Entrepreneurship in Japan
Gaston Arevalo
Daniel Kovacs
Cristian Schreiner
Table of Contents




Overview
Entrepreneurship Frameworks
• Education
• Financing
• Cultural and Social Norms
Some trends and examples
Conclusions
Entrepreneurs in Japan

There have always been entrepreneurs
in Japan, but:
• Entrepreneurs are found inside of corporations
• Entrepreneurial activity is based on spin-offs
• Parent company absorbs the risk
What is Entrepreneurship?

Management Style  focused on innovation and change

Execution  transforming an idea into a promising venture

It is much more than starting a business!

Traditional Start-up Entrepreneurs and Corporate
Entrepreneurs

Focus on Traditional Entrepreneurs
Traditional Entrepreneurs

Average Characteristics:
• 8+ years of big company experience
• Brings established network of customers,
•
most frequently being prior clients
Keep majority stake in venture
• Prefer debt financing to equity financing
• Not many companies had access to capital
markets
• Mostly acted as small family businesses
How Entrepreneurial is Japan
Global Entrepreneurship Monitor 2003
Women Entrepreneurs
Global Entrepreneurship Monitor 2003
Entrepreneurship
Frameworks
Education
Importance of Entrepreneurship
Education




Essential to promote starting a business as an
professional alternative to younger generations
Promote a culture of innovation and risk taking
Eliminate some concerns that might exist
about fear of failure when starting a business
Put pressure on government to create
programs to aid young Japanese
entrepreneurs.
Some Differences (U.S. & Japan)
• US: Many Ph.D Students who
want industry jobs
• How funded: research
assistantships from external
funds
–Experience in project
management aspects
• Professor like corp. lab director:
gets ideas from students
• Primary motivations: academic,
opportunistic
• Japan: Ph.D students
committed to academic careers
• Scholarship-funded or position
allocated to professor
–Less experience with
management/admin
• Professor like parent or mentor
• Primary motivation: academic
University-industry roles in
conducting innovation
Richard B. Dasher
Stanford University, 2002
What does this mean?
 Universities are less industry oriented in Japan
(especially than in the U.S)
 Entrepreneurship Education is not viewed as
desirable as other professions like engineering.
 Japanese universities are less well positioned to train
students to start up their own businesses
 One historical explanation: anti business feelings that
arose among students and faculty as a result of the left
wing movements in Japan of the 1960’s and 1970’s
New trend: Venture Business Labs




Ministry of Education (MEXT) major
investment (buildings on university
campuses, large conferences)
Directed by professor; considerable
freedom in program, budget use
Now probably in more than 50 Japanese
universities
Metrics for evaluation, guidelines are still
under discussion
Educational Reforms: Highlights



Japan’s curriculum is regimented and dictated
According to Yamada (1991) Japanese are less creative, more
conservative and not nearly as individualistic. The Japanese
education system is to blame for discouraging innovations
Need for a change in the educational system is a first step in
long term culture reform. Example:
• New national policy cutting the prescribed curriculum by
30% to leave what is taught to the discretion of the
individual schools.
New Entrepreneurship Education
Programs






Some major departments: examples:
• Kochi Univ. of Technology Entrepreneur Engineering
Program
• Keio University (Shonan)
Some new curriculum tracks: examples:
• Waseda University (“Entrepreneur Business Strategy” track)
Student organizations: APEN
Business Plan competitions
New links between universities and industries
What about venture investor education programs?
Entrepreneurship
Frameworks
Financing
Venture Capitalists, Angels, Banks
and other Lenders
 The venture capital environment in Japan is in its early stages.
 No solid core of angels providing seed funding to start-ups.
However some have emerged to support the next generation of
entrepreneurs (examples: Isao Okawa, Masaya Nakamura,
Testuro Funai)
 The increase of independent capital firms are expected to
expand investments to promising young companies.
 Foreign venture capitalists are beginning to enter Japan (ex.
Goldman Sachs, J.P Morgan, Kyocera)
 The Japanese monetary system, bank structure and services
provided by security firms are slowly more favorable for the
entrepreneur
Corporate Accounting Standards
 Accounting
is structured for national tax collection
(makes it hard for investors to find relevant decisionmaking information)
 Tax regime does not allow special treatment for
startups.
 Need for a venture-friendly environment in Japan
What to do?
 Continue government efforts to create a more favorable
environment for new businesses
 Reinforce stock market (exit for vc firms)
 Banks forced to write off bad loans to end banking crisis and
provide cash for start ups
 Tax cuts that favor entrepreneurship and new business
creation
 Creation of new local entrepreneurial districts – incubators
 Reduction in governmental red tape in starting a business
 Transition to a new economy to encourage growth
 Continue elementary, secondary and university curriculum
reforms.
Entrepreneurship
Frameworks
Cultural and Social Norms
Conflicting Views

Entrepreneurship is not new in
Japan
“Each individual should work for himself. People will not sacrifice
themselves for the company. They come to work at the
company to enjoy themselves.”
Soichiro Honda – 1948

Entrepreneurship in Japan is not seen as
prestigious
Professional Development


Group oriented culture
•
Indentity & Social Hierarchy
• Group
• Company
• School
• Elite Gov Agency
Success History:
•
•
Enter a big corporation
Stay until they retire
“ The Nails that sticks
up get hammered
down”
Specialists Perspective

Japan needs cohesive social, political, and economic
revolutions to unleash the entrepreneurial energies
necessary to build durable wealth (Garten, 1999).

Risk-taking entrepreneur in Japan confronts many social
pressures that can hinder success. (Herbig and
Jacobs,1999)

Japan's existing society and structure as well as other
cultural factors are not conducive to the creation of
entrepreneurial ventures and the new types of companies
that the country needs to generate new jobs (Komago,
1999).

Entrepreneurship culture still exists

Employment Status Survey ( Syuugyoukouzou Kihon Cyousa*):
the number of aspiring entrepreneurs did not decline so much
in comparison to the decline in the actual number of new
businesses
*Government administered survey

Japan's lack of the skilled venture capitalists
Family Businesses

Capital to establish such firms is often
provided from the founder's
• Own assets and investments by family,
relatives and business associates.
• Later, the usual sources :loans from privatesector financial institutions
Cultural Pressure

Cultural fear of failure still has a strong influence

Risk aversion permeates the Japanese society

Small business failure is not viewed as a learning experience.

Top graduates see high risks, and not high returns from
working at startups.

Social pressure from parents is high for work at famous big
companies.

Another recent trend : Seniority System X Performance Based
System
Some Factors

The start-up rate for new businesses in Japan is the lowest rate
among industrialized countries.

The White Paper on Small and Medium Enterprises in Japan 2002
argues that the cause:
•
•
country's transition to a lower rate of economic growth
the decline in the income ratio between entrepreneurs and salaried workers
(i.e., operating income of a proprietorship versus wage income).

Stagnating business environment has stamped out many of the
opportunities for new business start-ups

But the income disparity offers little incentive for a person to leave his
job to become an entrepreneur

Culture as the only factor, therefore, does not explain the relatively low
entrepreneurial activity in Japan in recent years.
Success Stories

Anita Lee - Go Mobile co-founder

2. What are some of the challenges you have faced in
starting your business and how did you overcome them?
Thankfully, my earlier days in Finance and being involved
in a family business had taught me that there are always
challenges when developing a business

Initially, I found the Japanese language barrier a
challenge,

The greatest challenge I faced in the beginning was the
expensive upfront cost of high profile advertising.
Success Stories
Koichiro Shimizu
President, LearningEdge Co., Ltd.
www.seminars.jp

Profile - Shimizu:
Koichiro Shimizu is the president of LearningEdge Co., Ltd. He had worked for
ABeam (Former "Deloitte Tohmatsu Consulting") and a venture company after
graduating from Keio University.

In Deloitte, he worked for various companies (US consumer product, US auto,
French Gas, French life insurance, UK mobile phone, Dutch life insurance,
Japanese pharmaceutical, etc) as a CRM IT strategy consultant.

He established his company in 2003 and has developed "seminars"
(www.seminars.jp) which is a portal website of seminars. Amazon.com is selling
books on internet, "seminars" is selling seminars on internet. Now he is
focusing on this "seminars" to be the No.1 seminar portal web site.
Conclusions
Entrepreneurs and the future of
Japan



Closer ties between university and industry and promotion of
Entrepreneurship
• Declining student population (so universities need more
external support)
• Tighter corporate R&D budgets (so companies need to rely
more on university for pre-competitive research)
New faculty policies appear to be promoting professor led startup companies
• Maybe higher operational risk + conflict of interest violations
• Lower individual risk
More student and junior faculty now appearing on patent
applications
Challenges for future entrepreneurs
in Japan





Educating / managing investors
• Decision making and governance
• Connected with attitudes toward failure
Market access often poor for any new company (exit strategies)
Conflicting attitudes towards youth and women
• Somewhat of a common factor in East Asia
Exclusion of product development people from initial product
planning
Promising entrepreneurs might opt to pursue their business
idea outside of Japan
Japan since 1998



Development of new legal framework
•
Venture Capital Investment Co. Law in 1998
Government funding initiatives
•
•
Establishment of Business Incubators
Established grants and incentives for promising
entrepreneurs
Major push to encourage universities to enter
the field
•
Creation of education programs to encourage
engineers to enter the business world independently