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Innovation and Entrepreneurship in Japan: Why Japan (Still) Matters for Global Competition Kenji Kushida, Stanford University
SVNJ Working Paper 2017-2
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Abstract
Throughthe1980s,Japanwassignificantinglobalcompetitionlargelybyshapingglobal
technologicaltrajectories,transformingmajorglobalindustries,andcontributingto
fundamentalinnovationsinindustrialproductionprocesses,creatingenoughwealthalong
thewaytopropelJapantotheworld’ssecondlargesteconomy.Aftertheeconomicbubble
burstintheearly1990s,however,otherplacessuchasSiliconValleyintheUnitedStates,
movedtotheforefrontoftransformingtechnology,industries,andproduction,creating
vastwealthalongtheway.WhileJapan’sroleinglobalcompetitionseeminglybecame
largelyirrelevantfromthe1990sonward,carefulanalysesrevealthatJapanwasinfact
transformingquietlyandgradually,butsignificantly.Inapatternof“syncretism,”Japan’s
economictransformationwascharacterizedbythecoexistenceofnew,traditional,and
hybridformsofstrategyandorganization.Thispaperexaminescoreareasofthe“new”and
emerging“hybrid”areas—thestartupecosystemandtheeffortsofselectlargefirmsto
harnessnewformsofinnovationfromoutsidetheircorporateborders.Japan’sstartup
ecosystem,thoughstillsmallcomparedtoSiliconValley,asiseverywhereelse,has
dramaticallytransformedoverthepasttwentyyearsthroughacombinationofregulatory
shifts,corporatetransformations,andtechnologicalbreakthroughsthathaveopenedup
vastnewopportunities.SomelargecorporationssuchasKomatsu,Honda,Toyota,and
YamahaareundertakinginnovativeeffortsofsortsunseeninJapan’srecenthistoryto
harnessSiliconValleyandotherstartupecosystemsintotheircorebusinessareas.
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Introduction Inthe1980s,Japan’ssurgingeconomyandindustrialcompetitivenesstookthe
worldbystorm.However,in1990,afteramassiveassetbubbleburst,Japan’seconomic
growthfaltered,anditsindustrialcompetitivenessdeclinedsharply.Japan’stakeoverofthe
world’smanufacturingandsoftwareindustries,whichmanyhadpredicted,never
materialized.Narrativesof“JapanasNumberOne,”orsomegovernment-industrialnexus
of“Japan,Inc.”posinganewmodelofsuccessfulcapitalism,oreven“BeyondCapitalism”
morphedintotalesoffailureandstagnation.1Titlessuchas“Japan,theSystemthat
Soured,”“Japan’sFinancialCrisis:InstitutionalRigidityandReluctantChange,”andbooks
withsubtitlessuchas“…theinstitutionaloriginsofprosperityandstagnation”probedthe
causesofJapan’sspectacularfaltering.2
Then,bythe2000s,theworldeconomyseemedtohavemovedon,andJapanwasno
longerdeemedsignificant.Whilesomefirmsremainedgloballycompetitive,suchasToyota
andahandfulofprecisionequipmentfirmssuchasMurataManufacturing,Japan’s
economicprowessseemedafarcryfromtheerawhenitsfirmsdominatedcriticalcutting-
edgehigh-techindustriessuchassemiconductors.
1Vogel,E.F.(1979).Japanasnumberone:lessonsforAmerica.Cambridge,Mass.,HarvardUniversityPress,Sakakibara,E.(1993).Beyondcapitalism:theJapanesemodelofmarketeconomics.Lanham,MD,UniversityPressofAmerica.2Katz,R.(1998).Japan,thesystemthatsoured:theriseandfalloftheJapaneseeconomicmiracle.Armonk,NY,M.E.Sharpe,Gao,B.(2001).Japan'seconomicdilemma:theinstitutionaloriginsofprosperityandstagnation.Cambridge;NewYork,CambridgeUniversityPress,Amyx,J.(2004).Japan'sfinancialcrisis:institutionalrigidityandreluctantchange.Princeton,N.J.,PrincetonUniversityPress.
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Yet,asthispaperreveals,whiletheworld’sattentionwasfocusedelsewhere,most
notablytherapidtechnologicalsophisticationandbreakneckgrowthofChina,Japanhas
actuallybeendevelopinginsignificantwaysthatmatterforglobalcompetition.
Largefirmsarebeginningtoembraceopeninnovation,lookingoutsidetheirown
corporateborderstofindsourcesofinnovation.WiththeriseofSiliconValleyasahubof
innovationproducingfastgrowthcompaniesthathavedisruptedexistingindustries,
reshapedtechnologicaltrajectories,andcreatednewproductionparadigms,thefrontierof
innovationnowpointstolargecompaniesharnessingexternalresources.LargeJapanese
companiesareincreasinglyseriousaboutinvestingin,partnering,andharnessingoutside
firmstoenhancetheircorebusinessofferings.Somehaveevensuccessfullyharnessed
SiliconValley,partneringwithstartupstoprovideessentialfunctionalitytotheirmain
productsandservices,asdescribedbelow.WithinJapan,thestartupecosystemhasgrown
significantly,withnewlevelsofpartnershipandcooperationwithlargefirmstoadjustto
therealitiesofinformationtechnologyintensivecompetition.Overall,theincreasing
diversityofJapan’seconomy,withlargefirmcorporatestrategiesdiverging,aburgeoning
startupecosystem,diversifyingelitecareerpaths,andafocusonacquiringnewstrengths,
suggeststhatJapanwillcontinuetomatter.Whilethefocusonsocialstabilityledtoalong
periodofslowadjustmentattheexpenseofgrowth,theincreasingdiversityinwhatisstill
averylarge,wealthy,technologicallysophisticatedandhighlyeducatedeconomyisnow
Japan’scorestrength.
WhyJapanMattered
Initsessence,Japan’spostwareconomicgrowthmatteredforglobalcompetition
notsimplybecauseits“miracle”growthfromtheashesofdevastationwasdramatic.Itwas
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becauseinnovationsthatoccurredwithintheJapanesedomesticindustrialcontextshaped
globaltechnologicaltrajectories,transformedmajorglobalindustries,andcontributedto
fundamentalinnovationsinindustrialproductionprocesses.
ThemostcriticalpostwarJapaneseinnovationwasintheautomobileindustry,
pioneeredbyToyota,withthe“leanproductionsystem,”analyzedinanMITstudy
“MachinethatChangedtheWorld,”andothersasafundamentalnewparadigmfor
manufacturingtowhichtherestoftheworldhadtoadjust.3Leanproductionentailed
minimizinginventorieswith“just-in-time”deliverywithinplantsandfromsuppliersthat
enabledunprecedentedflexibility,andmostfundamentally,empoweringassemblyline
workerstosuggestimprovementsandreduceproblems,reversingtheinformationflows
fromtop-downonlytobottomup.ThenewinformationflowsinJapanesecompaniesledto
studiesoforganizationaslessonsfortherestoftheworld.4
Japanesefirmssurgedintoglobalsemiconductormarkets,takingtopsharesina
varietyofareas,anditsconsumerelectronicsfirmsdrovemanyincumbentUSfirmssuch
asZenithorRCAoutofthemarket.
Japan’ssurgeintoglobalmarketswassupportedbyinnovationintheformof
deployingtechnologiesinventedelsewhereandbringingthemtosuccessful
commercialization.Whilesomereverseengineering,accomplishedpartlythrougha
relativelyweakintellectualprotectionregulatorystructure,didoccur,manyofthe
innovationswerereal.Forexample,Sharp’svisiontocreateahandheldcalculatorinanera
3Womack,J.P.,D.T.JonesandD.Roos(1991).Themachinethatchangedtheworld:thestoryofleanproduction.NewYork,N.Y.,HarperPerennial.4Aoki,M.(1988).Information,incentives,andbargainingintheJapaneseeconomy.NewYork,NY,CambridgeUniversityPress,Nonaka,I.andH.Takeuchi(1995).Theknowledge-creatingcompany:howJapanesecompaniescreatethedynamicsofinnovation.NewYork,OxfordUniversityPress.
4
whentheywerelargedesktopdevicesthatrequiredexternalpower,ledtoToshiba
becomingthefirstfirmtosuccessfullymanufactureC-MOS*complementarymetaloxide
silicon)chips,whichlaterbecameacoretechnologyoftheentiresemiconductorindustry.
Seikopioneeredthecommercializationandmassmanufactureofquartzwatches,enabled
byadvancedprecisionmanufacturingandtheearlyadoptionofC-MOSchips,andledto
Seikosuccessfullyfilinghundredsofpatentstodominatethequartzwatchmarket.
JapanesefirmswerealsoattheforefrontofcommercializingLCD(liquidcrystaldisplay)
panelsforwatches,television,andlaptopscreens.Theseallfollowedapatternofcore
scientificbreakthroughsoccurringinAmericanlargefirmlaboratories,suchasBellLabs
andRCA,butalackofabilitytofollowthroughandimplementtheminproductsor
completesuccessfulmassmanufacturingprocesses.TheJapanesefirms,comingfrom
behindandlackingthescientificbasis,succeeded.5
AnotherpatternofJapanesesuccesswastoredefineproductcategories.Sony’s
portablecassettetapeplayer,theWalkman,forexample,tooktheexistingproductoflarge
desktopcassetterecorder/players,andremovedtherecordingfunction(againstindustry
wisdomandsomewithin-firmopposition),andaddingtheextrafunctionalityofportability,
whichrequiredminiaturizationandre-designingpartsforlowenergyconsumption.
Japan’scompetitivecapabilitieswereseenasnotonlyinmanufacturing,butalsoin
software.SophisticatedobserversviewedJapanesefirmsandgovernment-orchestrated
consortiaasacompetitivethreatforallotherswithtitlessuchas“Japan’sSoftware
5Sony’sco-founderlikedtheidea,buttheinventor’sdirectbosseswereagainstit,sayingthatpeoplewouldn’tbuyatapeplayerthathadnorecordingcapability.http://business.nikkeibp.co.jp/atcl/interview/16/031800001/052700007/?P=2&rt=nocnt
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Factories”and“Japan’sthreattoIBM.”6TopAmericancomputerscientistsalsosaw
crediblecompetitivepotentialinJapan’sartificialintelligenceintheearly1980s,witha
booksubtitled“…ArtificialIntelligenceandJapan’sComputerChallengetotheWorld,”
coveringfifthgenerationsupercomputinginitiativesthatharnessedpublic-private
initiatives.7
AsJapanburstontotheglobalcompetitivescene,amajorpuzzlebecamehowto
understandJapan’scompetitivestrengths.Wasitanexusofgovernment-business
collaboration(collusion)of“Japan,Inc?”Wasitstate-ledinsomeformwithsmart
bureaucratsguidingtheeconomy,8dynamicandentrepreneurialbusinessessucceeding
despitegovernmentinterference,ormoreabouttheinternationalsystemthatallowed
JapantoaccessexportmarketswhileprotectingitsowndomesticmarketsundertheUS
ColdWarumbrella?Evenasthedebatescontinued,Japan’scompetitivenessseemedto
dropprecipitouslyinthe1990s.
WhyJapanSeemedtoFallintoIrrelevance
Fromthe1990s,Japanseemedtoslideintorelativeglobalcompetitiveirrelevance.
Thiswastheresultofseveralfactorsthathititallatonce.First,amassiveassetbubble
burstin1990.Firmsflushwithcashborrowedonthebasisofever-risingrealestateprices
werehitwithmassivewrite-offs.Theexchangeraterevaluationafterthe1985Plaza
AccordalsohitJapanastheyenrapidlyappreciatedagainstthedollar,makingexports
6Anchordoguy,M.(1989).ComputersInc.:Japan'schallengetoIBM.Cambridge,Mass.,PublishedbyCouncilonEastAsianStudiesDistributedbyHarvardUniversityPress,Cusumano,M.A.(1991).Japan'ssoftwarefactories:achallengetoU.S.management.NewYork,OxfordUniversityPress.7Feigenbaum,E.A.andP.McCorduck(1983).Thefifthgeneration:artificialintelligenceandJapan'scomputerchallengetotheworld.Reading,Mass.,Addison-Wesley.8Johnson,C.(1982).MITIandtheJapaneseMiracle:TheGrowthofIndustrialPolicy,1925-1975.Stanford,CA,StanfordUniversityPress.
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moreexpensiveelsewherebyafactorofXwithinthespanofjustafewyears.Finally,and
significantlyforcompetition,thedynamicsofcompetitioningloballeadinghightech
industriestransformed—partlyasanadjustmenttotheJapanesecompetitivethreat.
The“ITrevolution”ofthe1990sintroducednewdynamicsofcompetitionintheIT
industry.TheadventofthePCsledtotheriseofmodulararchitecture,9whichenableda
decompositionofverticalintegration.10Valueshiftedawayfrommainframecomputersto
PCs,andfromfinalassemblerstotheoperatingsystemandcoreprocessor—Wintelism.11
BothweremovesawayfromJapanesestrengths.ManylargeUSfirmsthathadbeen
outcompetedbyJapanesecompetitorstransformedthemselvessignificantly—IBM,GE,HP,
andothers,abandoningthelongtimetenetsoflifetimeemployment,in-houseR&D,towards
an“openinnovation”or“NewEconomy”businessmodel.12Platformsbecameimportantin
competition,withfirmsthatmadeoperatingsystemsorsomeothersoftwareplatformon
topofwhichthirdpartiescouldflourish.13ThematurationoftheInternetintoanopen
globalplatformenabledSiliconValleytobecomethesourceofnotonlygame-changing
competition,butalsohighvaluefirmsincludingApple,CiscoSystems,andGoogle.Services
becamecriticaltosellingproducts;theAppleiPodorAmazonKindle,forexampleowetheir
9Baldwin,C.Y.andK.B.Clark(2000).Designrules.Cambridge,Mass.,MITPress.10Langlois,R.N.andP.L.Robertson(2002).Firms,marketsandeconomicchange:Adynamictheoryofbusinessinstitutions,Routledge.11Zysman,J.andM.Borrus(1997)."GlobalizationwithBorders:TheRiseOfWintelismAsTheFutureOfGlobalCompetition."IndustryandInnovation4(2):141-166.12Chesbrough,H.W.(2003).Openinnovation:thenewimperativeforcreatingandprofitingfromtechnology.Boston,Mass.,HarvardBusinessSchoolPress,Lazonick,W.(2009)."TheneweconomybusinessmodelandthecrisisofUScapitalism."CapitalismandSociety4(2).13Gawer,A.andM.A.Cusumano(2002).Platformleadership:howIntel,Microsoft,andCiscodriveindustryinnovation.Boston,Mass.,HarvardBusinessSchoolPress.
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successasmuchtoeffectiveintegrationwithonlinemarketplacesandabundantcontent
vis-à-visattractivenessofthedevicesthemselves.14
AsJapanesefirmsfacednewdynamicsofcompetition,theriseofotherAsian
manufacturers,notablyKorea,followedbyChina,rapidlythreatenedthemfromthelower
end.Koreanfirms,notablySamsungandLG,movedupthevaluechaintocompetewith
Japanesefirmsheadoninsemiconductorsandconsumerelectronics,eclipsingmanyofthe
JapanesefirmssuchasSony,NEC,andToshibabytheearly2000s.Chinesesuppliersalso
movedupthevaluechainwith“fastfollower”strategies15andaggressiveharnessing
inwardforeigndirectinvestment.16
JapanalsosufferedapatternofinnovationinwhichanumberofIT-related
industriesdevelopeddramaticallyinthedomesticmarket,butfailedtocaptureglobal
markets.Especiallyinmobilecommunications,whereasophisticatedecosystemofmobile
Internetplatforms,advancedhardware,andarobustcontentindustryflourished,Japan
becamea“leaderwithoutfollowers,”whereitclearlyledtheworldalongexpected
trajectories,butwithoutfollowers—Japan’smobileindustrywasdisruptedbythe
smartphonerevolutionbyAppleandGoogle.Inotherareassuchasmobilepaymentsvia
phonesandprepaidcards,Japanalsobecamealeaderwithoutfollowers—referredto
domesticallyasthe“GalapagosPhenomenon,”afterthegeographicallyisolatedislandsin
theSouthPacificthatledtodistinctbio-ecosystems.Theproblemfortheseadvanced
14Zysman,J.,S.Feldman,K.E.Kushida,J.MurrayandN.C.Nielsen(2013).ServiceswithEverything:TheICT-EnabledDigitalTransformationofServices.TheThirdGlobalization?CanWealthyNationsStayRichintheTwenty-FirstCentury?D.BreznitzandJ.Zysman.NewYork,NY,OxfordUniversityPress:99-129.15Breznitz,D.andM.Murphree(2011).Runoftheredqueen:government,innovation,globalization,andeconomicgrowthinChina.NewHavenConn.,YaleUniversityPress.16Huang,Y.(2003).SellingChina:Foreigndirectinvestmentduringthereformera,CambridgeUniversityPress.
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serviceswasthatthevaluewasheldbynetwork-owningfirmssuchascellularcarriersand
railroadgroupcompanies,whofailedtointernationalizetheirservices,leadingto
hardwareandcontentecosystemsbecomingtrappedinthedomesticmarket.17
Inshort,duringthe1990s,atthesametimethatJapansufferedtheburstofanasset
bubble,theUSexperiencedaresurgence,mostnotablyfromSiliconValleyanddrivenby
thecomputerindustry.USfirmsbecametheforefrontofsettingglobaltechnological
trajectories,globalindustrytransformations,andrevolutionizingproductionprocessesina
waythatbroughtinotherAsiancountries.
Japan’sGradualbutSignificantAdjustment:“Syncretism”
Japan’sadjustmentoccurredgraduallyandincrementally.Whilesomesawsimply
stagnation,carefulanalysessawprocessesofchangethatfollowedexistingpatternsof
institutionalreform,withgovernmentandindustryreformingthemselvesratherthan
throughexternalshocks.18Avoidingdrastic,suddenchangethatwouldleadtosocial
turmoil,reformsweregradualandincremental;ratherthanmasslayoffs,forexample,large
corporationsreducedheadcountprimarilythroughattritionandearlyretirement
incentives.Corporatelawreformsprovidednewoptionsforhowtoorganizecompanies,
butwerenotcompulsory.Accountingreformoccurredstealthily.Andwhilesome
previouslyprotectedsectorssuchasfinanceandtelecommunicationsunderwentdramatic
influxesofforeignfirms,foreignfirmswerebroughtintohelpsoftentheendofthe
17Kushida,K.E.(2011)."LeadingWithoutFollowers:HowPoliticsandMarketDynamicsTrappedInnovationsinJapan'sDomestic"Galapagos"TelecommunicationsSector."JournalofIndustry,CompetitionandTrade11(3):279-307,Kushida,K.E.(2015)."ThePoliticsofCommoditizationinGlobalICTIndustries:APoliticalEconomyExplanationoftheRiseofApple,Google,andIndustryDisruptors."Ibid.18Vogel,S.K.(2006).JapanRemodeled:HowGovernmentandIndustryareReformingJapaneseCapitalism.Ithaca,NY,CornellUniversityPress.
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“convoysystem”ofimplicitgovernmentguaranteesagainstbankruptciesinfinancial
sectors.19Deregulationenablednewstockexchangesforsmallmarketcapitalizationfirms,
corporatecoderevisionsenabledstockoptioncompensation,nationaluniversitieswere
reformedintoindependentorganizationstoincreaseflexibility,andregulations
surroundingmergersandacquisitionsmadeiteasierforcompaniestomerge,spinoff,and
createholdingcompaniestofacilitateavarietyoforganizationalforms.
TheJapaneseeconomicmodelthatemergedbytheearly2000swasmoreopen,
morediverse,andlesscohesivethanthepreviousmodel.20Thesystemmaybebest
characterizedas“syncretism”—thecoexistenceoftraditional,new,andhybrid
organizationsandpractices.21Thetraditionalincluderegionalbanksandsmallmedium
companies(SMEs),forexample,remainedrelativelytraditional,withbusinessmodelsand
internalorganizationslargelyunchangedfordecades.Thenewsegmentsincludeforeign
firmsandtherapidlydevelopedstartupecosystem.Hybridareas,whichrepresentlarge
swathsoftheeconomy,changedsomepracticesandorganizations.Examplesinclude,
traditionalkeiretsubanksmergingintothreemega-banks,semiconductordivisionsof
majorfirmsspinningouttocreatejointventurestotakethemoffthebooksforparent
companies,andagrowingmarketformid-careerhires,especiallyinIT-relatedindustries.
Thepointoftheconceptofsyncretismisthatnoteverythinghybridized—instead,there
wasacoexistenceoftraditional,new,andhybridareas.
19Kushida,K.E.(2010).InsidetheCastleGates:HowForeignFirmsNavigateJapan'sPolicymakingProcesses.Ph.DDoctoralDissertation,UniversityofCaliforniaBerkeley.20Vogel,S.K.(2006).JapanRemodeled:HowGovernmentandIndustryareReformingJapaneseCapitalism.Ithaca,NY,CornellUniversityPress.21Kushida,K.E.,K.ShimizuandJ.Oi,Eds.(2014).Syncretism:CorporateRestructuringandPoliticalReforminJapan,ShorensteinAPARC.
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AsignificantproblemforobservingchangesinJapanwasthatifonelookedfor
static,traditionalareas,onecouldfindthem,leadingtoconclusionsthatJapanwasstagnant
andresistanttochange.Yet,whenlookingsomewhereelse,onecouldalsofindnew
dynamicchange,withnewfirms,newpractices,andaltogethernewdynamicsof
competition.Theconceptofsyncretismexplainswhybothwereobserved;theycoexisted.
Thispaperfocusesonthe“new”and“hybrid”areas,whereJapanislikelytomatter
morethancommonlythoughtinglobalcompetition.Thepaperfirstdelvesintothe
emergingstartupecosystem,whichismoreeasilyobservableasacenterofdynamism.
Thenitturnstoexaminesomenotablelargefirminnovations.
II.Japan’sNewStartupEcosystem
Japan’seconomyhas,andislikelytoremaincenteredaroundlargefirms.However,
sinceanimportantcharacteristicofcurrentleadinginnovationsystemsistheabilityfor
largefirmstomakeuseofnewideasandtechnologiesdevelopedoutsidetheircorporate
borders—“open”innovation—wefirstlookatJapan’sstartupecosystem.
Anystartupecosystem,whencomparedtothatofSiliconValley,willlooksmallin
scaleandlessdynamicintermsofthespeedatwhichnewhigh-growthstartupsare
created.However,ifseenovertime,sincethemid-2000s,Japan’sstartupecosystemhas
developedconsiderably.AsJapan’soveralleconomiccontexttransformedgraduallybut
significantly,manyoftheimpedimentsforcreatingavibrantstartupecosystemhave
diminishedsubstantially.
Japaniscurrentlyexperiencingawaveofexcitingscienceandtechnologybased
startups.Ifthetrajectorycontinues,thisisjustthebeginning,withsuccessivegenerations
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ofstartupsenjoyinggreatersuccessatrapidgrowth,partnershipswithlargefirms,and
harnessingSiliconValley.
Ratherthandelvingintoanalyticalframeworkfirst,thispaperwillbemoreexciting
ifwejumpdirectlytoexamplesofstartupsthatillustratevariouscharacteristics.
ScienceandTechnology-basedStartups
First,Japanhasarelativelyhighdegreeofinvestmentinresearchanddevelopment
fromthegovernmentandthrougheducationalinstitutions.Japanhasbeensecondtothe
USbyfaramongadvancedindustrializedcountriesingovernmentexpendituresonR&D,
andahigherpercentageofGDPthananywhereelse.ChinasurpassedJapanbetween2005
and2010inabsoluteterms.However,thepointisthatscienceandtechnologybasedR&D
isoneofJapan’sstrengths.
GovernmentExpendituresonR&DYear 2005 2010 2013
Country Amount % GDP Amount % GDP Amount % GDP Japan 128,695 3.31 140,607 3.25 162,347 3.47 United States 328,128 2.51 410,093 2.74 456,977 2.74 China 86,828 1.32 213,460 1.73 333,522 2.01
Germany 64,299 2.42 87,883 2.71 102,573 2.83 United
Kingdom 34,081 1.63 38,166 1.69 41,743 1.66 France 39,236 2.04 50,765 2.18 57,987 2.24 South Korea 30,618 2.63 52,173 3.47 68,051 4.15
Source:OECDHigherEducationExpendituresonR&D
Year 2005 2010 2013
Country Japan 18,849 18,099 20,807
United States 51,725 60,374 61,227 China 9,449 18,053 22,874
Germany 12,218 15,996 17,157 United Kingdom 9,262 10,322 10,437
France 8,646 10,955 11,225 Korea 3,208 5,646 6,298
Source:OECD
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NotableJapaneseuniversityspinoutstartsbeginningtoappearafterregulatory
reforms,discussedlater.Forexample,Cyberdyne,whichgrewoutofTsukubaUniversity,
producesroboticsuitsthatassisthumanmovement.Foundedin2004,Cyberdynewasa
trailblazer,winningnumerousawardsinJapanandabroad,includingtheAmericanSociety
forArtificialOrgans,andtheIEEE/IRInventionandEntrepreneurshipAward.Cyberdyne
workedwithlargeGermancompanies,andreceivedaccreditationfromtheEuropean
Commissionin2013,developingtheworld’sfirstroboticremedialdevice.Thecompany
wentpublicinMarch2014ontheMothersexchange.FounderYoshiyukiSankaididnote,
however,thathadthecompanybeenfoundedinSiliconValley,itwouldhavegrownmuch
faster,sincetheearlyfundingcamefrompersonalassetsandbankloansduringJapan’s
venturecapitaldownturnintheearly2000s.
Spiber,foundedin2007,successfullycreatedsyntheticspidersilkbydecodingthe
geneticinformationoffibroin,aproteinthatisthemaincomponentofspidersilk.The
technologygrewoutofalaboratoryatKeioUniversity,withthen-graduatestudent
KazuhideSekiyama,alongwiththen-undergraduateJunichiSugiharamakingthediscovery
inearly2007andstartingthecompanylaterthatyear.Giventheunfavorableinvestment
climateimmediatelyfollowingtheglobalfinancialcrisis,ittookthemtwoyearstomakea
technologicalbreakthroughtoproduceartificialspiderthreadandsubsequentlysecure
venturecapitalfunding.In2012,thecompanyenteredintoanalliancewithanautoparts
supplierforToyota,KojimaIndustries,andtogethertheysetupafactoryformass
production.
AmorerecentfirmisNuProtein,foundedin2015bythreeprofessorsand
researchersatNagoyaUniversity,whoinventedanewmethodologyforsynthesizing
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proteins.CalledProteinSynthesisSystem3.0(PSST),comparedtoconventionalmethods
thatutilizee-coliwhichtakeabouttwoweeks,PSSTclaimsaboutfourteentimesfaster,
fiftytimestheamountofyield,andafargreaterarrayofproteinsthatcanbesynthesized.
Theresearchersfirstmadeanacademicimpactbyprovidingproteinssynthesisfor
particularexperiments,becomingco-authorsonovertentopacademicpapersinjournals
suchasNature.Thebusinessistosellproteinsynthesiskitsandsellingdifficultto
synthesizeproteinssuchashormonesandmembraneproteins,whichareexpectedtobe
usefultodiscovernewpharmaceuticalproducts.Thecompanyreceivedearlyfinancial
supportfromNEDO,andwonstartuppitchcontestsinJapanandSiliconValley.
Japanesenon-universityresearchlabs,inparticularRiken,Japan’slargestpublically
fundedresearchlab,hasalsoproducednewbasicresearchthathasenabledventurecapital
backedstartups.ThemostnotableisHealios,whichlicensedatechnologydevelopedby
RikenresearcherMasayoTakahashitouseiPScellstodeveloparegenerativetherapyfor
age-relatedmaculardegeneration.WhiletheRikenlabmethodswouldcostanestimated
$1millionpertreatment,medicaldoctorandserialentrepreneurTadahisaKagimotoset
outtodevelopafarlowercostlineofcellsusingthistechnology.Foundedin2011,Healios
receivedapproximately3billionyeninfundingfromagroupofJapanesefirmsinvolvedin
biopharma,includingSumitomoDainipponPharman,Nikon,ShinNipponBiomedical
Laboratories,andTella.ThecompanylistedontheMothersmarketinJune2015.
LargeFirms,ForeignFirms,andGovernmentasaSourcesofTalent
Largefirmstraditionally“lockedup”muchofJapan’sbesttalent.However,asthe
survivalofmanylargefirmsthemselvesiscalledintoquestion,andwithlifetimecareer
employmentpathsbecominglessattractive,youngeremployeesareincreasinglyleavingto
14
formtheirowncompanies.Thisdynamichasdriventhecreationofsomenotablestartups,
whichabsorbfurtheremployeesastheygrow.Cerevo,forexample,ahardwarefirmthat
designsproductsthatconnecttotheInternettoprovidefunctionality,wasfoundedbya
formeremployeeofPanasonic,drawingengineersfromalmostallthemajorJapanese
consumerelectronicscompanies,suchasSony,Sharp,Panasonic,NEC,andothers.
UPQ,isaconsumerelectronicsstartupfoundedin2015thatmadeheadlinesby
introducing24highlyaestheticdesignproductsinitsfirsttwomonths,rangingfrom
smartphonestospeakers,aglasskeyboard,backpackwithbuilt-inbatteryforcharging
devices,achair,andotherthings.Theentrepreneur,YukoNakazawa,wasinhermidtolate
20s,andhadinitiallyworkedforCasiotodesigntheirmobilephones,butleftwhenCasio
withdrewfromthehandsetindustry.
SiliconValleyfirmsinJapanareanewsourceofentrepreneursandJapanesestartup
ecosystemplayers.Wantedly,arecruitingservicethatworksbymixingasocialnetworking
servicewithrecruiting,wasfoundedbyAkikoNaka,aKyotoUniversitygraduatewhohad
workedatGoldmanSachs,followedbyFacebook.Atthetime,Facebook’sJapanoperations
hadonlysixpeople,soitfeltlikeastartup.Nakarealizedthatthecurrentgenerationof
youngerworkerswereinterestedinfulfillmentfromtheirjobsratherthansimplysalary,
soWantedlymakesapointofnotallowingemployerstopostsalaries,butinsteadappealto
workers’potentialpassionforthejob.AsmajorJapanesefirmsbegantoincreasemid-
careerhires,andtheITindustryhasahighlymobileworkforcevis-à-visothersectors,
Wantedly,foundedin2010wasquicklyadoptedbyoverathousandcompaniesandten
millionusers.LargecompanypersonnelrecruitingbudgetseasilycoveredWantedly’sfees,
sothecompanybecameprofitableearlyon.
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DaisukeSasaki,theco-founderofFreee,aFintechfirmthatprovidesfinancialtools,
especiallyforSMEs,waspreviouslyemployedatGoogle.Thecompanywasfoundedin
2012,andaimedtofillun-serveddemandforaneasytouseaccountingsystemfor
companiesthatdidnotrequire,orfoundtoocumbersometheenterprise-gradeaccounting
softwarethatdominatedtheJapanesemarket.Co-founderRyuYokojihadworkedatSony,
andbetweenthetwoofthemFreeewasabletoenlist1600bankstointegrateintotheir
service,makingiteasyforuserstointegratetheiraccountingwithbanks.ItwasSasaki’s
interpersonalnetworksfrombeingatGoogle,whichinvolvedbusinesstripstotheSilicon
Valleyheadquarters,thatledtoanintroductiontotoptierventurecapitalfirmDCM,which
becamealeadinvestorintoFreee.
Soracom,foundedin2015,providesIoTsolutionsthroughaSIMchipwithcellular
connectivity,allowingdevicestoconnecttoleadingtelecommunicationscarrierNTT
DoCoMo’scellularnetwork,andSoracomprovidestheplatformwithaccesstostorageand
analyticsforconnecteddevices.Thefounder,KentaYasukawaandKenTamagawa,both
previouslyworkedatAmazonandhadworkedtofacilitatediffusionofAmazon’scloud
computingresources,AmazonWebServices.
Evenapatternofgovernmentemployeesleavingtocreatetheirownstartupsis
gainingmomentum.Forexample,AgriInfoDesign,whichprovidesanAndroidsmartphone
applicationthatusesGPStoenablefarmerstomovetheirtractorsinstraightlinesinthe
fieldforseedingandfertilizer,wasfoundedin2014byYasuyukiHamada,whohadbeena
seniorresearcherattheNationalAgricultureandBio-orientedResearchOrganization.He
startedoriginallyasaresearcherintheMinistryofAgriculture,ForestryandFisheries.The
app,whichprovidesanextremelylowcostsolutionfordevelopingcountriesandother
16
farminguserswhocannotpaythehighfeesforexistingautomatedtractorservices,won
severalstartuppitchcontests,includingtheTechinAsiaconference,InfinityVentures
Summit2015,andtheNewEconomySummit2016.
AsJapanesecompaniesincreasinglyembraceworkingwithstartupsandeven
buyingthem,newcareerpathsarebecomingpossible,providingexamplesforothers.For
example,YusukeAsakura,aUniversityofTokyograduate,workedforMcKinsey,then
startedhisowncompanymakingpre-smartphonecellularInternetservicemiddleware.
ThatcompanywaspurchasedbysocialnetworkingserviceproviderMixi,andAsakura
eventuallyrosetoCEOofMixiwhenthelatterwasfacingadownwardspiral.Asakura
successfullyturnedaroundthecompany,thenlefttostarthisnextventure—stillinhis
early30s.
LargeFirmsandStartups:GreaterSymbiosis
Startupecosystemsdonotfunctionunlessstartupscanpartnerwith,sellto,and
oftensellthemselvestolargercompanies.Japan’slargefirmswerehistoricallyhesitantto
doso,butthelandscapehastransformedconsiderably.Theoverallnumberofmergersand
acquisitionsinJapanincreasedfrom1707in2010to2285in2014,althoughthe
proportionofstartupacquisitionisasmallproportionofthetotal.22
Intermsofpartneringwithlargecompanies,theaforementionedfirmssuchas
recruitingserviceWantedly,andonlinebusinessaccountingserviceFreeefoundfavorable
environments.ForWantedly,theneedforlargefirmstorecruitnewtalent,combinedwith
largefirms’significantrecruitingbudgetsmadeWantedly’ssubscriptionpricesquite
22 Kariyazono, S. (2015). Japan as a Startup Nation. US-Japan Venture Capital Conference, Stanford University.
17
affordableforthem,andenablingWantedlytobecomeprofitableearlyon.Freeewasable
toenlist1600bankstointegratewiththeirservicesinordertoofferaccountingservices
thatintegratedwithbanks.
PreferredNetworks,foundedin2014byaTokyoUniversitycomputerscientist,
providesmachinelearningalgorithmsandtools.Japan’stopmanufacturersincluding
ToyotaandfactoryrobotproducerFanuchavepartneredwithPreferredNetworksto
jointlydevelopsystemsforfactoryroboticsthatenabletherobotstolearnnewmovements
andtasksbythemselveswithoutoperatorsprogrammingthem.
EvenSiliconValleyfirmssuchasGooglearebeginningtobuyJapanesestartups.
Whilestillararecase,Japanese robotics startup Schaft was purchased by Google in 2013.
Schaft was founded by University of Tokyo researchers focused on producing walking robots.
Schaft entered the US DARPA Robotics Challenge, making headlines by dominating the trial
round. However, once purchased by Google, the latter’s philosophical opposition to receiving
funding from DARPA, part of the US military, given to the competition’s winner, pulled Schaft
out of the final competition.23 This purchase represents a new pathway for Japanese startups,
since top tier Silicon Valley firms such as Google have rarely purchased Japanese startups.
TheDeepeningVentureCapitalIndustryandBroadSectoralVarietyofStartups
Japan’sventurecapitalindustryhasdevelopedsignificantly.Whilethesizeremains
farsmallerthanthatofSiliconValley,ortheUSingeneral,theamountsareactuallygreater
thanothernotableadvancedindustrializedcountriessuchasFrance,Germany,andtheUK.
23 Guizzo, E. and E. Ackerman. (2014). "Who is Schaft, the robot company bought by Google and winner of the DRC?" Retrieved June 1, 2016, from http://spectrum.ieee.org/automaton/robotics/humanoids/schaft-robot-company-bought-by-google-darpa-robotics-challenge-winner.
18
Figure1.VentureCapitalInvestmentAmounts(billionsUSD)FY 2010 2015 Japan 1.29 1.11 EU 4.26 5.91 Germany 0.97 0.87 France 0.80 0.84 UK 0.79 0.62 Israel 0.41 0.65 South Korea 0.96 1.78 US Total 23.52 59.70 Silicon Valley 9.39 27.76 Source:VentureEnterpriseCenter,GVCA,BVCA,AFIC,IVCResearchCenter,KVCA
*NotethatUK'sdataisasof2014. ThemostimportantqualitativeshiftinJapan’sventurecapitalindustryhasbeenthe
riseofindependentVCs.Thehistoricaldominanceoffinancialinstitutionfundswas
criticizedfornotincentivizinginvestorstopursuehighreturns.By2015and2014,
however,thelargestamountsofcapitalinvestedinnewfundswereforindependentfunds.
In2015,itwas35%,followedbycorporateventurecapital(CVC)at28%andfinancial
institutionVCsat18%.Forthepreviousyear,independentVCsreceived42%,withCVCs
receiving43%.SomeexamplesofindependentVCsincludeWorldInnovationLab,Globis
CapitalPartners,BDashVentures,andothers.
AnimportantdriverofJapan’sVCgrowthwasthecreationofsmallcapitalization
marketsinthelate1990s.Twocompetingsmallcapmarketswerecreatedin1999,
providingastablesourceofexitsinwhichVCscouldrealizereturnsfromtheirinvestments.
TherelativecostoflistinginJapan’ssmallcapmarkets,MothersandJASDAQ,isfarlower
thanotherAsianmarkets,andthescaleisfarsmallerthantheUSNASDAQ.24Ontheone
24 Riney, J. (2016). "7 Things Investors & Founders Need to Know about the Japan Startup Ecosystem." Retrieved 2016, June 1, from http://500.co/japan-startup-ecosystem-founders-investors/.
19
hand,thishinderstrulylargehigh-growthfirmsfromemerging,sinceoncefirmsarelisted
atasmallerscale,theytendtobecomemoreriskaverseandpursuestableratherthan
exponentialgrowth.Ontheotherhand,sinceitiseasiertoIPOinJapanthanintheUS,
JapaneseVCsmayactuallyfaceamorepredictableexitstrategyenvironment.25
Figure2.AmountsRaisedinIPO,Small-capMarketsinJapan,US
Average(million$) Median(million$) Japan(Mothers/JQ) USNASDAQ Japan(Mothers/JQ) USNASDAQ
2015 7.6 116.0 3.5 75.02014 8.7 121.6 5.7 65.0
Source:TokyoStockExchange,NASDAQ
TheInnovationNetworkCorporationofJapan(INCJ)isanoteworthygovernment-
spearheadedattempttosparkinvestmentsinJapan’sstartupecosystem.Establishedin
2009,itwasa300billionyenfundwith286billionfromthegovernmentand14billion
from26corporationswhichincludeJapan’smajorcorporationsincludingToyota,Canon,
andmanyfromtheSumitomoandMitsubishigroups.Additionalgovernmentguaranteesof
1800billionyeninloansenabledtheINCJtoinvestapproximately2000billionyentotal.
ThelifespanofINCJisfixedat15years,anditisrunbyamixofgovernmentofficialsand
privatesectorparticipants.Whilesomeanalysesmayviewthisgovernment-spearheaded
fundassimplycrowdingoutpotentialprivateinvestments,itmayalsobeviewedashaving
alegitimizingeffectforstartupsandotherventurecapitalfirmssuchasWiLthathave
receivedINCJinvestments.
25 Ibid.
20
Figure6showstheJapanesestartupsthatraisedthemostVCfunding(accordingto
publicallyavailablenewsanddatasources),aswellasfounders’backgrounds.Thisisa
usefulfigurebecausewecanseewhereVCswereplacinglargebets.
AkeyobservationisthatthesectoralvarietyofJapan’shighgrowthstartups
receivingthemostVCinvestmentisbroad.Forexample,Spiberdevelopssyntheticspider
webmaterial,withavastarrayofpotentialindustrialapplication,asitisanextremely
strong,lightweightmaterial.Freeeprovidesweb-basedaccountingsoftware,particularlyto
small-mediumbusinesses,atafractionofthecostoftraditionalaccountingsoftware
systems.Raksultookatraditionalindustrywithexcesscapacity—printing—and
reorganizedthesupplychainthroughacustomer-facingonlineinterfaceandefficiency-
optimizingITback-endthatconnectscustomerswithcapablefactoriesaroundthecountry
atlowprices.QuantumBiosystemsisacommercialDNAsequencer,Origamiisamobile
paymentservice,andSmartNewsdeliversnewsfeedscuratedtopeoples’preferencesas
revealedthroughsocialnetworkingservicesandotherpreferencestipulations.Thereare
evenfirmsdelivering3Dtissueengineeringtechnology,regenerativemedicineiPScell
analysisandmeasuringtools,commercialsatellitemicroimaging,andafreshfish
distributionplatform.
Whilemanyofthefirmsonthislistmaynotexistfiveyearsfromnow,thiswould
likelyindicateachurningofhighgrowthstartupsasexpectedforahealthyhigh-growth
startupsystem.Thepoint,however,isthatthereissignificantvarietyacrosssectors,and
thefirmsarebothBusiness-to-Business(BtoB)andBusiness-to-Consumer(BtoC)firms.
21
Figure3.MajorVentureCapitalFundraisingbyJapaneseStartups,2015
Company Amount Raised (billion yen)
Description Founder Education Previous Employment
Spiber 10.54 New-generation biomaterial development
Kazuhide Sekiyama
Keio University
Founded company while still a doctoral student
Metaps 4.89 Marketing tools and consulting service in mobile business
Katsuaki Sato Waseda University
Dropped out of university to start company
Freee 4.49 Cloud-based accounting software
Daisuke Sasaki
Hitotshbashi University
Raksul 3.99 Commercial printing service
Yasukane Matsumoto
Keio University
A.T. Kearney
Megakaryon 2.54 Producing platelet products from iPS cells
Genjiro Miwa
University of Tokyo, Harvard University
St. Thomas Investments
Quantum Biosystems
2.4 Commercial DNA sequencer
Toshihiko Honkura
University of Tokyo, Columbia University
McKinsey & Company
Plus One Marketing
2.13 Mobility hardware products made by Japan
Kaoru Masuda
Waseda University
Dell Japan
Preferred Networks
1.9 Industrial IoT applications with AI
Toru Nishikawa
University of Tokyo
Software intern at a bio venture firm
Daisuke Okanohara
University of Tokyo
AXELSPACE 1.89 Commercial microsatellite imaging and data service
Yuya Nakamura
University of Tokyo
University of Tokyo (Post-doc)
Treasure Data, Inc.
1.77 Cloud data management platform
Hiro Yoshikawa
Waseda University
Mitsui Ventures
GLM 1.69 EV Development / providing EV platform
Hiroyasu Koma
Kyoto University
Koma Enterprise
Origami 1.59 Mobile payment service
Yoshiki Yasui
Waseda University, University of Sydney
Doll Capital Management
iPS PORTAL 1.53 Instruments to analyze and measure iPS cells
Syosaku Murayama
Doshisya University
Teikoku Seiyaku Co., Ltd.
seven dreamers 1.52 R&D of carbon tool and medical equipment
Shin Sakane University of Delaware
Super Resin, Inc.
22
Money Design 1.5 Financial portfolio design with AI
Mamoru Taniya
University of Tokyo
Asuka Corporate Advisory Co., Ltd.
Tomoyoshi Hirose
Yokohama National University
Criteria Japan
CYFUSE 1.41 3D tissue-engineering technology
Koji Kuchiishi
Keio University
Mckinsey & Company
from scratch 1.29 Next-generation marketing platform
Yasuhiro Abe Nihon University
Link and Motivation Inc.
SmartNews 1.19 News discovery app Ken Suzuki Keio University, University of Tokyo
University of Tokyo
Ptmind 1.1 Data analysis and monitoring
Yuan Zheng Nihon University
Founded Ptmind while still an undergrad at Nihon University
Takashi Ando
Rikkyo University
OKWave Inc.
Money Forward
1.03 Online application for personal accounting
Yosuke Tsuji Kyoto University, University of Pennsylvania
Monex, Inc.
AnyPerk 1.02 Integrated perks and rewards platform
Taro Fukuyama
Keio University
Was developing an online social community service when picked up by Y combinator
FOODiSON 1.01 Fresh fish distribution platform
Tohru Yamamoto
Hokkaido University
SMS Co., Ltd.
JOMDD 1.01 Medical device incubator
Takahiro Uchida
Fukushima Medical University, Harvard University
Necess Medical, LLC
Retty 1.0 Social gourmet site Kazuya Takeda
Aoyama Gakuin Univeristy
NGI Group
LOCONDO 1.0 Shoes and fashion e-commerce service, buy first and then choose
Yusuke Tanaka
Hitotsubashi University, UC Berkeley
McKinsey & Company
Sources: Japan Venture Research Co., LTD
23
SocialNormChangesDrivenbyEconomicEnvironment,MaturationofSupport
Ecosystem
Theattractivenessofentrepreneurshipandworkingathighgrowthstartupfirmshas
increasedsignificantlyoverthepasttwodecades.Foreliteuniversitygraduates,the
possibilityoflifetimecareersatlargefirmsarelesslikelywhenthelongevityofthefirms
themselvesareinquestion.Inthelate1990s,staidfinancialinstitutionssuchastheLong
TermCreditBankandYamaichiSecuritieswentbankrupt,mostlargeelectronicsfirms
suchasNEC,Fujitsu,Sony,andotherslostinglobalcompetitionforsemiconductors,
telecommunications,andconsumerelectronics,sellingofforshutteringtheiroperationsin
thoseareas.ConsumerelectronicsfirmSanyowassoldtoPanasonic,withmanyofits
divisionssoldtoChinesefirmHaier,amassiveaccountingfraudwasuncoveredinToshiba
in2015,andinearly2016,Sharp,onceafront-runnerinflatpaneldisplaysandconsumer
electronicssuchasmobilehandsets,wassoldtoTaiwanesefirmFoxconn.Whilestablejobs
atlargefirmscontinuetobeattractive,theyarefarlesssothantwodecadesago.Alistof
theuniversitiesattendedbyfoundersofstartupswithtopfundraisingin2015revealsthat
almostallwerefromeliteuniversities.
Numerousstartuppitchcontestsandmajoreventscelebratinghighgrowthstartups
havebeentakingplaceinrecentyears.Audiencesnumberinthethousands,someare
focusedonhavingpolicyrecommendationarms,andtheoftenreceivenationalnews
coverage.Theseorganizationsandeventshelplegitimizeandpopularizeacultureofhigh
growthstartups.SomeincludetheannualNewEconomySummit,launchedin2013,
organizedbytheJapanAssociationofNewEconomy,setupbyJapan’slargest,listedonline
commercecompany,Rakuten.TheNewEconomySummitinvitedprominentSiliconValley
24
entrepreneurssuchasLarryEllison,founderofOracle,andthefoundersofstartupssuchas
Dropbox,Lyft,Box.com,andAndyRubinwhosecompanywasboughtbyGoogleand
becametheAndroidplatform.TheInfinityVenturessummit,whichbeganin2009,brings
hundredsofcompaniestoKyotoannually,andisahubforinvestors,entrepreneurs,and
largefirmstomeet.Lessbusinessfocusedandinspirationcommunitybuildingeventssuch
asSlushAsia,orchestratedbyFinishfirmSlush,tookplaceinTokyoin2016.Fromthe
government,theNewEnergyandIndustrialDevelopmentOrganization(NEDO),which
subsidizedtheR&Dofscienceandtechnology-basedstartups,pitchcontest,theNEDO
TechnologyCommercializationProgram,featuringstartupsthatenteredseveralroundsof
pitchcompetitionsaroundthecountry.Thefirstprogramtookplacein2015.
Finally,Japan’sstartupsupportecosystemismaturing,withanincreasingnumberof
supportactorssuchasaccountingfirmsandlawfirmsnotonlyprovidingservices,butalso
activelyorchestratingstartup-focusedeventsandservices.Forexample,TohmatsuVenture
Support,asubsidiaryofaccountingfirmDeloitteTohmatsu,hasbeensupportingweekly
“morningpitch”eventsat7aminTokyosince2011,expandingtoothermajorcitiesaswell.
Theyprovidemanyservicestoearlystagestartupsfreeofcharge,withtheaimoffostering
avibrantstartupecosystemfromwhichtheycanbenefit.Thecompanyhasalsosetupa
SiliconValleybranchtohelpJapanesestartupsenterSiliconValley.
WhilethereisnocomprehensivedatabaseofJapanesestartupsinSiliconValley,ties
betweentheJapanesestartupecosystemandSiliconValleyarestrengthening.26Several
JapanesewerepartoftheprogramsattopacceleratorssuchasYCombinatorand500
Startups.26TheStanfordSiliconValley–NewJapanProjectiscompilingadatabaseofJapanesestartupsinSiliconValley.http://www.stanford-svnj.org
25
Asseenfrommid-2016,Japan’sstartupecosystemhasdevelopedconsiderably,as
manyofthecharacteristicsoftheoveralleconomyhavetransformedtocreateanew
environment.
Figure4.SiliconValleyStartupEcosystemCharacteristicsComparedtoJapaninmid-100s,Japanin2016Silicon Valley Startup Ecosystem Characteristic
Japan in the mid-1990s: impediments
Japan in 2016: changes that facilitate startup ecosystem
Financial System: Venture capital
Bank-centered, traditional financial markets
New small cap financial markets, growing VC industry, rise of independent VCs
Labor Market: fluid, diverse, highly skilled
Long term employment with seniority ties creating illiquid labor markets. Best and brightest locked into large firms for entire career
Increasing labor mobility, especially in IT sector and with foreign firms. Lower prestige and opportunity with large firms
Industry-University-Government Ties
Numerous formal regulatory constraints
Active efforts by universities, private venture capital, and government to spin out successful startups with university technology
“Open” innovation with large firms and small firm symbiosis
Closed innovation with large firms in-house R&D and uninterested in business with startups
Firms more interested in open innovation, participation in VC funds, business with startups.
Social system encouraging entrepreneurship
Entrepreneurship seen as low prestige vis-à-vis large firms and government
Rising attractiveness of entrepreneurship as large firms enter competitive crises, increases cases of successful startups
Professional services ecosystem
Small size of professional ecosystem
Law firms and accounting firms setting up startup-focused practice areas to foster and benefit from growing startup ecosystem
University-relatedVCfundsUTEC(UniversityofTokyoEdgeCapital),andMiyako
Capital,affiliatedwithKyotoUniversity,havealsobeenactivelyworkingtospinout
26
technologiesfromtheseJapanesetopuniversitiesintohighgrowthstartups.UTECwas
establishedin2004,withapproximately$300millioninitsfunds,with9IPOsand8M&A
exitsbytheendof2015amongits65portfoliocompanies.Althoughstillatanearlystages
ofdevelopment,MiyakoCapitalwasgiven$60millionfromKyotoUniversityin2015.
III.LargeFirms:TheCoreofJapaneseIndustry
Itisoftenmorechallengingtoobservelargecompaniesundertakingbreakthrough
innovationofthesortthatstartupfirmsaimfor.Bytheirverynature,largecompaniesare
slower,andcarryfarhighercoststoundertakenewactivities.Andcomparedtostartup
firms,largefirmsrequiremassiverevenuestojustifynewlinesofbusiness.Therearea
varietyofforcesatworkthatconstrainlargefirmsfrommovingquickly,includingthe
“innovator’sdilemma,”inwhichlisteningtocurrentcustomersandoptimizingcurrent
supplierscanleadtomissedopportunitiesthatrequirejettisoningtheseactorinfavorof
somethingnewthatisnotyetprofitable;hence,largecompaniescangetdisrupted.27
Japaneselargefirmsareparticularlyslow,sinceenactingmeasuressuchasreducing
personneltendtobeaccomplishedthroughattrition,whichtakestime.Moreover,
unprofitablesubsidiariessuchassemiconductorshavebeenspunoutintojointventures
acrosspreviousrivals,lettingparentcompaniesmovethedivisionsandpersonneloffthe
books.
Thereare,however,firmswhoseinnovativeactivitieshavethepotentialtochange
technologicaltrajectories,affectcompetitivedynamics,andinfluencethelogicof
production.Whilenotallthefollowingexamplesmayberealized,theyareserious
27Christensen,C.M.(2000).Theinnovator'sdilemma.NewYork,HarperBusiness.
27
developmentsworthyofattention,andtheytendtobeunderappreciatedbothinsideand
outsideJapan.
Komatsu:ITFrontierinMassiveEquipmentDeployment
Komatsu,oneoftheworld’sleadingheavymachineryproducers,hasbeenatthe
forefrontofIT,andisboldlydevelopingintoaplatformplayerandleaduserofArtificial
IntelligenceinawaythathasrarelybeenseeninaJapanesefirm.
WithinJapan,KomatsuhasbeenwellknownforitspioneeringuseofITtoolsto
connectitsheavymachinery.UsingitssystemcalledComtrax,Komatsugathersdetailed
informationaboutallitsmachineryoperatingaroundtheworld.Itcanalertcustomersif
wearandtearonpartsrequiremaintenanceorreplacement.Itcanalsouseusagedatafor
demandforecasting,especiallyinpartsoftheworldwhereofficialgovernmenteconomic
statisticsmaybeunreliable.Komatsucanevenstoptheoperationofitsleasedmachineryif
theinstallmentpaymentsarelate,oralertcustomersiffuellevelsdecreasedespitenon-
usageofthemachinery,indicatingillegalfuelsiphoning.Thiswasallnewsfromtheearly
2000s.
Morerecently,evenastheworld’sautomobilemanufacturershaverushedafter
Google,Tesla,andAppletodevelopautonomouslydrivenvehiclesafteraround2012,
Komatsuhasactuallybeencommerciallydeployingfullyautomatedminingdumptrucks
since2008.ThishasnotbeenwellpublicizedoutsideJapanortheconstructionandmining
equipmentsectors.
Evenmoresignificantly,however,andnotobviousevenwithinJapan,isthat
Komatsuhasprogressedsurprisinglyfarinanother,contrastingareaofArtificialIntelligent
(AI)—thatofIntelligenceAugmentation(IA).WhileAItendstofocusonreplacinghuman
28
activity,suchaswithself-drivingautomobiles,theaimofIAistoenhanceandaugment
ratherthanreplacehumans.AIandIAarederivedfromcontrastingintellectualand
developmentparadigms.28
Komatsu’sIAsolutioninitsheavyequipmentallowsoperationsthatpreviously
requiredhighlyskilledworkerswithclosetoadecadeofexperiencetobeperformedby
relativenovices.Putsimply,itisasolutionallowinglow-skilledworkerstoperformhigh-
skilljobs,withintelligencebuiltintotheconstructionequipmenttoassisttheoperators.
InbothKomatsu’sAIandIAsolutions,itdeploystechnologiesacquiredfromoutside
thecompany.ThesensortechnologiesandAIsystemsforitsautomateddumptruckswere
procuredexternally,thenimprovedandintegratedinternally.FortheIA,theconstruction
equipmentusedtouseGPSsensors,procuredfromoutsidethecompany,tomapthe
terrainanddeterminethepositionofequipmentparts,butnowitusesdrones—also
procuredexternally.Moreover,thecompanyhaspartneredwithdronecompaniesthat
providewirelessdronesforlargeopenairoperations,andwiththosethatcanprovide
wireddronesforconstructionsites,enablingthelattertohoverwithoutrunningoutof
batterypower,strayingoutsidetheconstructionsite,andenablinghigherdatathroughput.
Komatsuisthereforeengaginginopeninnovation.
InpursuingopeninnovationKomatsuisharnessingSiliconValleyanditsUS
operations.ItinvestsinbothlargeandsmallboutiqueSiliconValleyventurecapitalfunds,
andsendsresearcherstobothStanfordUniversityandUCBerkeley.Itisusingadronedata
analysisplatformprovidedbySanFranciscofirmSkycatch.
28Markoff,J.(2015).MarchinesofLovingGrace:TheQuestforCommonGroundBetweenHumansandRobots.NewYork,EccoBooks.
29
Finally,andmostinterestingly,Komatsuisattemptingtomakeanopenplatform
thatwillconnectanydevicethatispartofaconstructionsite.Aslowcostsensorsusherin
aneraof“InternetofThings(IoT)”inwhichvariousdevicesconnecttonetworks,Komatsu
foreseesanearfuturewhereallsortsofdeviceswillcommunicatewitheachother.
Significantly,Komatsuintendstomaketheplatformopen,withouttakingownershipof
dataorcontrolofthirdpartyequipmentthatconnectstotheplatform.Byusheringinan
eraofsmartconstruction,Komatsuintendstoremaincompetitivewithitsownequipment
despiteallowinganyotherequipmenttoaccesstheplatform.Forprojectsthatcross
nationalborders,theyarelookingintobuildingabitcoinsolution.
TheJapanesegovernmentissupportingKomatsu’stechnologicalcapabilitiesasan
industrystandardforbidding.KnownasiConstruction,variablessuchastimeto
completionandcostcanbecalculatedasvariableswithvariousmachineryusageratesand
sitecharacteristicsasoptimizableparametersratherthanfixedvalues.
Yamaha:HarnessingSiliconValleywithaHumanoidMotorcycleRobot
In2015,asresearchanddevelopmentintoself-drivingautomobilesrapidlygained
momentum,YamahaMotorsdevelopedanautonomousmotorcycleridinghumanoidrobot
thatsitsonandridesaconventionalmotorcycle.ThiswasdonebyharnessingSilicon
Valley.
Source:YamahaMotors
30
In2015,YamahacreatedtheYamahaMotorVentures&LaboratorySiliconValley
(YMVSV).Thestoryofhowitwasestablished,andthethoughtbehinditprovides
importantcluesforothercompanies.SaijoHiroshihadbeenaroboticsengineerinYamaha
Motors.WhenYamahaMotorsdecidedtofigureouthowtoharnessSiliconValley,it
borrowedspaceinalocalSiliconValleyincubator,PlugandPlay,whereSaijospenttimein
2014.There,herealizedhowdifficultitwouldbeforasimplebranchofficeofalarge
Japanesefirmtooperatein,andmakeuseof,theresourcesavailableinSiliconValley.
WhenSaijodiscussedcreatinganewentityinSiliconValleywiththecompany’stop
management,hemadesurethatseveralconditionsweremet.First,theSiliconValleyentity
wouldbefreetodevelopandpursuebusinessopportunitieseveniftheywerepotentially
disruptivetoexistingYamahabusinesses.Thefearofdisruptionisoneofthereasonsthat
largefirmstendtohavedifficultypursuingnewbusinesslines—the“innovator’s
dilemma.”29
Saijoalsorecognizedtheneedforfastspeedindecision-making,whichcanonly
occurifenoughresourcesarecontrolledlocally.Therefore,Yamaha’sentitywasa
combinationofaCorporateVentureCapitalfirmandabusinessunit.Throughthis
autonomy,YMVSVwasabletomakesomeinvestmentsinaslittleastendays(toamobile
wifigridstartupfromVietnam),andengageinprojectsthatmighthaveencounteredsevere
pressuresforcompromisein-house.Forexample,puttingsensorsonmovingvehiclesto
obtainactiveandmoredetaileddataaboutairqualitymighthavebeenlimitedtoYamaha
motorcyclesifdevelopedsolelyin-house.
29Christensen,C.M.(2000).Theinnovator'sdilemma.NewYork,HarperBusiness.
31
Motobot,thehumanoidmotorcycle-ridingrobot,wasanimportantdemonstration
projecttothecompany’shomeR&Dlabsaswell.YMVSVpartneredwithSRIInternational,
theresearchinstitutethatbeganasStanfordResearchInstitutethatlaterdevelopedand
soldtheSirivoicerecognitionsoftwaretoApple.Theyco-developedtheMotobotin10
months,atafarlowerbudgetthanYMVSVhadinitiallyexpected.SRIprovidedtherobotics
expertise,butinthelaterstagesofdevelopment,Yamahaengineerswereabletocutthe
robot’sweightinhalf.Despitethelackofanimmediate,short-termmarketprofitability
projection,thefactthatYamahawaswillingtodothiswillalsobeamajormoralebooster
forthecompany.
Toyota:TheChallengetoAvoidDisruptionasLargestIncumbent
Toyota,byfarthelargestmarketcapitalizedfirminJapan,theoriginalcreatorofthe
world’snewproductionparadigmwith“leanproduction”hasbeenundertakingvarious
activitiestostayaheadofthecompetition.Theirgasolineelectrichybridenginefirst
introducedinthe1997,Prius,shiftedthetechnologicaltrajectoryoftheautomobile
industry.Justas“leanproduction”becamethestandardparadigmforhowtoorganize
automobilemanufacturingamongUSandEuropeancountries,gasolineelectrichybrid
enginesarenowofferedbymanufacturersaroundtheworld.
Toyota’smorerecentinnovationshavebeenmultipronged,astheautomobile
industryfacespossiblyunprecedentedchallengesfromartificialintelligencethatcancreate
automatedself-drivingcarsasspearheadedbyGoogle,ride-sharingcompaniessuchas
Uber,andelectricvehiclecompaniessuchasTeslaatthehighend,BYDinChinaand
elsewhere,andthepossibilityoflowcostproducersenabledbythefactthatelectricmotors
32
aremucheasiertomanagethangasolineenginesinproduction—eventheChinese
smartphonemanufacturerXiaomirolledoutanelectricvehiclemodelinmid-2016.
Toyotahassuccessfullydevelopedahydrogenfuelcellvehicle.Usinghydrogen
ratherthangasoline,itisacleanbutdifficulttechnology,andsofarToyotahasbeenthe
onlyautomobilemanufacturertointroduceafullmodelMiraisedan,firstintroducedin
Japanin2014,andinlimitedlocationsintheUSin2015and2016.Thequestionfor
hydrogenfuelcellvehicles,ofcourse,iswhowillbeprovidingtheinfrastructureneededfor
thenewenergysystem—thecollection,processing,anddistributionofhydrogenand
networkoffuelingstations.WithinJapan,thegovernmentisactivelysubsidizingthe
creationofhydrogenfuelingstations,aswellassubsidizingthepurchasepriceoffuelcell
vehicles.Willthisbeanother“Galapagos,”inwhichtheJapanesedomesticindustry
divergesfromglobalmarkets,evenifitisadvanced?ThelessonfromJapan’sITindustryis
thatwithoutabusinesslogicfornetworkcreationworldwide,anyhardwarethatrelieson
thatnetworkwillbetrappedinthedomesticmarket.Sofar,neithertheUSnorEurope,nor
mostindustrializingcountries,seempoisedtoassistororchestratethecreationof
hydrogenfuelcellnetworks.However,animportanthypothesisthatemerges,especially
whentakingintoaccountToyota’ssignificantR&DpresenceinmainlandChina,isthe
possibilitythattheChinesegovernment,forthepurposesofloweringairpollutionand
gainingfurtherenergyindependence,mayorchestratethecreationofhydrogenfuelcell
chargingstations.Ifthisoccurs,andtheChinesemarketcansignificantlyshifttowards
hydrogen,thenToyota’sfuelcellwillnotbetrappedinJapan’s“Galapagos,”asChinaisfar
biggerthanJapan’sGalapagos.However,sinceToyotawillnotdirectlydivulgetheircore
strategy,thisremainsahypothesisasseenfromtheoutside.
33
Toyotaisnot,however,puttingallitseggsinthefuelcellvehicle.Theyaredeploying
plug-inhybrids,whichcanbechargedfromelectricityoffthegrid,aswellasgasoline.
Toyotaisalsoinvestinginartificialintelligencewithanaimtocreateself-driving
vehicles.Theyaredoingsothroughsubstantialindustry-universityresearch,thecreation
ofanewresearchlabinSiliconValley,andinvestmentsintoventurecapitalinitiatives.In
2015,Toyotaannounced$25millionresearchinitiativeswithStanfordUniversityandMIT,
creatingnewresearchcenterswithAIrelatedprojects.Attheendof2015,Toyotaalso
announcedthatitwouldspend$1billionoverfiveyearsincreatingtheToyotaResearch
Institute(TRI)inSiliconValley,hiringateamincludingGillPratt,whorantheUSDARPA’s
roboticschallenge.
Alsoin2015,Toyotajointlycreatedaventurecapitalfundofapproximately$110
million,contributingaround$80,withtherestfromSumitomoMitsuiBankingCorporation
andaJapaneseassetmanagementfirmSparx.Thefundintendstotargetstartupsrelatedto
AI,robotics,andhydrogenfuel.
In2016,Toyotamadeastrategicinvestmentintoride-sharingserviceUberofan
undisclosedamount.ItmayinvolveleasingarrangementsforUberdrivers.Uber’s
competitorLyft,hadannouncedleasingplanswithGM,withreducedleasingprices
accordingtotheamountthatdriversusedthecarstoworkforLyft.
Fanuc:TowardsIntelligentAutomation
FanucisoneofJapan’smostcompetitivefirmswhosenameisfairlyunknownto
mostpeoplearoundtheworldnotinvolvedinmanufacturing.Itisoneoftheworld’s
leadingfactoryroboticsfirms,andhasheldanestimated60%oftheworld’scomputer
numericalcontrolsystemsformachinetools,and18%oftheworld’sfactoryroboticsshare
34
in2013accordingtoGoldmansSachs.30Fanuchighprecisionfactoryrobotscanbefoundin
factoriesservingApple,Samsung,Toyota,GM,andawidearrayofmanufacturing.Itisone
ofthe“bigfour”globalfactoryroboticsfirms,whichincludesABBGroupofSwitzerland,
KukaofGermany,andYasukawaElectric,alsoofJapan.
Fanuchasbeenasecretiveandclosedcompany,locatedawayfromTokyo,building
itsownfactoriesonlyinJapan,andevenrestrictingexternalemailexchangesofits
employees.However,itsfinancialsuccesswasextremetothepointthataNewYorkhedge
fundthatpurchasedastakeofitssharesinthehopeofconvincingittodispersesomeofits
morethan$8billionincashholdingstotheshareholders,notedthatthecompanyspends
$1billionannually,andgetsreturnsof$2billion,whichitholdsontoratherthangivesback
toshareholders.31
Fanuc’srecentstrategiesthatitannouncedincludecreatinganopenplatformfor
withinfactoriesthatcanbeusedbyanyotherentitytocommunicateandshareinformation
acrossmachinesandequipment.Increatingthissystem,Fanucco-developedtechnology
platformswithCiscoSystems,theleadingnetworkingcompanyfromSiliconValley.
Inthenextgenerationoffactoryrobotics,Fanucismovingaggressivelytoharness
artificialintelligence,inparticularmachinelearning.Theyhaveasubstantivetie-upwith
JapanesestartupPreferredNetworks,foundedin2014andfocusedondeeplearning,a
particularclassofalgorithmswithinthefieldofmachinelearning.ThegoalofFanucisto
pursueself-learningfactoryrobots,andinademonstrationinlate2015,theyshowedhow
30http://blogs.wsj.com/japanrealtime/2015/06/11/fanuc-aims-to-enhance-factory-robots-with-deep-learning/31http://www.japantimes.co.jp/news/2015/02/19/business/corporate-business/secretive-robot-maker-fanuc-targeted-by-activist-investor-loeb/#.WOvXrFPyuUk.(Fullletteravailableat:http://www.marketfolly.com/2015/02/third-point-q4-letter-fanuc-new-position.html)
35
arobotcouldself-learnataskofstackingcylindricalobjects,whichwouldhavetaken
approximately8hourstoprogrambytechnicians,inapproximatelytwohoursbyitself
withnopriorabilitytohandlethoseobjects.
In2016,GMawardedFanucitsinnovationawardforsuppliers,forFanuc’s“Zero
DownTime”systemthatgathersreal-timedatafrommachinesandordersparts,oralerts
thecompanybeforemalfunctionsoccur.
Fanucisthereforeahighlyprofitablecompanyfocusedonfutureinvestmentinthe
areasofartificialintelligenceandso-called“InternetofThings(IoT)”connecteddevices,
andisanintegralpartofglobalproductionnetworksandsupplychains.
Honda:SurprisinglyOpenInnovationinSiliconValley
HondaisharnessingSiliconValleyinasurprisinglyopenmanner.Itopenedbasic
computerscienceresearchofficesinSiliconValleyin2000,andin2005itestablished
corporateventurecapitalentity.In2011,itdecidedthatratherthananinvestment
operation,itcouldbetterharnessSiliconValleybycreatinganopeninnovationlabto
partnerdirectlywithstartups.ItcreatedtheHondaSiliconValleyLab(HSVL)thatyear,
withtwomajorinitiatives,theHondaXcelerator(established2015)andHondaDeveloper
Studio(2014).
TheHondaXceleratorisuniquebyprovidingfundingforprototyping,accesstotest
vehiclestotest,takedata,andrefineprototypes,collaborationworkspace,andmentors
fromwithinHondaitself.Ineffect,Hondaisofferingstartupstheresourcestodevelop,test,
andrefinetheirproductsandservicesinajointdevelopment-typearrangement.
Significantly,however,Hondaisnotinterestedinmonopolizingtheoutcomes.Startupsare
freetoselltheirproductsorservicesdevelopedintheHondaXceleratortoanyother
36
automobilefirmoranybodyelse.Theviewisthat,havingco-developedtheoffering,Honda
willbefirsttomarketintheslow-movingautomobiledevelopmentcycle,givingitan
advantage.Withoutallowingstartupsopenaccesstopartnerwithwhomevertheywantas
anendresult,Hondarealizedthatitwouldbeunabletoattractpotentiallyvaluable
startups.
TheHondaDeveloperStudiofollowsasimilarparadigm,focusedoncreatingan
ecosystemofdevelopersforaplatformtoaccessautomobileinfo-tainmentsystems.Since
smartphonesfaroutpaceautomobilehardwarefordevelopmentcycles,havingaplatform
thatcanallowappdeveloperstoaccessandcontrolportionsofautomotiveinfo-tainment
systemswasseenascritical.OfferingaccesstotestvehiclesandHondaengineeringteams
allowsdeveloperstoacceleratetheirdevelopment.Numerousdevelopersarepartnering
withHondainthisway,withanearlynotablepartnerincludingSiliconValleystartup
Drivemode,whichprovidesadriver-friendlyinterfaceandfunctionalityforAndroid
phones.
TheheadofHonda’sSiliconValleylabsisNaokiSugimoto,whostartedhiscareer
withRecruit,andwasinchargeofdevelopingtheircorporatewebservices.Sugimotothen
attendedtheUCBerkeleyHaasSchoolofBusinesstogetanMBA,foundinghisown
successfulITcompanythatwaspurchasedbyRecruitin2001.Afterspendingseveralyears
asaconsultantandventurecapitalinvestor,hejoinedHondain2005.Takinganoutsider’s
perspective,andbringinginsiderknow-howandinterpersonalnetworksfromSilicon
Valley,hewasabletoorientHSVLintoanopeninnovationorientation.
InapubliceventatStanfordUniversity,wheninconversationwiththefounderof
Drivemode,YoKoga,SugimotoandKogaoutlinedthevariouschallengestheyovercameto
37
workwithheadquarters,suchasreworkingthestandardcorporatenon-disclosure
agreementsthatwereentirelyinappropriateforSiliconValleyandnotatalloptimizedfor
workingwithstartups(suchasrequiringthebootstrappedstartuptocarrymultimillion
dollarsworthofinsurancetoworkwithHonda.)32Aspartoftheecosystem,experiences
andexperimentsundertakenbythosesuchasSugimotoprovidelearningopportunitiesfor
otherJapanesefirmsattemptingtolearnspecifictechniquestoincorporateoutsidefirmsin
theirinnovationprocesses.
Conclusion:WhyJapanStillMatters
Thispaperendswiththequestion:doesJapanstillmatterintheworld’spolitical
economy,andifso,why?Thispaperbeganwithahistoricalvantageofwhenandwhy
Japanmatteredmost.Japanalteredtechnologicaltrajectories,transformedindustries,and
createdanewproductionparadigminthe1970sand80s.Sincethen,itsimpacthas
decreasedasprimarilyUSstartupsfromSiliconValleytooktheleadintheseareas,anditis
notclearwhetheritwillexertthislevelofinfluenceontheglobaleconomyinthefuture.
TheadventofInformationTechnology(IT)hasradicallyincreasedthespeedofindustrial
changeanddisruption,andshiftedthefocusofvalue-addedactivityawayfromJapan’shigh
growthstrengthsinmanufacturing.Moreover,theworld’spoliticaleconomicconfiguration
haschangeddramatically,withtheendofthebipolarColdWarstructureandtheriseof
variouscountries,notablyfromAsia,enteringglobalcompetition.
However,itisalsoclearthatJapanhasbeenwrittenoffprematurelyandtoooften.
Visitorsareoftensurprised,afterreadingaboutJapan’scrisis,stagnation,anddecline,that
32SiliconValley–NewJapanSummit2016.StanfordUniversity.Oct4,2016.
38
theTokyoareaisvastlymoremodern,clean,efficient,andtransportationnetworksare
incredibleintheprecisionandscope.
Japan’stransformationhastakentheformofsyncretism,inwhichtraditional,
hybrid,andneworganizationalformsandpracticescoexist.Afocusonthenewandhybrid
areasrevealsignificantchange.Thecontextsurroundinglargefirmshasshifted
significantly,althoughgradually,leadingtoagreateropennessandcollaborationwith
newerfirms.Mostoftheexplicitandimplicitdomesticmarketprotectionsnolongerexist,
andfirmsarefreertofailthaneverbefore,leadingtogreaterpressuretoinnovateand
adapttosurvive.
Largefirmsareinherentlythetargetsfordisruptionbynewfirms.Inthecurrent
paradigmsofinnovation,enabledbytherapiddeploymentofITtools,“open”innovationin
theformofpartneringwithstartupfirmsismoreimportantthanever.
Japan’sstartupecosystem,bothintermsofproducinghigh-growthstartupfirms,
andasasourceofideasandpotentialnewcollaborationsforthelargefirmstoavoid
gettingdisrupted,isdevelopingrapidly.WhileanystartupecosystemcomparedtoSilicon
Valleylookssmall,Japan’sstartupecosystemisactuallysizablevis-a-visotheradvanced
industrializedcountries,andhasbeendevelopingalongapromisingtrajectory.In
particular,scienceandtechnologyresearchanddevelopmentintensivestartupshave
beguntoappear,highlightingsomeofthechangedaspectsofJapan’sstartupecosystem.
Whilesomeofthenotablestartupsaretrailblazers,theyprovideexamplesforothersto
follow.
Itishardertoobservedisruptiveinnovationinlargefirms,sincetheirprimaryfocus
tendstobeonavoidingdisruption,andadjustingtopotentialdisruptions.However,as
39
shownbytheexamplesofToyota,Komatsu,YamahaMotors,andFanucinthispaper,they
areembracingpotentiallydisruptivetechnologicalchange.Whilenewtechnological
trajectoriessuchasautomateddrivingwerespearheadedbySiliconValleyfirms,thereare
meritstobeingrapidadopters.Aslargefirms,theydohavethepotentialtotransformtheir
respectiveindustries.Komatsu,inparticular,embracingbothartificialintelligenceand
intelligenceaugmentation,makingfulluseofnewdronetechnology,andconsideringthe
orchestrationofanopenglobalplatform,isseeingotherfirmsrushtofollowitstrajectory.
Fanucmaybeabletotaketheleadincorporatingmachinelearningintofactoryautomation
robots,leveragingitsexistingexpertiseanddeepintegrationintovariousmanufacturers’
operations.Whileitmightnotbethesespecificcompaniesthattakethelead,their
underappreciatedpotentialrepresentingJapan’sunderlyingindustrialstrengthiswhatthis
paperaimstohighlight.
NewsetsoffirmsbridgingJapaneselargefirms’existingstrengthandSiliconValley-
stylenewfirmcreationarealsoassistingthetransformation.WorldInnovationLab(WiL),
forexample,a400millionyenventurecapitalfundwithinvestorsfromlargeJapanese
firmsandthegovernment-spearheadedInnovationNetworksCorporationofJapanwith
officesinbothTokyoandSiliconValley,aimstoaddvaluebytakingtheunderutilized
intellectualpropertywithinlargefirmsandspinsthemoutintocompanieswithSilicon
Valleymanagement.
DemographicChangeasOpportunitiesfromResourceScarcity
Beyondtheobservationsthatitistheworld’sthirdlargesteconomyandhasavery
largepooloftechnologicallysavvy,adeeppocketedmiddleclassalsoprovidesamarketfor
40
variousITservices.Japan’srapidlyagingpopulationandshrinkingworkforceareactually
opportunities,fromboththepolicyandtechnologystandpoints.
Japan’sdemographicchallengeisactuallyanopportunityfordeployingartificial
intelligenceandhumanactivity-replacingalgorithmicautomation.Politicaldebatesthatare
likelytooccurelsewhereaboutreplacinghumanlaborbyautomation,AIandroboticsin
Japancanbeseenasanecessaryaugmentationofashrinkinglaborforce.Inanerawhen
searchingforhighqualitydataiscriticaltoimprovingalgorithms,theabundanceofdata
thatcanbegatheredfromJapan’sagingsocietyintermsofhealth,lifestyle,andmachine-
humaninterfacesthrougheldercarerobotsorcompanions,forexample,canbehighly
valuable.Thequestion,ofcourse,iswhobestgathersandusesthisdata,butJapanis
unmistakablyaleaderintheglobaladvancedindustrialcountrytrendofdemographic
change.
GovernmentPolicy:PotentiallytoFosterDeployment,Experimentation,Market
Access
Governmentpoliciesintermsofdirectsubsidiesorindustrypromotionareless
likelytoworkinthecurrenteraofrapidIT-enabledtransformations.Theeraof“Japan,Inc.”
ifiteverexisted,nolongerapplies.
However,unknowntomostobserversbothinsideandoutsideJapanthatarenot
partofthebiopharmaindustry,Japanesegovernmentregulationshaveactuallyledto
potentialindustryleadershipinanimportantnichearea.ArevisionofthePharmaceutical
Lawthatcameintoeffectin2014enabledregenerativemedicine,whichutilizesgrowing
newcellsfromtheiPScell(astemcellalternativethatdoesnotneedtobeharvestedfrom
41
ahumanembryo),tobringproductstomarketduringclinicaltestingintwoyears.
ShrinkingthetimeneededfromaroundtentotwoyearsmadeJapan’stimeframethe
shortestamongadvancedindustrializedcountries.Thisledtoawaveofregenerative
startupsfromaroundtheworldtoopenbranchesinJapanandconducttrialsinJapanas
well.SomeJapanesestartupssuchasSanBio,forexample,werefoundedinSiliconValley
butmovedtoJapanwhentheregulatorychangesenabledapotentiallyfastertimeto
market.Whileitisstillearlytotellwhethertheseregulatorychangesactuallyenabled
Japantobealeaderinregenerativemedicine,thefactthatoneoftheareaswhereJapan
waslongcriticizedforbeingslow—clinicaltrialsandpharmaceuticals—hasmovedtobea
fastmover,evenifasmallmarketsegment,issignificant.Ifthisparadigmcanbeappliedto
pharmaceuticals,theremaybethepotentialtodosoelsewhereaswell.
Anareawhereprogressivepolicymakingcanbebeneficialisintheusageof
individualdata.Sincetheavailabilityandusageofbehavioralandbiometricdatawillbe
criticalinallareas,rangingfrombiotechtofinancialtechnologies(Fintech),thearrayof
Internet-connecteddevicesandsensors(knownasthe“InternetofThings(IoT)”)and
artificialintelligence,governmentpolicythatencouragestheuseofsuchdatamaybe
beneficial.Forexample,standardsofprivacythatstipulatesufficiencylevelsof
anonymizationandprotectionthatenablecompaniestouseorselldatacollectedfrom
individualscanbeuseful,haspotential.Ratherthanfearopen-endedliabilityorthe
potentialforpubliccriticismleadingtocompanieshoardingdataoutofcaution,
governmentstandardsthatenablethemtosafelyuseandcontributeanonymizeddata
couldspurtheircollectionanduse.
42
Governmentmeasurestofacilitateincreasedefficiency,suchasdigitalsignature
regulationsthatcanreducetransactioncostsforthevastamountofpaperformscurrently
beingmailedandstoredinfilecabinetsandhandledbyhumanworkhours,arealso
beneficial.
Historically,sinceithasbeenlargeleadfirmsdeployingITtoolsthathaveledto
leapsforward,Japan,withitsconcentrationoflargefirms,spurredbycompetitionand
cooperationwiththenewlyburgeoningstartupecosystem,hasthepotentialtotakesuch
leaps.
Thus,whilethereisnocohesivemodeloftheemerging“newJapan,”thispaperhas
shownthatthereareclearlyareasinwhichJapanmatters,bothinbuildinguponits
existinglargefirmsstrengths,andfromanunderappreciatedbutsignificantlytransformed
newhighgrowthstartupecosystem.Thedemographicchangeasasourceofdataandacute
needforavarietyofhealthcarerelatedservicesshouldalsobeseenasanotsimplyaseries
ofconstraints,butsignificantopportunityforwhyJapanmatters.
43
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