Entrepreneurship in Japan

Gaston ArevaloDaniel 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

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Global Entrepreneurship Monitor 2003

Women Entrepreneurs

-

5.00

10.00

15.00

20.00

25.00

30.00

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. DasherStanford 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 decision-making 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

“ The Nails that sticks up get hammered

down”

Success History: • Enter a big corporation

• Stay until they retire

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 private-sector 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.

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.

Success Stories

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 start-up 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