Portfolio Manager Insights

Unlocking Japan's digital transformation

Japan, a nation renowned for its technological prowess, is currently undergoing a digital revolution among its small and midsize enterprises, according to Fidelity’s David Jenkins.

By: David Jenkins
Updated: 8/25/2025
  • While many Japanese companies have clung to traditional ways of doing business, Fidelity Portfolio Manager David Jenkins believes there’s a new era of opportunity for smaller firms operating within the nation’s information technology landscape, catalyzed by government initiatives and evolving market demands.
  • “The COVID-19 pandemic served as a wake-up call for Japan’s economy by exposing inefficiency in traditional business practices,” explains Jenkins, who manages Fidelity Advisor® International Small Cap Fund. “In response, the administration of former Prime Minister Yoshihide Suga launched the Digital Agency in 2021, positioning it as ‘a pillar of the new growth strategy.’”
  • In helming the opportunistic international small-cap strategy, Jenkins aims to optimize the portfolio’s risk/reward trade-off by investing at the intersection of value and quality, while also seeking small-cap businesses abroad that, in his view, are either undiscovered or out of favor.
  • He observes that the past few years have seen the Japanese government make a more concerted effort to move firms of all sizes further along the road to digitalization.
  • “While the country’s corporate giants have made significant strides on this front, I believe the real story lies in Japan’s smaller IT services businesses,” says Jenkins. “Historically slower to adapt, these companies are now accelerating their efforts, driven both by necessity and opportunity.”
  • Amid rising demand for cybersecurity compliance, big data management, artificial intelligence/machine learning implementation, and other tech needs, Jenkins highlights that Japanese IT services stocks appear well-positioned for sustained growth, especially those catering to the needs of small and midsize businesses.
  • Within this dynamic environment, certain small-cap IT firms have recently emerged as standouts, according to Jenkins, including portfolio holdings NSD and TIS. He also cited stakes in Dentsu Soken, WingArc1st and Systena, all of which he believes exemplify innovation and adaptability.
  • “I think Japan is still only in the second or third inning of this transformation, underscoring its early-stage nature, with plenty of room for growth,” concludes Jenkins. “As momentum builds, the nation’s IT services industry could gain further traction as more enterprises adopt digital solutions.”

Securities mentioned were fund investments as of June 30.

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