Japanese Entrepreneurship on the Rise

By Michael Tong

Shibuya Street Crossing. Photo courtesy of PacHD – www.pachd.com

In it’s 2010 report, the Global Entrepreneurship Monitor ranked Japan lowest among advanced economies in terms of attitudes toward launching new businesses, noting that the Japanese were the least likely to consider becoming entrepreneurs.

Being traditionally risk-averse, Japan’s workforce heavily favors employment in large corporations as opposed to starting their own businesses. However, a new generation of tech-savvy professionals is challenging that notion; and here are some of the reasons they’re contributing to the rise of Japan’s entrepreneurial spirit.

Geographic Location

Following last year’s earthquake and tsunami, minorities of young professionals and college students collectively realized a significance and sense of urgency in pursuing a career where they were responsible for and could influence their own fortune. In conjunction, many tech companies – such as Sony, Sharp, and Panasonic – broke with long-held promises of lifelong employment with mass layoffs, while utility companies downplayed the environmental risks affecting the surrounding areas.

After recently being surpassed by China as the worlds second largest economy, Japan also realizes its nation’s future prosperity and economy are vulnerable in the global market.

As a result, many young Japanese professionals are now motivated – by individual or national economic need for innovative businesses; by their parents and communities that have been directly affected; or by their distrust of large corporations – to accept the risk associated with starting their own businesses.

Demographic

According to the Ministry of Health, Labor, and Welfare, with longer life expectancies and low birthrates Japan’s population estimated to shrink by 41.26 million – approximately 30% – by 2060. Japan’s National Institute of Population and Social Security Research also projects that people age 65 and older will account for 39.9% of the total population in 2060. As of 2010, the elderly accounted for 23% of the population.  These factors create problems for corporate structures, where falling birthrates are symbolic of sluggish creation of new business ventures and aging of plant and equipment in the industrial sector. Simply, there exists a need for younger, innovative entrepreneurs and new infrastructure in order to maintain a competitive advantage.

Investment

Japanese investors typically do not have high expectations of a successful exit, therefore they invest far less than Silicon Valley counterparts in a company’s research and development, which ultimately leads to fewer companies succeeding, a diminishment of entrepreneurship, or products being ill-prepared for the global market.

However, American investors are now taking a keen interest to investing in Japanese startups and as a result, are building an entrepreneurial ecosystem in Japan similar to that of Silicon Valley, where companies can tap into venture capital for initial startup funding, rather than be self-funded.

 

Michael Tong
MBA Candidate/Field Fellow, Baruch SBDC
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