Entrepreneurship in Japan

1
Entrepreneurship in Japan

• Gaston Arevalo
• Daniel Kovacs
• Cristian Schreiner

2
Table of Contents

• Overview
• Entrepreneurship Frameworks
• Education
• Financing
• Cultural and Social Norms
• Some trends and examples
• Conclusions

3
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

4
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

5
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

6
How Entrepreneurial is Japan
Global Entrepreneurship Monitor 2003
7
Women Entrepreneurs
Global Entrepreneurship Monitor 2003
8
Entrepreneurship Frameworks

• Education

9
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.

10
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

11
University-industry roles in conducting
innovation
Richard B. Dasher Stanford University, 2002
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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 1960s and 1970s

13
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

14
Educational Reforms Highlights

• Japans 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.

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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?

16
Entrepreneurship Frameworks

• Financing

17
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

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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

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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.

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Entrepreneurship Frameworks

• Cultural and Social Norms

23
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

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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

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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).

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• 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

27
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

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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

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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.

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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.

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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.

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Conclusions
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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 RD 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

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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

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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