- Japan doesn’t have a Silicon Valley, but it has something similar.
- The innovative minds of Japan are underground. There are cultural reasons for this.
- Investors willing to dig deeper ought to come across interesting opportunities, both in startups and existing small and mid-size enterprises.
If you are well-versed in the startup scene and also looking into Japan, you’ve probably already read a half dozen articles about the country’s lack of innovative minds. After a quick Google Search, it’ll be clear to anybody that, no, Japan doesn’t have a Silicon Valley. Even with recent record-level venture capital (VC) funding in Japan, Silicon Valley still raises 50 times more cash for startups.
And so, naturally, freaking out about the lack of young disruptive startups ensue. Then the idea of changing Japan, along with critiques about the generally risk-averse culture come along as well. To a cultural observer, however, this is akin to freaking out that Japan isn’t very American. For most Japanese, jumping into the limelight is uncomfortable, and culture plays a part in this.
Japanese group orientation
Comparing the US to Japan is sort of a stretch. Japanese culture is highly group oriented, and particularly so when compared to the United States. If you were one of the half dozen or so Americans in the student exchange program in my high school (in Japan), you would’ve noticed the contrast pretty quickly.
Grade 1, Class 9, Number 17. That was my “classification” in 10th grade. Whenever there was a school-wide announcement or event, all students gathered in the gym. My class was the 9th column from the right, and I was in the 17th row from the front, every single time for the entire year. This is a small part of the experience you get at a Japanese high school in Okinawa, which is arguably the most relaxed in terms of “Japanese-ness” in the entire country.
Somebody smart once said a picture is worth a thousand words:
If you are half Japanese (like me), then you are probably one of the two bottom stickers left out in the picture above. This makes for some interesting life experiences, getting you comfortable about being different at an early age. However, if you are “pure” Japanese, stepping outside of the group can be intimidating.
This isn’t to say there aren’t any Japanese individuals who strive under the limelight, just that there are fewer than you’d find in the US, or most other western countries.
The Japanese “startup”
So let’s say you’re Japanese, brave enough to step out of line, and don’t mind the cultural perception toward failure (in case that happens). Chances are, you’re working for an employer and would like to try out a few things in your free time before going full-blown entrepreneur. Before you ever realize revenues as a weekend warrior, your employer is likely to stand in the way. Japanese companies often do not allow employees to engage in side businesses (副業 – “fukugyo” in Japanese). Fortunately, some big companies – like Nissan (2009), Softbank (2017), Konica Minolta (2017), and others started allowing side businesses. Still, the practice is generally restrictive in nature, often requiring employees to get permission from the employer.
Both with the real barriers and the cultural context, it would be strange to expect the sort of disruptive “out of line” startups that are the rave in the US, coming out of Japan. At least not with the way Japanese business works today. That doesn’t mean the skills, expertise, and innovative minds don’t exist. It just means you need to dig deeper to find it.
For example, I recently had the opportunity to chat with the organizer behind Buffett Code, a value-oriented Japanese website providing screening tools for Japanese retail investors. They’ve got a team of volunteers diligently working to further build the tools. You would never know this unless you speak Japanese and take the time to get to know them. Why? Their names aren’t anywhere on the website. The about page describes why they started, what tools they offer, and other information, but nothing about who is involved.
And then you have another layer of “startups”. Don’t be too quick to discount existing Japanese small and mid-sized businesses. According to Tim Romero (Disrupting Japan), startups and large enterprises are not the future of innovation in Japan. Mid-size enterprises are the likely source of the bulk of future innovation, mostly because of the shift in Keiretsu dynamics.
The bottom line
The innovative minds of Silicon Valley often hit the headlines on the internet and elsewhere. However, you won’t find too many of Japan’s innovative minds out in the open. There are cultural reasons for this. There is more talent than meets the eye. Investors willing to dig deeper ought to come across interesting opportunities, both in startups and in existing small and mid-size enterprises. If I were you, I’d start by listening in on Tim Romero’s podcast over at Disrupting Japan.
P.S. – The folks at Buffett Code haven’t decided whether they want to make their tools available in English. Personally, I think their investment tools are a huge positive for the investment community, and even more if available in English. I don’t think anybody at Buffett Code speak English, but if screening tools and financial data downloads for Japanese equities sounds like something you’d want, make sure they know! Start by following them on Twitter (and maybe even harass them with likes, comments and messages).
Author: Kenkyo Investing
Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.