As foreign rivals and private equity firms increasingly target Japan’s highly specialized mid-sized manufacturers, concerns are rising over the country’s ability to retain control of its “indispensable” companies that quietly underpin global technology supply chains.
The issue has come into sharp focus with the ongoing bidding war for Shibaura Electronics, a key maker of temperature sensors used in everything from consumer appliances to military equipment. Taiwanese electronics giant Yageo launched an unsolicited offer in February, valuing Shibaura at over $450 million. After resistance and a counteroffer from Japanese firm MinebeaMitsumi, Shibaura’s board ultimately dropped its opposition to Yageo’s revised offer of ¥6,200 per share — nearly double the company’s pre-bid trading price.
This bid is part of a broader trend: foreign buyers are increasingly pursuing Japan’s technological “pocket champions” — companies that hold dominant global shares in highly specific but crucial niches. Firms like Shimano (bicycle components), Shoei (motorcycle helmets), and Yamaha (digital pianos) are household names in their markets, while others such as Ajinomoto, Murata, and Fujikura play behind-the-scenes roles in semiconductors, fibre optics, and capacitors essential to smartphones, electric vehicles, and data centers.
Yageo’s CEO David Wang argues that such deals can inject global perspective and capital into Japan’s historically insular corporate culture.
“We think we can help them promote their technology worldwide,” Wang said, asserting the deal would not compromise Japan’s national security.
Yageo also committed to strict internal controls to prevent technology leaks.
Nonetheless, critics — including Japanese business leaders and government officials — worry that relaxed attitudes toward hostile takeovers, following new merger guidelines introduced in 2023, may leave critical technologies vulnerable to foreign control. Some fear a scenario akin to Tokyo’s real estate market, where foreign buyers have priced out many locals.
“There’s a real race against time,” said Takashi Shimada, former adviser to ex-Prime Minister Fumio Kishida. “Foreign investors view Japanese companies as cheap — especially given the weak yen — and they’re moving fast.”
Despite no longer dominating the global consumer electronics market, Japan still ranks near the top globally for economic complexity, a measure of a country’s production of sophisticated, hard-to-replicate goods. According to a 2022 study by government-backed NEDO, Japan holds over 60% global market share in 224 products, especially in advanced electronics and automotive sectors.
Companies like Fujikura, whose optical fibres support ultra-dense data transmission, and Ajinomoto, whose specialty resins are essential to semiconductor packaging, illustrate the vital but often overlooked roles Japan’s industrial base plays. Murata’s capacitors, meanwhile, stabilize electrical flow in virtually every modern smartphone.
“We’re talking about components the world can’t function without,” said Ulrike Schaede, a business professor at UC San Diego. “Japan may not make the end products anymore, but without it, no one can make the parts.”
To protect these assets, the Japanese government has introduced a consultation system requiring companies in sensitive fields to report plans involving technology transfers or foreign joint ventures. More comprehensive investment screening laws are expected next year.
Yet policymakers must tread carefully. Japan’s sprawling industrial ecosystem includes 3.5 million small and medium-sized enterprises, many of which face succession issues or lack the scale to remain competitive. Officials hope M&A — including some foreign investment — can help consolidate the sector and promote innovation, while avoiding the loss of critical technologies.
The recent financial crisis at Nippon Denkai, a maker of electrolytic copper foil used in EV batteries and 5G networks, revealed the risks. With a small Tokyo firm, Tex Technology, quietly amassing a large stake, concerns mounted over whether foreign actors could be gaining indirect control. Although Tex denied links to outside interests, the case exposed regulatory blind spots.
Eventually, the government-backed MUFG Strategic Investments stepped in to acquire the struggling company, calming national security fears.
As China pushes forward with its “Made in China” strategy and the US–China tech rivalry intensifies, Japan’s role as a neutral, indispensable tech supplier faces both strategic opportunity and existential threat.
“There’s maybe a 10-year lead between us and China,” said Norio Nakajima, president of Murata. “But with rapid mobility of people and information, the gap is closing faster than before.”
For companies like Japan Steel Works, one of the few firms able to forge large-scale nuclear reactor components, foreign competition remains less of an immediate threat — yet vigilance remains. CEO Toshio Matsuo noted that his customers in the West would likely resist buying such critical infrastructure from Chinese firms, and the Japanese government would block any foreign takeover of his company.
In balancing openness with strategic caution, Japan must now define a uniquely Japanese model — one that continues to emphasize precision, innovation, and niche specialization over scale or state-directed investment.
“If we simply follow the paths of the US or China,” said Fujikura’s CEO Naoki Okada, “we will lose what makes us special.”
With input from the Financial Times and Reuters.
