Can Japan Become More Entrepreneurial?

This seems to be the fundamental question about the future of Japan’s competitiveness. Japan, the world’s second largest economy, remains the largest exception to the argument that many have made (such as yours truly, in this mini-essay) which is that entrepreneurship is a critical component to a country’s economic growth. Japan lacks an entrepreneurial culture; is dominated by big firms; has little tolerance for risk-taking and failure; etc etc. Can it survive this way? Probably not.

The FT today re-surfaces this issue, emphases my own:

The Japanese government has accordingly announced a Y100bn venture fund to invest in fledgling technology businesses. The idea is to encourage more private and institutional investors to pump their money into start-ups too.

However, there are formidable barriers to injecting some of the pep of Silicon Valley into the commercialisation of new technology in Japan. The biggest is that Japan does not have an Anglo Saxon-style enterprise culture. Would-be entrepreneurs have few role models apart from Masayoshi Son, founder of communications group Softbank. Aspiring to become very wealthy is regarded as faintly unJapanese.

Equally, "business failure is seen as shameful in Japan, though that perception is beginning to erode", says Seiichi Yoshikawa of Nippon Keidanren, Japan’s powerful business lobby. When new technology ventures fail, it tends to be as units of large corporations, rather than as standalone companies. This cushions the impact. The downside of the system is that it can suppress maverick talent.

At Japan’s ministry of economy, trade and industry, Yuji Tokumasu, who works on science and technology policy, is fretting over a parallel problem. According to a chart he brandishes, even as Japan’s spending on research and development has soared in the past 20 years, value added in the manufacturing sector has stagnated.

Japan already spends more than 3 per cent of its gross domestic product on R&D – more than any other country. One way of reading the chart is to surmise that diminishing returns have set in, that every extra yen spent on R&D goes to employ less talented researchers, who study less promising approaches to the same problems. Japanese universities’ poor record on turning research funding into results published by top scientific journals suggests that government money can be more efficiently spent. It could be that rather than spending too little on R&D, Japan spends too much.

However, Mr Tokumasu and others in the technology establishment take heart from R&D expenditure data. If only Japan could convert all of this spending into scientific breakthroughs, new businesses and saleable products, they argue, it would prove a powerful source of economic growth.

6 Responses to Can Japan Become More Entrepreneurial?

  1. Grant says:

    Ben,

    I find that when talking about Japan, it’s not enough to look at R&D spending. What’s important is the TYPE of R&D.

    Broadly speaking, I find it useful to define R&D into two categories: revolutionary and evolutionary (or fundamental and engineering).

    I would argue that Japan is very good at the evolutionary type of R&D. Once a product is on the market, they can superb at making incremental, but significant changes to the product.

    Let’s take cars as an example. The Japanese didn’t invent cars, not did they invent the Ford style assembly line. But they learned quickly, and are now making (I would argue) some of the best of the product.

    But they haven’t been able to come up on their own with a revolutionary technology to radically improve the car. I would argue the same point about most of electronic equipment as well.

    Most of the fundamental research in the automotive industry is done either at universities around the world (which the Japanese companies then sponsor/partner with) or entrepreneurial enterprises in the West (the lucky ones of which get bought).

    Can they still “survive”? Absolutely. All of their anti-entrepreneurial tendencies are not new – and they didn’t become the second biggest economy on accident. They just have a different model.

    You can invent it. But they’ll make it better :)

  2. Marina Shvarts says:

    I think that for Japan to become a more enterpreneurial society aspects of it’s culture will have to change. Most notably, there is a very high degree of standardization, concern for the group and not much regard for the individual. These things are probably what makes Japan one of the safest, cleanest, and politest countries in the world. I’ve been to many different countries, and I have seen nothing comparable to the kind of service you get in Japan. People here take pride in doing their job, regardless if it’s being a cashier at McDonalds or a CEO of a major firm. But, on the other hand- a desire to fit in with the group, not stand stand out, be just like everyone else is antithetical to entrepreneurship. The education system trains students to possess these qualities. For example, they are not encouraged to speak in class, just listen and memorize. In English class, I have to make speaking a fraction of their grade, otherwise no one raises their hand. Even then it takes some coaxing. To make Japan a more entrepreneurial society will take more than R+D money. It will require a shift in many cultural norms. But I wonder, if in pursuing that goal, Japan will also acquire the negative aspects that come with individualism, all too evident in Western society.

  3. Krishna says:

    Picking up from where Marina Shvarts had left off, it’s for the other societies to pick up the element of empathy, extreme politeness and other socially benevolent traits from the Japanese and fuse it into their own – entrepreneurial or otherwise.

  4. Aimee says:

    Personally, I don’t think that Japan has the sociocultural framework to be able to successfully foster a more entrepreneurial mindset in the near future.

    Change doesn’t come easily to this country. The first sentence of the FT quote is a red flag to me. Allocating a substantial amount of money to a problem is the Japanese government’s way of giving lip service to the issue without really trying to implement lasting change. For example, the JET Program and the Monbusho scholarships were both created to foster internationalization and improve the educational system, but, from personal experience, I don’t feel like either program is really fundamentally changing the educational system or general Japanese mindset towards internationalization and foreigners.

    That being said, I don’t think that Japan’s economy will necessarily stagnate. With a greater number of Japanese people attending overseas colleges and universities, returnees who have adopted a more adventurous, risk-positive attitude may eventually cause a shift towards a more entrepreneurial society. Plus, Japan’s historical strength as a society and economy that thrives off of “borrowing and bettering” has the potential to succeed as long as there is contact with more entrepreneurial countries.

  5. Arman says:

    I am a foreign student in Japan. I can see that almost the people in my university planning to work for a company, and they are qorking quite hard to enter a good company.
    For me, I want to start a business here in Japan. Hope I can make it.

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