Where to find durable Industrial Success

September 2025 Newsletter

Where to find durable Industrial Success

On October 30, 2018, just a day before Halloween, General Electric (“GE”) had their own house of horrors, as they announced a $22bn charge related to their Power division assets. Less than five months later, on March 13, 2019 the F.A.A. grounded the Boeing’s 737 Max aircraft. This began the longest grounding in history for a U.S. aircraft.  Later that year, in October 2019, Intel announced that the “10nm era had begun”, as their 10nm processor production was finally going well.  This was production that Intel initially had plans to have in place in 2015, so just four years late!  By this point, peer AMD was already exploiting TSMC’s 7nm technology with their Ryzen 3000 chips.  

The aforementioned 12 month period from late 2018 to late 2019 brought very significant turmoil for these once proud champions of Corporate America. U.S. exceptionalism is a truism when it comes to global public equity markets.  The U.S. has outperformed other markets over many years, and the gap is not small. As of July 31, 2025, the S&P 500 Index had returned 664% on a total return basis in the previous twenty years. By comparison, the iShares MSCI ACWI ex US ETF has returned 88% over the same twenty years.  Within this strong U.S. equity performance, there are going to be sources of more strength in certain pockets or sectors of the market. I believe these sources of strength are not features of history. They are probably durable and structural.  Simply put, U.S. companies support innovation in a larger and more effective way than the rest of the world.  The U.S. economy itself is also massively geared to the consumer, and this means U.S. companies have the best and largest laboratory for figuring out what works and doesn’t with mass market consumers. Hence, yes, durable advantage there as well.  I would argue U.S. financial service firms have a significant advantage as well over foreign peers in that the U.S. is a more “financialized” economy, with light touch regulation.  (Much of this advantage might be captured in companies that are unlisted such as Jane Street, Citadel, hedge funds and many other G.P.’s, but we digress).

The subject of this newsletter is an area where I believe U.S. corporates have experienced a rather large amount of failure, and their International peers have, by comparison, thrived.  This area is Industrial manufacturing.  We will discuss the attributes that are pivotal to staying the course as a strong industrial manufacturer.  We will analyze the three aforementioned U.S. corporate titans – General Electric, Boeing and Intel.  I did not want this work to be unfair because I cherrypicked three obvious International winners for comparison. I could have picked Advantest, Lifco AB and Fujikura Ltd, three tremendously well run international manufacturing companies.  I could have also picked Airbus, TSMC and Siemens.  The latter three entities have done well in the previous decade, partially from the benefit of the failure of their U.S. competitors, and that comparison would have been fair. However, it would have failed to make the greater point that I am after.  I was seeking middle of the road International manufacturing companies. I believe the bench is very deep in international manufacturing, and I need not leave myself open to criticism for picking companies in an advantaged timeframe.  In fact the median International equity in the industries that best encompass Industrial Manufacturing (Aerospace & Defense, Trucks/Construction Machinery, Industrial Machinery) outperformed the median equity in the S&P 500 in the previous decade[1]. I eventually settled on three companies that were right around the median return[2] for the iShares MSCI EAFE ETF over the previous decade. The companies I selected are Daikin Industries, Assa Abloy and Kone.

GE was once a source of U.S. corporate pride.  This pride was destroyed over many years of mistakes, but it would be in my opinion a mistake to suggest that it was just a failure of a conglomerate and or, it was just a financial services entity failed in the GFC. Boeing is in the embarrassing position of producing their 737 Max under a Government mandated ceiling of 38 per month. And Intel’s new CEO just in the last month announced a headcount reduction of roughly 24k, for a company that had a headcount reduction of 15k just last year. One might challenge the inclusion of Intel given that they are a technology company, but Intel had Property Plant and Equipment of $17.6bn in 2006, designs and produces at massive scale, and has all the same challenges as a global manufacturing company. In this piece we will dive into what failed these companies.

From our analysis, we find the following items to be most pertinent to sustaining success as an industrial manufacturing concern, and setting yourself up to be a successful investment:

Leadership

Human Resources / Culture

Capital Allocation

We’ll review our findings for each company one by one with the starting point being twenty years ago. We’ll start with the U.S. companies:

Boeing (ticker BA on the New York Stock Exchange)

In 2005, Boeing was a global aerospace leader, known mostly for their 7 series aircraft. They had important Defense and Space businesses. 2005 revenues were $54.8 bn, and international sales were more than 30% of the total. They had roughly 153,000 employees, and had recently completed the acquisitions of McDonnell Douglas, Rockwell Intl’s defense units, and Hughes Space & Communications. The struggles of Boeing in the years since have to do with really all three areas that we reviewed.  It is easy to place the sole blame on Leadership, but this belies credit for Boeing’s bold positive moves.  In my view Capital Allocation could be equally blamed for Boeing’s issues in the past decade. Boeing prioritized share buybacks, and it hurt the business.  

Boeing Sales – last 20 years

Source: Factset

Quality is job #1 for an industrial manufacturing company.  I would argue that there is a fair distance between the importance of quality and whatever is job #2.  Once these types of organizations lose their focus on quality, it can take more than a decade and possibly decades to restore to the proper place.  It is hard to find what Boeing did right with the 737 Max program. But the 787 Dreamliner program has not been good either. The company had to suspend deliveries of the 787 in 2021 and 2022. At December 31, 2022, one hundred 787 aircraft in inventory required rework, and as recent as March of this year, there were still twenty 787’s that had been built prior to 2023 that still required rework.  The issues that Boeing has had with other programs like the 777x, and their work on U.S. defense projects, would by themselves possibly have earned them a poor record for quality. 

Boeing started off our analytical period (the last 20 years) with management stability.  In 2005 Boeing replaced their CEO, an ex GE executive, Harry Stonecipher, with James McInerney (also ex GE as well as 3M). McInerney was Boeing CEO for a decade from 2005-2015.  He presided over sales and share price growth.  As more U.S. corporates are willing to do, McInerney was Chairman of the Board as well as CEO.  With the benefit of hindsight, many believe that he damaged labor relations, softened engineering skill, and left behind a weakened Boeing.  “McNerney’s focus on the company’s stock price and cash flow at the expense of the long term wasn’t merely due to short-sightedness and greed. It was also likely due to a misunderstanding of how the aviation industry works.” -   Richard Aboulafia (Aerospace Analyst, Teal Group)

In the last ten years, Boeing leadership has seen much more turnover. Dennis Muilenberg took over as Chairman of the Board and CEO of Boeing in 2015, and his tenure will be remembered for the unfortunate airline crashes and grounding. In a return to hiring ex GE executives, Boeing replaced Muilenberg with David Calhoun (by this point Boeing separated the Chairman role). Calhoun only lasted until 2024.  Boeing had major senior management reshuffles in the years 2016, 2017, and each of the years from 2021-2024. 

We reviewed four quarterly earnings call transcripts for the 2016 financial year to see what were the words that Boeing management used the most. Aside from generic words like “Market”, “business”, or “program”, the words that were used the most were: Production – 192 times, Growth – 159 times, Customers – 145 times, 787 – 130 times, Value (i.e. being able to offer competitive prices) – 127 times.  Quality and the 737 Max did not feature. Production and Growth being right at the top emphasized that for Boeing management, their clear priority was to produce more airplanes. Producing more airplanes in the same timeframe obviously can lead to sacrifices on quality.    

As far as strategic decision making, Boeing cannot be labeled as slow. Boeing made the bold bet on the 787 Dreamliner in 2004.  This was a bold decision that cemented their long-haul dominance. It preceded the Airbus A350 by four years (2011 vs 2015 first deliveries).  While they have not been late strategically, it is possible that the bold strategic shifts have left management stretched too thin to manage the complexity and challenges that came with these bold strategic moves.  It is very clear that Boeing have been reactive in their operational management for a very long time.  There were issues with supply chain, labor, quality and safety well before the grounding of the 787 Max.

Boeing has generally got much better marks from customers in terms of responsiveness.  Customers wish that they had higher marks on quality, but do not dislike them for their arrogance.

Human Resources/Culture - U.S. corporates, especially larger ones, love to announce big cost saving plans.  Typically these announcements entail specific headcount reduction measures.  U.S. companies even do it when times are good.  These announcements are heralded for bringing efficiency.  “Removing management layers” is an oft used description.  Microsoft has a headcount reduction plan going on right now.  Boeing has a business that is vulnerable to the economic cycle, so headcount is not expected to be 100% stable. 

Boeing has a significant labor union presence, so headcount reduction is more complex.  They did use some voluntary retirement programs to help cut their headcount in 2017, and again in 2020 and 2021.  They also infamously “sold” their Wichita, KS operations back in 2005 to what became known as supplier Spirit Aerospace, and this led to many issues with the 737 Max.  Boeing now has had to repurchase Spirit.  See their employee count below. Their headcount reduction associated with what became Spirit is barely noticeable. 

Source: Factset

For the U.S. selected companies, once their share prices started to underperform, key talent retention was in crisis mode. For Boeing, things were never going to be easy. Boeing lost 28,000 employees in 2020 alone, with Pandemic demand weakness compounding supply chain and production issues. Experts have flagged a demographic shift in Boeing’s union workforce, with a noticeable decline in seasoned workers who possess deep institutional knowledge. Boeing has seen a steady outflow of skilled employees to rivals like Lockheed Martin, Northrop Grumman, Amazon, and Blue Origin.

It is believed that the GE leadership that Boeing kept bringing to their own C suite very well may have brought the “fear of disappointing leadership” that GE has since become infamous for.  Current Boeing leadership has recognized the need for a culture change. They recently had their first all-employee survey in five years. Boeing management have said publicly that employees are "empowered to speak up and provide multiple channels for all employees to ask for guidance and report concerns, including those related to ethics, safety or quality". Boeing introduced a clawback policy in 2023 that allows for the recovery of incentive compensation if an executive's misconduct or negligence compromises product safety or if they fail to report such acts.

Capital Allocation – Boeing cut R&D pretty severely from 2010 to 2015.  See below. The beginning of that period was probably the correct response to the GFC.  But the years 2012 to 2015 are harder to explain.

Source: Factset

The criticism that Boeing prioritized share buybacks fits.  Boeing kicked into high share buyback gear starting in 2014 (2-3 years after the R&D spending was being rationed).  See below. Boeing did not halt this buyback until 2019 was complete.  By that time, Net Operating Cash flow was already negative. This was a serious capital misallocation.

Source: Factset

While Boeing may have overspent on share buybacks, and under invested in R&D, it is not clear that they missed out on any investment opportunities.  The senior leadership team was skilled at understanding their markets and positioning the company for growth.  Since the period of the McDonnell Douglas acquisition, Boeing was relatively quiet on the acquisition front.  The largest acquisition they have made in the last 20 years is the Spirit re-acquisition agreed in 2024. The transaction value is estimated at $8.4 billion, given the assumption of Spirit’s large financial debt ($3.6 bn).  Ironically, Boeing will be issuing more than 22 million shares to buy Spirit.

Intel Corp (ticker INTC on the Nasdaq)

In 2005 Intel Corp (“Intel”) was the world’s largest semiconductor company. Intel had recently introduced dual-core processors for desktops and servers, and this was a large step forward for computing performance. Revenue was $38.8bn in 2005 (for comparison AMD had revenue of $5.8bn in 2005), and Net income was $8.7bn. Intel returned $10.6bn to shareholders in 2005. Intel’s 2005 business was global, with 50% of revenue generated in Asia Pacific. See historical revenues below. Intel has had serious faults with Leadership, and Capital Allocation.

Intel Sales – last 20 years

Source: Factset

We alluded at the start to the famously delayed introduction of the 10nm era to Intel. Quality of product (often leading to delays) has been a recurring annoyance for Intel for some time.  Their Itanium processors (developed with HP and launched in 2001) for the server market had compatibility issues with Intel’s very own x86 architecture. This meant that AMD’ s x86-64 architecture was eventually able to surpass Intel in the market. Even last year in 2024 Intel’s core 13^th and 14^th generation desktop processors had significant issues with instability. There have been other performance gaps and defects in Intel chips that businesses and consumers had come to depend on based on a reputation built over previous decades.

Intel was led by Paul Ottelini from 2005-2013.  In retrospect, he is known for good and bad.  Revenues and profits reached record heights.  But he also turned down the opportunity to produce chips for the iPhone.  To his credit, he admitted that as a mistake.  Journalist Stephen Shankland of CNET once remarked: “Otellini’s legacy at Intel: Plentiful profits, mobile misfires.” Ottelini’s successor, Brian Krzanich, lasted from 2013-2018.  Krzanich’s tenure is known more for bad optics. He sold $39 million of stock in late 2017 before the market knew about its CPU vulnerabilities.  He also had to resign for violating the company’s non-fraternization policy. For long term investors the clearest thing that should be remembered is that Krzanich is noted for being skeptical of EUV lithography. This eventually led to crucial delays in the10nm process, and allowed key competitors such as TSMC to race ahead.  Since Krzanich left in 2018 there has been significant turnover in the C Suite of Intel. Bob Swan, ex GE, lasted three years at the top. He was replaced by an “Intel guy”, Pat Gelsinger, in 2021. Gelsinger only managed to last three years.  The senior management turnover at Intel has only picked up pace since 2023. But even as far back as 2015, in the middle of Krzanich’s tenure, Intel re-shuffled their senior management. Intel has historically separated the CEO and Chairman roles.  We will mention later in the Intel discussion how this may have cost them in the early 2000’s.

Intel has also fallen victim to the “catch up” style of management.  If we review the earnings call transcripts from 2016, the words that were used by Intel management the most often were Data – 102x, Center – 85x, and Growth 75x.  It appears that they knew what had potential, but had no idea how to successfully grasp the opportunity in a timely manner. Having previously foregone purchases of ASML EUV equipment, they then made “huge purchases” of the machines in 2023.  This was critical technology that organizations need to plan more carefully around. More recently Intel decided to pause manufacturing of at least five manufacturing plants (including the U.S., Germany, Poland), in reaction to poor financial performance. If Jay Powell can be labelled “Too late Jay”, I’m not quite sure what label could be applied to Intel.  They have been too late on many strategic decisions for many years related to EUV, Foundry, Mobile, etc…Being late in Semiconductors is worse than being late in other sectors because it is very possible that the market has already been captured, i.e. there is no demand for you (this would be different for say Boeing in Long Haul aircraft).

Intel has long been accused of being arrogant by its customers.  An Intel supply chain strategy manager admitted that in the early 2000’s, “some of our customers hated us”.  They were known at the time for a rigid order fulfillment system that required customers to place orders three months in advance. Competitors would respond the same day.

In recent years, Intel’s recovery has been difficult because management is overstretched. Gelsinger’s IDM 2.0 plan (launched in 2021) had very little chance of succeeding because it was too ambitious for his management team (with high turnover) to deliver. 

Human Resources/Culture - Intel’s headcount went both up and down over the years. Overall there is little evidence of a company trying to demonstrably grow talent. Note that during the years 2015-2020, Intel sales grew by roughly $20bn.  See below.

Source: Factset

Silicon Valley always has higher flying companies than yours, public and private.  Once Intel’s share price started to underperform, restricted shares began to not be valued as highly, and key talent retention got more difficult. Intel does disclose their “undesired turnover rate”, and this did spike to 5% in the last few years.

In terms of culture, I think the record is mixed.  Founder Andy Grove fostered a culture of “constructive confrontation”, and this served Intel well for many decades.  Somehow the best of that kind of culture seems to have been lost in the 2000’s, leaving behind excessive internal politics.

Capital Allocation – R&D is clearly crucial for a semiconductor leader. When I look at Intel’s R&D spend, I see tremendous peaks and valleys.  By 2015 and 2016 they were spending huge sums. Why did R&D spend fall so precipitously in 2018/19/20? See below. Leadership and conviction was clearly lacking.

Source: Factset

A common complaint against the three U.S. companies is that they focused too much on their share price and financial incentives.  This focus incentivized them to prioritize share buybacks over other investments.  Intel, see below, was inconsistent with the buyback. I would suggest that Intel sporadically bought too much (2011, 2012, 2014, 2018, 2019, 2020). A smaller and more smooth share buyback could have potentially left them with more financial capacity.  The stock market was going on a strong run at this time, and Intel management and the Board were probably feeling like the buyback was one way for them to keep pace with the market. Sadly for their shareholders, they would have been better off focusing investment within the business to set them up for a better position from 2021 onwards. This is the period where the underperformance of Intel versus other peers came into stark reality (see 2^nd chart below). 

Source: Factset

Source: Factset

Where Intel really went wrong was with the investments it passed on, or decided on too late.  Many books will eventually be written about this.  The most significant misses: 1) Supply x86 chips for the original iPhone – CEO Ottelini turned this down because the financial metrics he was handed were too conservative. Apple instead turned to Samsung to supply ARM designed chips, 2) Open AI – Intel was offered an opportunity to invest $1bn in 2017 for a 15% stake. CEO Swan declined due to lack of near term visibility, 3) Mobile, ARM – Intel sold its ARM architecture business in 2006. They could have gotten back into mobile by partnering with or acquiring Qualcomm, Mediatek, etc… but instead launched an Atom processor that failed and lost money, 4) GPU, AI – Intel looked at buying Nvidia in 2005, and backed away (the Board apparently turned down Ottelini’s request). They were late with their own CUDA (the Nvidia platform for accelerated computing) like product, only launching in late 2020, and finally,  5) Cloud and data – Intel was late on cloud native chip platforms, when there were early bets to be made in companies like Snowflake and Databricks. They are still playing catch up in this area.

Intel did make acquisitions in the past 20 years. But virtually all of them failed to move the needle at all. The most significant miss was buying McAfee in 2010 for $7.7bn.  Think of the timing – the mobile smartphone era was taking off.  They eventually spun McAfee off. Intel did buy Infineon’s mobile chip business for $1.4bn in 2010, but together with their own technology, this was uncompetitive.

General Electric (ticker GE on the New York Stock Exchange)

In 2005, General Electric had six major divisions – Industrial, Health, Infrastructure, Commercial Finance, Consumer Finance and NBC Universal.  Revenues were $149.7bn. The business had global reach and had just achieved record earnings.  Dividends were just increased for the 30^th straight year.

General Electric Sales – last 20 years

Source: Factset

Quality issues in GE’s industrial businesses increased in prevalence over the past twenty years.  GE’s HA and 9FB Stage 1 gas turbine blades were flagships of their power generation portfolio.  In 2018 it became clear that the turbines had excess oxidation issues. GE proactively shut down the turbine blades in the marketplace.  There were also project execution issues and losses on fixed price contracts in GE’s defense business (2011/2012) and gas fired power projects (2018). The Latin American division of GE Healthcare had specific issues with power availability at install in 2019.

GE was led by Jeffrey Immelt for many years (2001-2017), and some believe his tenure is one of the most value destructive of any CEO in U.S. corporate history.  Perhaps because of Immelt’s long tenure, both Boeing and Intel hired GE executives to be their CEO’s during the years 2005-2020. 

General Electric’s Immelt was Chairman and CEO, and still to this day that is the governance structure for GE.  His replacement John Flannery lasted less than two years, and most now believe that the company was in too bad of a shape at the time (though the market did not know that), 2017, to have gone for a more suitable external candidate. Under Larry Culp’s leadership, beginning in 2018, GE has begun a major overhaul that continues to this day. The GE conglomerate that existed for decades, and was a source of respect and pride for many – that GE is now gone. 

 Table from GE’s 2005 Annual Report including CEO Objectives

Source: General Electric 2005 Annual Report

GE has been reacting to issues in their industrial manufacturing businesses for a very long time.  One excellent example was their use of “discounts on service contracts” in exchange for earlier payments.  The accountants used this discount program to bring forward much needed earnings.  This move was clearly not meant to address the fundamental issues. The accounting moves led to investigations by the SEC and the DOJ. GE was late or indecisive on some key decisions.  For example they were slow to unwind their Finance business. They also very clearly misread the energy transition, as they overinvested in fossil fuel assets at the wrong time. GE management also could have moved to improve financial transparency earlier. 

Management at GE have been overstretched for a very long time. The classic example is the near failure of GE Capital in 2008 caused by lack of attention to risk. With so many unrelated industries in the classic conglomerate, there was little chance that any GE management team could understand all these sectors very well. Added to this were the ceaseless acquisitions, and the integrations that followed.  Immelt noted that integrating deals like Alstom “took the entire company”. 

GE have generally got much better marks from customers in terms of responsiveness.  This is especially true of Aviation customers, but also largely true of Health care customers as well. GE just got too many things wrong over too many years to regain investor confidence.

Human Resources /Culture – GE has been in difficulty for much of the last 17 years. This means that the headcount numbers have been heading basically down almost every year.

Source: Factset

GE has had constant talent retention challenges since the GFC.  But GE took the extra step of removing their Defined Benefit pension plan in 2019.  DB plans are valued highly by mid to late career engineers, many of whom have a high degree of expertise.

The biggest marks against GE in relation to Culture has to be for the “fear of disappointment”.  As Rachel Scheel of GE Healthcare said, “As I try to understand how GE got here, some common themes come to mind: being afraid to disappoint our leaders; trying to deliver on unrealistic expectations; and in some cases ignoring the ugly truth we were facing.”  This culture began far back under CEO Jack Welch (GE CEO from 1981-2001).  Welch made clear to his Division Presidents that they should never “surprise the Board with bad news”. 

Capital Allocation – GE was probably the most consistent of the U.S. companies in this review in terms of R&D spend. See below. Granted, it was a low %.  2016 and 2017 peaks might have been catch up for earlier periods. 

Source: Factset

One would think that GE would be the most aggressive of our three U.S. companies with share buybacks, given their reputation for catering to Wall Street.  But GE was actually the most reserved of

the three on buybacks. Before the GFC that they and many others did not see coming, GE did a fair amount of share repurchase.  After the GFC, only one time before 2016 did their share buybacks reach more than 15% of Operating Cash Flow. See below.  It appears that the near death experience at the GFC together with more fundamental issues in their accounting earnings led them to favor balance sheet strength. From 2011 to 2017 GE spent $41.2bn on share repurchases, and they clearly should have saved these funds to strengthen the business in other ways.

Source: Factset

A few places where GE could have spent the $41 bn – a) clean energy, b) Industrial AI software and analytics, and c) AI diagnostics, digital imaging and telehealth for their Healthcare segment.  A through C are areas where competitors raced ahead in the last fifteen years.  While GE could have used capital to strengthen themselves internally, senior management over many years has largely looked to acquisitions, large and small.  These results have been almost unanimously terrible for a very long time. Deciding what deal was the most awful is difficult, but some of the top contenders have to be: Alstom (2015 for 13bn EUR), Baker Hughes combination (2017 for $7.5bn), and from deep in the vault, RCA Corp (1985 for $6.3bn) to gain NBC television.  Alstom and Baker Hughes were a complete waste of money for GE shareholders, given the eventual losses they led to.  At least GE Vernova retains some of the business that GE acquired with Alstom.  GE has nothing to show for the billions it lost on Baker Hughes (they exited at essentially the bottom for the share price). The fact that two of possibly the worst deals GE has done could come so late in the tenure of Jeffrey Immelt is just astonishing.  The expansion of the GE Capital business is clearly much more damaging in the history of GE than buying NBC Television, but GE only exited NBC in 2013, well after their troubles had begun. Running a television network was something GE really should never have been involved in, and it was highly distracting for the first half of our 20 year period under review. 

KONE Oy (ticker KNEBV on the Nasdaq Helsinki)

In 2005, KONE Oyj (“Kone”) had just split the business, with cargo and load handling separated.  Kone (headquartered in Espoo, Finland) was now focused on the elevator, escalator and automated building access industry. Their service business had 1.1 million units in place globally. They operated in over 40 countries. Of the six companies that we reviewed, Kone started off as the smallest. Net Sales were roughly $2.6bn in 2005, although they had 33k employees. As you can see below, the pivot that Kone had made in 2005 paid handsome rewards.

Kone Sales – last 20 years

Source: Factset

Among the International companies, only Kone comes out with basically perfect marks on quality.  As for what has driven an essentially flawless record at Kone, it is hard to tell. They emphasize the same certifications that other manufacturers do. They refer to strict quality processes present throughout the product lifecycle. It is clear that what they are doing is effective. Kone’s MonoSpace® and EcoDisc® technologies have been favored by engineers and developers working on high-rise and infrastructure projects for their space-saving designs, plug-and-play installation, and predictive maintenance.  This has made them a favorite among planners dealing with tight timelines and demanding specs.

Kone CEO tenures have been a bit shorter, roughly eight to ten years.  Kone believes in a bit more dynamic approach to leadership.  They prefer to rotate senior management through different roles and responsibilities.  It is possible they drew this from GE principles of management, as GE is famous for significant management rotation. International companies are also not immune from combining Chairman and CEO, as Kone did through 2006. Since then the roles have been separated.  External comments about Kone management can be described as complimentary to effusive, particularly for strategy, problem solving, and globalization.  The sharpest criticism for Kone managements seems to be from investors that were uncomfortable with the relative weight of Chinese profits, which at peak reached 40% of Kone’s total profits.  But I feel that this is a very unfair investor myopic viewpoint because establishing your units that need to be serviced in one of the world’s largest economies is not an opportunity that should be passed over. More important would be having the agility to transition once the Chinese market peaked, and I believe that Kone has done this well. 

Kone has made pains to be more proactive in their business. When they recognized issues that took customer service resources, they shifted to a more “proactive service design”. They’ve also made a digital transformation an important component of their “Rise” strategy.  Management have admitted to being too slow to raise prices (2021/22), but again, that seems like a more positive thing to be criticized for. Kone also admitted recently on the Q4 2024 earnings call that the Mono 100 had been delivered too late for the market. This caused them to re-evaluate their “innovation engines” to accelerate product development. While Kone management have had intense periods and challenges, in my view they have never seemed to be overstretched.

For Kone, the customer reception end has required considerable efforts and initiatives. It is viewed as critical. Kone gathered customer feedback from over 19k interviews in 2024 alone. 

Human Resources/ Culture – Kone’s employee headcount grows very consistently, year after year. See below.

Source: Factset

All organizations struggle to retain their best people.  What we find is that the International companies, for example Kone, are more likely to admit this as a challenge, and work hard to do better.  They have a greater tendency to create a more people centered workplace, and have more worker friendly initiatives. Much of this sounds very soft when you read about it, but one example is Kone's ambition is to be the number one choice for its employees and aim to be the easiest company to work for.  This is a core part of their 'Rise' strategy for 2025-2030.  Despite this, Kone admits that retaining talent is an identified problem, and that the turnover rate is more than 10%. While there will always be a few disgruntled employees, it appears that Kone does quite a job of reviewing where they are, and making improvements to the culture and quality of human resources.

Capital Allocation – Kone has been very consistent with their R&D spend, see below, albeit R&D/Sales is a very low % (always less than 2%). The very clear trend is that R&D spend is becoming more important for the business. The Tytyri deep shaft lab in Finland is Kone’s flagship high-rise elevator testing facility—and it’s unlike anything else in the industry. The facility tests high-speed elevators in extreme conditions, simulating the demands of super-tall and mega-tall buildings, and pushes elevator physics to the limit with free-fall tests, where a 10,000 kg elevator frame is dropped into a 200-meter shaft to test safety gear performance.

Source: Factset

Kone has had share buybacks, on and off, over the last 20 years.  The buybacks have never been that meaningful, aside from perhaps the 2005 and 2006 years when the business was quite a bit smaller.

Source: Factset

It is hard to be too critical of what Kone has done with their capital in the last 20 years. They did focus very much on modernizing the elevator, where some competitors like Otis and Schindler were able to branch more into building wide automation and IoT integration. Kone is also conservative relative to peers when it comes to acquisitions, and there were probably external scope opportunities to accelerate growth that were missed. Kone has mostly done bolt on acquisitions, typically service related. They did consider buying the Thyssen Krupp elevator business (2020, but stepped away from a deal that was eventually done for 17.2bn EUR).    

Daikin Industries, Ltd. (ticker 6367 on Tokyo Stock Exchange)

In 2005 Daikin Industries, Ltd. (“Daikin”) was an integrated manufacturer of Air Conditioning systems, Fluorochemicals, and Oil Hydraulics & Electronics with global headquarters in Osaka, Japan. Net sales were roughly $7bn USD equivalent. Daikin’s strategy and investments did not really begin to pay off until roughly 2014/15.  See below.

Daikin Sales – last 20 years

Source: Factset

Daikin suffers from a relatively poor perception in the United States.  Consumer Reports, for example, does not rank Daikin well on Reliability (50/100) or Customer Recommendations (48/100). This relates to the Goodman Global Group (“Goodman”) business that Daikin acquired in 2012.  Goodman was known for poor quality before the acquisition. Daikin has managed to improve this perception, but the technology is different than what Daikin sells in the rest of the world.  Some weakness still lingers.  In June of 2024, Daikin and other partners had to recall heat pump units because they were a fire hazard. 

Daikin CEO tenures are quite long, more than a decade.  The current CEO, Masanori Togawa, has been in place since 2014.  Daikin has had some senior management reshuffling in 2024 and 2025, so it cannot be said that Daikin does not make changes. Daikin has combined the CEO and Chairman roles. 

Daikin is not perfect. For example, Daikin has found supply chain issues in the Americas business.  A clear difference was what the COO of Daikin Americas Yu Nishiwaki said “we found the problem, and it was us”.

Daikin has been late on many decisions.  For example, they were late to expand in India, waiting until 2021. Others like Volta and Samsung got there earlier. They were also too cautious recently on Heat Pumps in Europe. They had good technology but others such as Mitsubishi Electric and NIBE seem to have scaled their business in a more timely fashion.

While it cannot be claimed that Daikin is arrogant, the way that customers perceive Daikin varies by region. They are broadly known as technically strong with a very long warranty offered of 12 years. But in some regions these strengths are paired with a reputation for Daikin being operationally uneven. We already mentioned the North American business, where Daikin is still struggling to gain a stronger position on warranty and dealer support.

Daikin management has definitely shown signs of being overstretched. The Goodman acquisition for $3.7bn in 2012 led to integration challenges.  They are still trying to come to grips with their North American business, for example their recent misses with R410A supply issues.  It is perhaps the North American challenges that led Daikin management to mistime the European heat pump opportunity. 

Human Resources/Culture – Daikin has had a significant growth trajectory in employees, see below, although some part of that is from acquisitions. Way back in 1975, due to the first oil crisis, Daikin failed to turn a profit and was excessively overstaffed. In response, the then-president, Minoru Yamada, initiated a "Declaration for Avoiding Employee Layoffs" and reassigned a large number of employees from manufacturing to sales to retain personnel and ensure business continuity, which helped establish Daikin's robust sales network in Japan. 

Source: Factset

All organizations struggle to retain their best people.  Daikin companies, like many international companies, admits this as a challenge, and works hard to do better.  Daikin has what they call a “people centered workplace”, and have more worker friendly initiatives.

Daikin has put strong growth targets in place.  President and COO Naofumi Takenaka acknowledged that the company's traditional "one-size-fits-all approach...to invest on the premise of growth and earn a return" is "no longer enough", which hints at past practices that might have prioritized growth targets, potentially leading to situations where investments were made without sufficient flexibility for market shifts. They have recognized this shortcoming, and are trying to implement a flatter, and more responsive organization.

Capital Allocation - What I believe can be said is that the international companies spending on R&D can be labeled as consistent.  There are no peaks and valleys. Daikin spent a higher percentage of sales on R&D in the early 2000s, but they are consistent with investment.  They have been raising it more recently. See below. Daikin has never repurchased their own shares. But given the state of play in Japan these days, they may change their tune on that before long.

Source: Factset

As alluded to before, Daikin has been late to investment opportunities like India.  They have done the same with the African market. Daikin leadership tends to favor deep due diligence. This can cost them valuable time before an investment is committed. Peers are known for being more agile. As far as acquisitions, Daikin is noted for being willing to overpay for the long term strategic position. For example, they paid $1.9bn for O.Y.L. Industries in 2006.  It was seen as an aggressive move, and was slow and costly to bring benefits. It eventually did pay off in global sales. Goodman was needed to establish a North American position, and Daikin still struggles in North American more than a decade later.

Assa Abloy AB (ticker ASSA.B on the Stockholm exchange)

In 2005, Assa Abloy AB (“Assa Abloy”) was firmly positioned as the world’s leading manufacturer and supplier of locking solutions, serving a global market with a wide array of security, safety, and convenience products. It was headquartered in Stockholm, Sweden, operated in more than 40 countries, and had roughly 30k employees. Sales were roughly $3.7bn USD equivalent. The business has achieved very healthy growth over the past twenty years. See below.

Assa Abloy Sales – last 20 years

Source: Factset

Assa Abloy has a pretty strong record on quality.  They did have disturbances in their PACS (printed Access Control) business in 2022 because of electronics (supply chain) shortages. Customers had to wait longer. In my view, supply chain driven delayed delivery is not anywhere near the same category of kit that needs to be replaced because it doesn’t work.  Assa Abloy has also been transparent about struggles with “skills gaps” and finding the right quality of manufacturing workers in certain regions.

CEO tenures at Assa Abloy are quite long, more than a decade.  Johan Molin was CEO from 2005 to 2018.  Assa Abloy made some senior management changes, outside of CEO, in a few years as well.  Comments about management of Assa Abloy vary from complimentary to effusive, particularly for strategy, problem solving, and globalization.

 “Mr. Molin’s impact on Assa is difficult to overstate.”— ABG Sundal Collier, in a research note highlighting his role in driving sustained growth and profitability

Assa Abloy has been known to cut costs when macroeconomic conditions are weak in order to defend margins. Overall I would say that the international companies aim to be more proactive to address fundamental issues. One would not describe Assa Abloy as being very quick with decision making.  They are more methodical.  The 2025 acquisition of SiteOwl could be seen as a catch up move, for example, because others had already integrated SaaS tools.

On the contrary end, Assa Abloy is credited with being very focused on customer satisfaction. Similar to Daikin, they have a decentralized structure.  This means satisfaction can vary by region.  Some complain of technical support delays. But other customers have credited cross border solutions.

Assa Abloy is a global company, and they have made many acquisitions over the years.  Given that footprint and expansion, it would be unrealistic to expect that things have gone smoothly all the time. For example their Chinese subsidiary had financial controls issues in 2017.  Audit and controls functions had to be reinforced.

Human Resources/ Culture – Assa Abloy has consistently grown their headcount for a very long time. Assa Abloy works hard on retaining key talent.  The biggest issue that they have had is finding blue collar talent in certain regions. Employee reviews of Assa Abloy are not perfect. Rank and file employees allude to managers as “obsessed with their position”, and that “processes are rigid”.  Obviously it is hard to please everyone, and Assa Abloy has areas of culture that it could do better.

Source: Factset

Capital Allocation - Assa Abloy is consistent with their R&D investment, and it has grown over time.  See below. Assa Abloy says that product leadership is "the most important driver for organic growth" and that innovation is seen as being "in our DNA".  They had 4,100 R&D employees in 2024, and this compares to 2,244 in 2017. Over the last three years (relative to November 2022), Assa Abloy launched more than 1,200 new products and filed more than 500 new patents.

Source: Factset

Assa Abloy has had one share buyback in the last 20 years, and that was in 2013.  While Assa Abloy seem to have little interest in buying their own shares, they have made many acquisitions. They have acquired more than 300 companies since 1994. Their divisions focus on identifying acquisition opportunities.  In 2021 alone, their divisions had identified more than 900 potential targets.  Assa Abloy has been willing to be aggressive in acquiring on at least one notable occasion. They had bid for Spectrum Brands’ hardware and home improvement businesses in 2022 ($4.3bn). The U.S. DOJ sued to block the deal.  Concessions were required to push the deal across, and it still remains to be seen whether Assa Abloy will have regrets. 

We’ve highlighted above the grades that we have applied to the companies that we reviewed.  The main takeaways for global investors are that: a) International markets offer arguably better and more consistent opportunity in Industrial Manufacturing equities than an investor can find in the U.S. market, b) there is a deep bench of opportunity even down to small and mid cap companies, c) Leadership of these International companies is relatively strong in terms of long term strategy and direction, d) gaps may be hard to identify between International companies and U.S. peers on HR and Culture, but gaps likely exist and are possibly more positive on the International side, and finally e) Capital allocation at U.S. companies is far too often short sighted and value destructive. International companies will be less likely to buy back shares, but could possibly use M&A even for shareholder benefit. You may be curious how this worked out for investors, and we have plotted the share prices of five of our companies (GE’s split makes their stock N/A) on the next page.  The three international companies did indeed outperform (excluding dividends). As always, the starting price/valuation is paramount for any investment, and fundamental bottom up analysis is the best path for identifying winners and avoiding losers. 

Key to Chart (stock prices in last twenty years) on next page:

Kone – Yellow line

Assa Abloy – Gray line

Daikin – Blue line

Boeing – Light Green line

Intel – Lavender line

[1] The median return of iShares MSCI EAFE ETF (EFA) constituent of the Industrial Machinery, Aerospace & Defense, and Trucks/Construction Machinery industries was 239.4% for the decade ending 8/5/25.  For the same industries in the S&P 500 for the same timeframe the median return was 224.9%.

[2] The median return of the constituents of the iShares MSCI EAFE ETF (EFA) was 95% for the decade through August 5, 2025.

The information contained in this commentary represents the opinion of Ballina Capital and should not be construed as personalized or individualized investment advice. You should not consider the information and commentary published herein as a recommendation to buy or sell any particular security. The securities identified and described do not represent all the securities purchased, sold or recommended for client accounts.  You should not assume that any of the securities discussed in the commentary published herein are or will be purchased for your account, or are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in commentary. Consider the investment objectives, risks, and expenses before investing.