The economy grows tighter as we move into Q3 of 2008, and all eyes are on the Nikkei and the yen. These are the financial barometers of our times—and right now they don’t look so good. As of writing, almost all brand-name stocks are way down over the same period last year. Sony is down by 30%, Matsushita Electric by almost 40%, and Toshiba is also worth 40% less. Trends like this have the general public very worried, causing individual investors to flee the stock market, compounding the problem.
While this fixation on the best-known firms is understandable, they in fact account for only a small fraction of Japan’s GDP. The bigger story is the nation’s many small and medium-sized (SME) companies—who employ at least 80% if not more of the nation’s workers. Needless to say, with the vertical nature of Japanese business, few of these SMEs work direct for a client, instead residing downstream of the big guys. This means they’re pressed even harder for more performance and less cost—resulting in their employees—a large chunk of Japan’s population—really suffering both economically and health-wise.
Of course, economic slow-downs happen the world over; what is so special about the Japanese case? As I see it there are two main issues: firstly, the lack of opportunity for new businesses in markets where the big guys have secured their positions and customers are scared to try something new lest they lose their trusted vendor. Secondly, the apparent lack of desire by Japanese youth to become entrepreneurs.
I doubt there is much that can be done with the first issue other than for the government to continue deregulation so that areas of business where there are no incumbents can become accessible to nimble, smart start-ups. We’ve seen this happen in mobile phones, fixed-line telecoms (to some extent), internet content, software development, banking and other areas. Rather than raising taxes, deregulating education, law, farming, domestic freight and medicine and dissolving monopolies in these sectors will create far more economic benefits.
On the second issue, there is much that can be done, and in fact, is being done, to encourage entrepreneurship as a career. Ranging from universities to tax breaks for venture capital, there are many changes taking place in Japanese society as the authorities start to realize they have to do something. A quick look through the METI website lists many press releases on what the government is doing to support new business owners.
But perhaps one strategy to increase startups, which METI and others don’t want to consider yet due to the politics involved, is to encourage more foreign entrepreneurs to start up in Japan. I’m sure that many readers are familiar with the epochal study done in 1999 by the Public Policy Institute of California, which found that indeed, about a quarter of the high-tech companies in Silicon Valley were established by Indian or Chinese entrepreneurs—both national groups which are well represented in Japan too. The simple fact is that migrants have less to lose and are more willing to take risks—something that Japan should be taking into consideration.
Trying to stay ahead of the curve as usual, here at J@pan Inc we’re doing our part. We will be running our Entrepreneur Handbook Seminar series again in October and again in early 2009. For readers who are not familiar with the seminar series, we give a lifecycle overview of how to start, run, then sell a company. We’ve had about 250 people go through the seminars over the last four years, and encourage any budding entrepreneurs to consider signing up. Keep an eye open on the www.japaninc.com Web site for details.