Japan has long been hailed as one of the world’s most developed nations. But when it comes to innovation, things are less rosy. Why is it stifling its start-ups?
Japanese start-up entrepreneur Masayoshi Hashimoto believes he knows where the country’s IT industry is getting its guidance from; the Czech surrealist author and satirist Franz Kafka.
“Working for a Japanese web services firm, I couldn’t believe how badly things were done,” he says. “We had everyone managing projects using Excel. Excel, I ask you! It beggars belief. But managers here like the old ways.” When changes were suggested he was stonewalled.
Venting his irritation on Twitter led him to a conversation about the business practices afflicting Japan’s tech sector with a fellow malcontent. One face-to-face meeting later, he quit his job to form a company with his new comrade rebel with and created the website Paradiseware, which helps businesses manage projects more efficiently.
The result is typically Japanese; run on a shoestring without any of the benefits Silicon Valley start-ups might attract.
Japan has a real problem with innovation. It’s just not very Japanese. Nor, you might be surprised to read, is originality. It’s the kind of thing swaggering foreigners or suspect loners are thought to meddle in. So if you visit Japan and find ersatz statues of Liberty in tourist spots, or a very uncool bureaucratic drive to promote Japanese creativity and culture ripped off from Cool Britannia - you’ll begin to understand why.
Japan is "good at technology but poor in business" as one official puts it. “Its high levels of basic research and superior technology are hampered by too-strict regulations, and vertically integrated administration. The gap between researchers and manufacturers, in many cases, prevents brilliant R&D results from being put into practical use - the ‘Death Valley’ problem.” Japan leads in its high number of early adopters. Thanks to them, inventors can gain confidence and the initial momentum needed to push off a new idea. But it often doesn’t last long.
“Unfortunately this is accompanied by a very envious, critical and vocal audience. They underline every possible reason that the product will fail and keep doing so indefatigably. They attack the innovator on Twitter, Facebook, blogs, etc; and they keep doing so until the innovator raises a white flag.”
Add to this 20 year’s economic stagnation, zero appetite for risk and eroded confidence and Japan emerges as one the toughest environments on Earth to root new ideas.
There are backers in Japan, his partner Shuku Tanizaki explains, but most are interested only in no-risk ventures. Start-ups have to attract crowd-funding or, as is more usual, the personal savings of their creators. “There’s lots of venture capitalists here but they are only interested in games and new media,” says Hashimoto. Even renting conventional office space can be troublesome in Japan - landlords like to see two years’ profits before they open the door. Paradiseware operates out of cheap, shared office space in central Tokyo.
“I think starting a new business means also confronting the problems afflicting your society,” says Mr Hashimoto.
Despite being perceived as a big-hitting innovator, Japan has a tiny, struggling start-up landscape that has yet to make an impact abroad. “This is because this sector is the most under-supported in Japan,” says Terrie Lloyd, an Australian entrepreneur and commentator based in Tokyo.
As the global digital economy grows in importance, this puts Japan, the world’s third-biggest economy and one-time electronics giant, at a massive disadvantage. America and even tiny South Korea continue to come up with the gadgets and smartphone-based services that consumers want. Japan’s sluggish megacorporations such as Sony are unable to match the swift-footed foreign competition and fall further and further behind.
What strangles originality here, explains Tokyo-based technology consultant Nobuyuki Hayashi, is that Japanese innovation keeps to very rigid structures.
“Most of them went to the same university, studied the same subjects and never met people from outside the group. This is because of the Japanese educational system and how Japanese recruiting is done,” he says. “Japanese companies tend to hire graduates from the same school.”
This spectacular failure to respond to the internet age is slowly being challenged, however, both by the country’s new government and a few entrepreneurs. Copying ideas from Silicon Valley, top entrepreneurs and officials have tried for over a decade now to spark some life into Japan’s hi-tech sector by increasing incubation projects and the like. Japan now has over 400 business incubators up from 30 in 1999 some of which are focused on the hi-tech sector. Most offer funding, work space and mentoring.
And after being held back by the entropy of their elders for so long, Japan’s enterprising young are going it alone. An experienced user interface designer in Japan and abroad, 26-year-old Alexander Takahashi simply rents shared office space, and networks for Angel investors when he can, to develop a location-based service named Rooftops.
He understands the reservations. “Japanese businessmen tend not to trust the younger generation. No matter how well you present yourself - young equals bad,” says Takahashi. “And honestly I can understand them. There are no really new start-ups with new ideas nowadays.”
Japanese young entrepreneurs are enthusiastic but lack crucial business know-how, says Lloyd. “They are totally unprepared for the business world, and this is why cloistered accelerators and incubators are so popular here,” he adds.
Hitoshi Masuda, who until recently headed up the government’s small-business think tank, disagrees. He says: “Japan is changing profoundly but dynamically in terms of who drives innovation and how innovation is being driven.”
Economic reforms under a new government - Abenomics, named for the PM Shinzo Abe - are having some positive effects. His party has also promised to fight the corner of all innovators, risk takers and creative types.
Their model is a bunch of maverick, by Japanese standards, entrepreneurs which include Japan’s third-richest man, Masayoshi Son, born to a Korean immigrant family, whose mobile phone empire Softbank is funding a brave attempt at commercialising home-grown green tech innovations. His outsider outlook was a huge benefit, he says.
“If you look at successful Japanese start-ups, they are mostly run by CEOs who have applied the ‘foreign connection’ in some way - be it education, money, technology, business deals, or talent,” says Lloyd. “In some cases, like Mr Son, he has managed to combine all five factors.”
Those factors seem to have inoculated such champions against fear of failure making them bold at the same time. They represent a new way of being Japanese – one the nation urgently needs to get to grips with.