How Can Kao Become a Stronger Global Competitor?

TL;DR

Kao can compete more effectively worldwide by concentrating resources on profitable core brands, reducing unproductive SKUs, and strengthening marketing execution. Seth Fischer argues that Kao already has high-quality products and a valuable global brand, but needs stronger leadership, digital commerce, customer focus, board accountability, and a capable chief marketing officer to realize its potential.

Transcript

Why did you increase your stake in cow to 6.64? I continue to think the company is extraordinarily cheap to its potential and so it's got this phenomenal global brand not focused on who the customers are not focused on how to make productive R&D and most importantly not focused on productive marketing and the investing in market value is the critic... Read More

Key Insights

• Kao is described as unusually inexpensive relative to its potential because it owns strong products and a significant global brand, yet has not converted those assets into competitive international performance through focused leadership and execution.
• Marketing investment is presented as Kao's most critical weakness because major consumer businesses and competitors devote substantial resources to building demand, while Kao's leadership has questioned the need to market some of its strongest businesses.
• Excessive SKU counts dilute corporate resources because management must divide spending and attention across packaging, shelf placement, campaigns, research, and distribution instead of concentrating them on the highest-margin core brands.
• Kao has started cutting unprofitable SKUs and divesting unnecessary assets, but Fischer argues that these changes remain incomplete and too slow, leaving a substantial gap between the company's current actions and Oasis Management's proposed reforms.
• Kao's products are considered highly competitive by current or former employees of rival companies consulted by Oasis. According to Fischer, those people privately said Kao's core products were better, while their own companies were stronger at execution.
• Kao's digital marketing and sales infrastructure remains underdeveloped because some brands lack dedicated websites, some purchasing links do not work, retail availability is incomplete, and the company has not executed e-commerce or beauty-related AI particularly well.
• Resistance to activist proposals often begins with managerial ego and discomfort about receiving advice from outsiders. Fischer recounts another Japanese consumer company that adopted Oasis recommendations and subsequently achieved major increases in revenue, net income, and share price.
• Japan's historical growth model encouraged manufacturing-led and sales-led organizations because expanding population and domestic demand allowed products to sell without sophisticated marketing. That legacy helps explain why marketing is often not placed at the center of management.

Questions & Answers

Q: Why does Seth Fischer call Kao a sleeping giant?

Seth Fischer calls Kao a sleeping giant because he believes its market valuation is far below its underlying potential. Kao already has a notable global brand and core products that can compete internationally, but its leadership has not focused adequately on customers, productive research and development, marketing, or execution. In his view, better management could awaken value that is already present inside the business.

Q: Why did Oasis Management increase its stake in Kao?

Oasis Management increased its stake in Kao to 6.64% because Seth Fischer continued to regard the company as extraordinarily inexpensive relative to its potential. He saw strong products and a global brand, but also substantial room for operational improvement. The investment reflects his belief that focused marketing, sharper portfolio choices, stronger governance, and better execution could materially improve Kao's performance.

Q: What is Kao's biggest marketing problem?

Kao's central marketing problem is insufficient commitment to productive marketing around its strongest businesses. Fischer challenges the idea that excellent products do not require marketing, noting that major consumer brands and Kao's global competitors invest heavily in it. He also identifies missing brand websites, broken purchasing links, weak e-commerce execution, limited retail availability, and underdeveloped social media marketing as practical deficiencies.

Q: How can reducing SKUs improve Kao's profitability?

Reducing unprofitable SKUs allows Kao to concentrate money and management attention on its most valuable core brands. A smaller, stronger portfolio makes it easier to improve packaging, secure shelf space, fund campaigns, support distribution, and prioritize productive research. The discussion notes that only part of a long product tail may generate substantial profit, while the remainder can produce weak or negative growth.

Q: Why is there a perception gap between Kao and Oasis Management?

The perception gap partly reflects Kao's initial resistance to advice from an outside investor, even though the company has since taken actions that resemble Oasis Management's proposals. Kao is cutting unprofitable SKUs and divesting unnecessary assets, but Fischer believes it is moving too slowly and has not implemented the full program. He also attributes resistance at Japanese companies more broadly to managerial ego and discomfort with external criticism.

Q: How could Kao become a stronger global competitor?

Kao could become a stronger global competitor by focusing on a limited group of profitable core brands and executing around them consistently. Fischer recommends stronger customer focus, productive marketing, better digital commerce, wider retail availability, improved social media activity, and effective use of AI in beauty. He also calls for a chief marketing officer and a functioning board that holds management accountable.

Q: Why does Fischer believe Kao's products can win globally?

Fischer believes Kao's products can win globally because Oasis spoke with current or former people from competing companies who privately regarded Kao's core products as better than their own. Their advantage, in his account, was not superior product quality but stronger execution. This suggests that Kao's principal obstacle is management capability and commercial delivery rather than an absence of competitive products.

Q: Why do some Japanese companies lack marketing-led management?

The discussion traces this weakness to Japan's postwar business environment, when banks played an investor-like role and domestic population growth supported expanding demand. Companies could often sell what they produced, reducing pressure to develop sophisticated marketing or respond to outside investors. As a result, many organizations became manufacturing-led or sales-led, despite producing high-quality goods, and marketing remained outside the center of management.

Summary & Key Takeaways

• Seth Fischer describes Kao as a sleeping giant whose valuation remains low relative to its potential. He believes the company possesses strong products and a global brand, but its leadership has not focused sufficiently on customers, productive research and development, marketing, or the disciplined execution required to compete internationally.

• Kao has begun eliminating unprofitable SKUs and divesting unnecessary assets, actions that broadly resemble Oasis Management's proposals. However, Fischer says the company must move faster, concentrate investment on high-margin core brands, appoint a chief marketing officer, improve social media and e-commerce, and make management more accountable through its board.

• The discussion connects Kao's weaknesses with a broader history of Japanese management. Population growth and a protected domestic market once allowed companies to sell what they produced without strong marketing capabilities. Many firms consequently remained manufacturing-led or sales-led, creating resistance to external advice and limiting their ability to build globally competitive brands.