Three top CEOs tell Justin McCurry why Japan desperately needs to support entrepreneurship.
A recent survey helped confirm what many have long feared: Japan’s start-up culture is in trouble. The poll, by the Nomura Research Institute, found that an increasing number of young people prefer a stable job with a major company to starting a business.
Of greatest concern for Japan, as it wrestles with a shrinking population, competition from China and, more recently, a brand tarnished by safety scandals, is the revelation that the most risk-averse group is teenagers. While the country’s new government has talked at length about the need to rediscover the entrepreneurial spirit of the post-war years, young Japanese are clearly not convinced. A mere 35% of poll respondents said they wanted to set up their own company, down from 49% in 1997. Among teens, just 27% saw themselves as budding entrepreneurs.
The environment for start-ups is grim. Last year only four new firms listed their shares on the Tokyo Stock Exchange’s Mothers market for start-ups, compared with 56 in 2004. Yet without fresh input from technology start-ups and more vigorous involvement in expanding markets in Asia, Japan risks being consigned to the status of an economic also-ran.
No one knows more about the obstacles facing young businesspeople than founder and chief executive of Rakuten, Hiroshi Mikitani. Since launching Japan’s biggest online shopping mall in 1997 with just six employees, the former investment banker has seen his business grow to include banking, credit card, brokerage and travel services. The Rakuten group now has a stable of more than 31,000 online merchants and 60 million individual members.
“At the start of the decade we saw many younger people trying to start new businesses, but for the last several years there haven’t been many strong initiatives,” say Mikitani. “In general, younger people are less competitive, partly because of the shrinking population, which in turn means the market is less competitive. We’re moving in the opposite direction to countries like India and China.”
Other start-up pioneers agree that Japan faces a stark choice between entrepreneur-led innovation and terminal decline. They call for a new assault on regulation, the education system and collusion between established members of corporate Japan.
“As a nation we are less hungry than we once were,” says Sachio Semmoto, founder and CEO of the mobile telecom firm EMOBILE. “When you are rich and can have almost anything you want, it becomes harder to retain that hunger for success.”
In 2004, EMOBILE’s parent company, eAccess, became the youngest-ever independent company to be listed on the First Section of the Tokyo Stock Exchange, a mere five years after its founding. EMOBILE, launched in 2005, has become a major player in Japan’s mobile telecom market, with around two million subscribers.
But despite identifying clear potential for expansion in the domestic broadband market, Semmoto had to look beyond Japan’s shores for support in his venture’s early days. “Risk money is always difficult to find in Japan,” he says. “We had to look overseas for support, because the supply sources here, particularly banks, are unwilling to take risks.
“That kind of trend still exists today in Japan, which is very unfortunate. That’s why the creation of new start-ups is very low. Today, Japan is facing a critical time. The question is, can we really recover, or do we simply die a slow death?”
While inward investment could provide the impetus Semmoto says is palpably lacking from domestic ventures, would-be investors from overseas find themselves stifled by government regulation and an over-protective corporate culture.
But Miki Watanabe, founder and CEO of the Watami izakaya chain, believes Japan is receptive to innovative business concepts, regardless of their origins. Watanabe, who opened his first Watami restaurant in 1992, now runs an izakaya empire of well over 600 outlets in Japan, and 30 outlets spanning Taiwan, Hong Kong, China and Singapore, while plans are afoot for expansion into the United States and Europe.
His “Big Idea” was to transform the image of izakaya as “salaryman” drinking holes into family-friendly eateries serving fresh, organic produce that wouldn’t look out of place on the dining table at home.
“The Japanese market is more open for foreigners than people looking in from the outside seem to think,” says Watanabe, whose company has also branched out into the nursing care and farming businesses.
“We operate overseas, and I would admit that compared with other countries, Japan has more idiosyncrasies. If a company sets up here and thinks only about the bottom line, while ignoring consumer demands and employee welfare, it will fail. But if you can take those issues into account, you can succeed in Japan.”
Mikitani agrees that resistance to foreign products and services is often overstated. “Legally and in the strict business sense, I don’t think there are any substantial obstacles in the way of European, American or Asian companies coming to Japan, except in some heavily regulated sectors,” he says. “Yahoo is strong, Google is strong, although, unfortunately, you don’t see many strong IT brands from Europe.
“There is also a custom among Japanese companies to stick to existing business relationships, but that obstacle applies to Japanese start-ups as much as foreign ones. And that is also changing.”
All three were critical of the view, entrenched in Japan’s compulsory education system, of entrepreneurship and risk-taking as somehow undesirable. “We have real potential in technology and human resources, but in the 1980s and 1990s we somehow lost the risk-taking spirit and started looking inward rather than at the world around us,” says Semmoto.
“If you look at Google and other start-ups in the United States and UK, you’ll find that they always look at the big picture. From day one, they have a global view. So we have to re-educate our younger generation to think in a similar way.”
They were united, too, in their scepticism towards government promises to encourage start-ups. Semmoto says: “The new government should give more opportunities to entrepreneurs, but at the moment it appears more conservative and protective towards incumbents. That worries me very much.”
Mikitani, however, believes that politicians are more aware of the need to adopt a more hands-on approach towards nurturing new businesses capable of competing in the global market. “The one thing we know is that the Japanese market in relative terms is shrinking,” he says. “Politicians understand that. And at home it is clear that in some areas we need to loosen up, especially in heavily regulated industries such as broadcasting and telecoms.
“Rakuten as a company and I as an individual have a vision – we like independence, we like the free economy and we like deregulation. So we will be very explicit about our attitude when we talk to the government. In the internet business in particular, we need to fight against conservative attitudes and open our markets.”
Regulation aside, Japan’s reputation as a tough nut to crack owes much to misunderstandings about the country’s famously demanding consumers. “Japanese consumers don’t hate foreign products, but they want very highly tuned, quality products and the complete localisation of business,” says Semmoto. “Mercedes-Benz and BMW have succeeded because they paid special attention to the local market.”
“Customers here are very choosy, and will let you know quickly if the product is not of sufficiently good quality or value,” says Watanabe. “In that respect, Japan is perhaps the toughest market in the world. And that absolute insistence on quality and price can be an obstacle to newcomers.”
Rakuten’s internet ventures in Taiwan and Thailand have taught it important lessons about tweaking business strategy – from advertising and hiring to payment methods – to suit local consumers. That knowledge will soon be put to the test in China, where it has agreed a US$50 million joint venture with Baidu, the country’s top search engine.
Cultural tweaking aside, the same principles apply to any successful venture, regardless of its location, Mikitani said. “You need to be ambitious and to have a vision, to understand where society and business are going.
“The one message I want to convey to younger people is that if you work hard, you can make it happen. Business is important in itself, but it is also a means to change society for the better.”