimizing costs.

Another reason why Keyence is special

[caption id="attachment_5798" align="aligncenter" width="383"] Another reason why Keyence is special[/caption]

Keyence's strengths and high-yield orientation may be imitated to some extent by other Japanese companies.

However, in fact, it is worth noting that Keyence has established a culture of thorough rationalism that is distinctly different from normal Japanese companies from the beginning of its foundation, but this has become differentiated competitiveness of its own as it fits with modern society.

For example, sending New Year's cards or gifts, which is a Japanese tradition, is not allowed, events such as anniversary celebrations are not allowed, bosses do not force subordinates to drink alcohol at dinners, etc.

In addition, if relatives of employees are included in the business partners, they are excluded by default, or a sales manager is designated after thorough verification.

Apparently, we value relationships with customers, but it is understood that they are trying to prevent building relationships in a rather negative way or dividing certain employees in the company in advance.

In addition, sales representatives may only wear white shirts, in order to exclude as much as possible elements irrelevant to customers and business.

This culture basically reflects the founder's will to thoroughly distinguish between public and private and evaluate only performance so that there is no unfairness in any individual employee.

In 1974, when Keyence was established, it was a very conservative atmosphere, and especially since the founder was born in 1945, it is very unusual for such a rational culture to take hold.

For this reason, I think it is a definite strength of Keyence, which is difficult to see in other Japanese companies with a similar track record and is difficult to imitate that the times have changed.

Salary level that everyone is paying attention to When talking about Keyence, there is another keyword that is often mentioned along with Japan's 'market capitalization' ranking and high 'operating profit margin'.

That is the level of the 'average annual salary', which is of interest not only to the industry but also to the majority of office workers.

Looking at the average annual salary level as of March 2021 (March 21, 2020, ~ March 20, 2021) for 355 companies with 100 or more employees among the Nikkei 500 stocks, only 130 companies increased from the previous year, and Keyence out of 355 companies. is proudly ranked first.

According to the publicly available securities report, Keyence has a total number of 2607 as of March 20, 2021. They are a young organization with an average age of 35.8, earning 17,517,949 yen and serving for 12.2 years.

[caption id="attachment_5836" align="aligncenter" width="363"] https://asia.nikkei.com/Business/Companies/Secret-of-sensor-giant-Keyence-s-super-high-margin[/caption]

Although Keyence's average annual salary is a decrease of 4.8% compared to the previous year, it is rather high, about 730,000 yen more than that of the second-placed company, which increased by 2.8%.

If you look at the trend over the past 10 years, it has steadily increased, and as of March 2019, it recorded 21,106,666 yen, surprising the entire Japanese industry.

[caption id="attachment_5835" align="aligncenter" width="363"] https://asia.nikkei.com/Business/Technology/Evolve-or-die-How-nimble-Keyence-grew-into-a-140bn-titan[/caption]

Please note that the salary mentioned here includes bonuses.

In addition to paying a certain percentage of operating profit as a lump sum 4 times a year, Keyence pays monthly bonuses.

Since the operating profit margin is so high, the total salary is high due to the bonus payment linked to it.

Of course, in March 2020 and March 2021, as sales decreased due to corona, etc., the overall salary also fell due to bonus linkage, but it can be seen as a temporary decline.

In any case, this pay policy of Keyence stems from a thorough compensatory that motivates employees by reflecting the company's performance in their earnings.

Keyence has a strong recruiting culture for college graduates, and especially for sales positions, there is no career hiring at all, so the average age must be maintained at 35.8 years.

Considering that the age of inauguration of past CEOs is in their mid-40s,

That's the part that makes more sense.
• Founder: Takemitsu Takizaki
Founded at the age of 29 (1974~2000)
• 2nd generation: Sasaki Michio
Inauguration at the age of 43 (2000~2010)
• 3rd generation: Akinori Yamamoto
Inauguration at the age of 45 (2010-2019)
• 4th generation: Nakata Yu
Inauguration at the age of 45 (2019~present)

So far, we have looked at Keyence, the second-largest company by market capitalization in Japan.

As many people are paying attention to it due to its high operating profit rate and average salary, I think people who didn't know about it now might be interested in it.

On the other hand, it is also known as a company that has a lot of pressure due to its thorough work management and performance.

Now, over time, including taking out PCs, is not allowed after 8:30 pm, but in the past, the pay was good, but the long working hours meant that there was a saying that people buy a house in their 30s and build a grave in their 40s.

Nevertheless, Keyence has risen to its current position by responding to the ever-changing environment through the establishment of a rationalistic corporate culture and the establishment of an overall youthful organization.

As of the closing price of September 10, it was recorded at 74,000 yen, and it is necessary to watch with interest how Keyence, whose stock price has risen 15 times in the past 10 years, develops in the future.