Cool Japan: An Enterprising New Model?

by John West, Asian Century Institute

Japan may be on the cusp of a fresh wave of “cool entrepreneurship” that could turn the country’s creative industries into a new source of growth.

Japan’s rise from the ashes of war to the status as a global economic superpower was driven by brilliant entrepreneurs like Panasonic’s Konosuke Matsushita, Sony’s Akio Morita and Toyota’s Kiichiro Toyoda. The efforts of these businessmen were complemented and supported by government policies, a well-educated and assiduous workforce, and a financial system that mobilised domestic savings with a global perspective.

When Japan was struck by financial crisis in the early 1990s, it was neither the first nor the last country to suffer from economic excesses. But as the bubble burst, ushering in a period of weak economic performance, many aspects of previous successful policies were called into question. Organisations like the OECD laid out reform agendas intended to revitalise Japan’s economy, including in the areas of entrepreneurship and innovation.

Though successive Japanese governments have adopted reform programmes, the need to push ahead with such programmes has been given a higher profile in light of the stiff competition that leading Japanese electronics and other companies now face on global markets. Barely a day goes by without international media reporting on the commercial tribulations of such household names as Sony and Nintendo.

It is unfortunate that more attention has not been given to the Japan’s wave of “hidden champions”, companies that specialise in high-tech componentry and succeed in their niche markets. They fly under the radar because they are not producing highly visible, branded consumer products. But without them, major flagships might not sail at all.

For example, it has been estimated that more than half of the parts and components, like capacitors, transistors and the liquid crystal screen, used in the iPhone 5 are made by Japanese manufacturers. And more than 65 Japanese companies supply the aircraft manufacturer Boeing with parts and components across its commercial and defence product lines.

These hidden champions may be “invisible”, but they are “indispensable” linchpins not only to Japan’s economy, but to global manufacturing supply chains. They are a sharp reminder of just how critical manufacturing is to our modern economies, and help explain why Japan remains a world leader in manufacturing.

They also fly in the face of accusations about “risk aversion” among Japanese youth.

Far from there being a “lost generation”, more new entrepreneurs are emerging than people might think. Masayoshi Son’s Softbank has the second highest market capitalisation, after that of Toyota, on the Tokyo stock exchange. In the fashion world, Tadashi Yanai’s Uniqlo is taking on casual clothing markets with great success in Europe, North America and emerging Asia, while Japanese chefs are guiding the world’s palates towards tantalising new adventures, such as Nobu and Okuda, and Hiroshi Mikitani’s Rakuten has become a world leader in electronic commerce.

Rakuten means optimism in Japanese, though it should be the leitmotif for all new entrepreneurs. Hiroshi Mikitani, known to his colleagues as “Miki”, is a particularly striking figure, who has adopted English as the corporate language (“Englishnisation”), even in Rakuten’s Tokyo offices. Mikitani had a safe job at the Industrial Bank of Japan, and was reportedly jolted onto the entrepreneurship path by the 1995 Hanshin earthquake in Kobe.

As though to prove that today’s global uncertainty also spurs risk taking rather than risk aversion, more and more young Japanese are taking their chances as entrepreneurs. Incubators and accelerators like Samurai Startup Island and the Open Network Lab are providing ecosystems for entrepreneurs. There are success stories like Yoshikazu Tanaka, founder and CEO of Gree, a mobile social gaming business, who is a self-made billionaire and has been called “Japan’s Zuckerberg”, after the founder of Facebook. There are also reports of foreign investors financing Japanese start-ups.

A new spirit of entrepreneurial confidence is evident in the words of Tadao Ohnaka, president of Langate, an IT firm:

“Seen from the outside, Japan probably seems caught in a rut. On the inside, however, a community of young business people is emerging. We are about to witness the end of the post-war economy and the start of a new system altogether”.

The return of Prime Minister Shinzo Abe to the leadership of Japan, with his “Abenomics” programme, has led to a surge of confidence and business optimism. The government’s “Cool Japan” strategy for promoting creative Japanese industries like manga, anime and J-pop, and Japanese fi lm, fashion, architecture, video games and cuisine also holds great promise. Backed by the Cool Japan Fund, the strategy will help many smaller companies in the creative industry to access global markets.

Still, to ensure the survival of entrepreneurship, Abenomics should focus on spurring it on. Facilitating greater participation of women in the economy would also help. As Prime Minister Abe recently said,

“Unleashing the potential of womenomics is an absolute must if Japan’s growth is to continue”.

Mr. Abe could add migration to his list: research from the OECD has shown that migration can spur on entrepreneurship, especially in the high-tech area. Most importantly, the creative industries and “cool entrepreneurship” policy agenda must be sustained, so that the successes of the past can be built on by the fresh new optimism of today. Just as during the economic miracle of the 1960s and 1970s, “cool Japan” could become a model for policymakers everywhere.

Acknowledgements

This article was originally published in the OECD Observer special edition on Japan, on the occasion of Japanese Prime Minister Shinzo Abe’s chairing of the OECD 2014 Ministerial Council Meeting.