Besides Bit Valley

Back to Contents of Issue: September 2000

by Paul Murphy


A common computer in a Dreamcore Buidling corridor in Gifu.

When future chroniclers are looking for watersheds and turning points to explain how Japan did, or didn't, succeed in the Internet age, the foundation of Shibuya's Bit Valley Association will stand out. The legacy of the association was to create Japan's first large Net community where ideas and business cards were swapped. The association was an inspiration to all of the imitators that followed. As a pioneer, it had many failings. Commenting before its disarray became obvious, Bruno Grandsard, managing director of Japan Internet Ventures, said the Bit Valley meetings were a good place to start, but, "There is a lot of hype about it, I don't think that is where deals get done." According to a Tokyo-based technology consultant, "They create a lot of noise, but I cannot see any particular infrastructure. If you take Silicon Valley, you have specialist lawyers and VCs, et cetera. Shibuya is mainly just a train station. It's not enough to coin a word and make a lot of fuss over."

But by common consensus its biggest failing was that it simply became too big. Shoichi Fujimoto, the head of the Bit Bridge networking group in the Kobe area, says that it became impossible to control the meetings. People who create computer viruses attended, says Fujimoto. So too did salespeople for Amway products -- people who had no Internet connections but just wanted a network of potential Amway customers. But, says Ari Takeuchi of Tokai's Mid Valley, "we were able to study Bit Valley, the bad and the good, and learn from it."


Artwork about intercommunication outside the Softopia headquaters in Gifu.

The aim of this article is to look at what is going on outside of Tokyo in the high-tech/Internet scene. In researching the article, one of the first persons I talked to was an American executive based in Tokyo whose firm invests in Net startups but rarely looks outside of the capital for investment targets because, he says, "There are too few entrepreneurs there." He is mistaken. What follows is an overview of places outside of Tokyo that are home to a lot of new high-tech action. And there are many such places. There is a great shortage, however, of concrete figures. The latest government statistics on the number of IT ventures are not yet two years old, but they are already hopelessly out of date. The Net world is constantly in flux. Companies appear, disappear, and merge with great frequency. There are, though, some discernable trends. Throughout Japan, associations are being created with the almost uniform purpose of creating places for students, venture capitalists, and entrepreneurs to mix. There are also some regional differences. Though in almost every prefecture the government is funding at least one incubator for startups, the extent of the role of the state differs greatly. In Gifu, about ¥430 million of public money has just been pumped into a huge incubator for all kinds of startups -- Internet and non-Internet. It's just the sort of state intervention that throws the editorialists at The Asian Wall Street Journal into an ideological lather. But over a thousand miles south of Gifu, the tiny Net community in Okinawa depends on private funds, largely rejecting government money. One local Okinawan entrepreneur says he would never invest in a project that involved "the deadening hand of the government."

But differences aside, there is a common purpose throughout Japan among the organizations that are the spawn of Shibuya's Bit Valley. In the past, they looked to Bit Valley to see how it could be done. Now they look at it to see how it shouldn't be done. They are all trying to differ themselves from their progenitor, aiming to prove that there is more to Japan's Internet world than a few hundred companies within five kilometers of Shibuya station.

Hiroshima-based Kaeko Hino can hardly believe her luck. The Chugoku region was falling way behind the trend in Japan of setting up Internet networking groups. So in April, the energetic Hino, who runs a company called Herstory, and nine other Net-related firms set up Gocoo. The name means "five skies" in Japanese, one for each of the region's prefectures. Within a couple of months, the membership shot up to over 560. Though the business benefit of such groups is often questioned, even by regular participants, Hino, who is the only female leader of similar Internet groups in Japan, says connections made at the Gocoo parties have enabled her to spread the word about her company far and wide. Though the female membership, at 20 percent, is not much higher than similar groups, the Gocoo Web bulletin board -- with messages asking if it's OK for housewives or OLs to attend, or if people should make up business cards before going -- gives the impression that the Gocoo appeal goes beyond young male sophisticated techies.

Kanji Fukuhara, another major mover behind Gocoo, says the group also opened his eyes to wider opportunities. His Cando Corporation has recently expanded from graphic design into Internet marketing. "If I didn't meet people through Gocoo, I might still be designing Web pages," he says. Fukuhara also reckons that Hino's own charisma -- she was already a well-known figure in Hiroshima before Gocoo was set up -- has added to the group's success, as she was able to introduce people from the non-Internet world. Hino's Herstory sprung from her experience as an overworked ad agency employee, where the demands of socializing with clients after work were incompatible with child rearing. So she and a peer set up a "people bank" of women who were skilled in everything from teaching shodo (calligraphy) to data input and who were available for hire under conditions suitable for mothers. She put the business online in 1997.

The priority of Gocoo is very much on communication first and business second. "We won't go the same way as Bit Valley because we all know each other and made a conscious decision to make the group rather than have it grow organically," says Fukuhara. One reason for the turmoil of Bit Valley, he says, was that "people there focused too much on business [and not enough on communication]."

Kotoshi Fujii reckons many Internet firms need to strengthen their grasp of real economics. He is dismissive of startups based more on ideas than business sense. "There are plenty of good ideas, but the problem is realizing them," he says. Fujii's firm, Wins Communications in Okayama, employs about a dozen people making Net-related software for mobile phones. This is a promising market, he believes. Now, about 20 percent of the nation's mobile phones have browsers, but by next year all 56 million will be Net-compatible, he says. Wins Communications is working on creating a common ASP software for the phones. As a midterm goal he wants his firm to register on Mothers, and over the long term he has his eyes fixed on the American market.

"On the verge," is probably the best way to describe Okinawa and the Internet. After almost three years in the business, the staff of Okinawa's only incubator -- the Kigyoka Shien Office -- in Naha are still patiently waiting for a Net firm to join the nine multimedia and other enterprises based there.


Paul Chang is planning a new kind of tech community in Okinawa. "Engineers are artisits."

On paper, the southernmost prefecture is well suited for firms who can do business outside of Tokyo's Yamanote train loop. According to Kentaro Matayoshi of Ocean 21, the private company which runs the incubator on behalf of the prefectural government, the weather is great, it's relatively easy to get government funding, and the island already has a solid Net infrastructure. And there are no earthquakes. But though the nation's poorest prefecture gets billions of yen to buy the islanders sullen acceptance of US bases, only one in four households owns a computer, well below the 37.7 percent national average. In March, the government said it would pump another ¥100 billion over 10 years into developing the struggling economy, a tidy sum for a prefecture of only 1.3 million. High on the priority of aid targets is expanding the Net.

But though Okinawa remains well behind in the league table of Internet/software startups -- there are only four or five according to an informed local estimate -- that could be set to change dramatically. Enter Osaka-born Paul Chang. Of mixed Chinese-Japanese parentage, 50-year-old Chang used to work for Wang Technologies and Itochu Techno-Science Corporation. He is also a minor shareholder in LINC Media, which publishes this magazine. He is a wealthy man with a dream, and his dream revolves around the Internet and barbecues. Yes, barbecues. Standing on white sand shipped from a nearby island to cover the beach shingles along the 3km site which his company The Ginoza is developing, Chang enthusiastically describes his plans for a massive high-tech community looking out over the Pacific Ocean.


A model incubator office in Okinawa. Question: How could you possibly concentrate on a computer screen?

"We want to bring a different angle to software development," he says. "Computer engineers are artists: they need a proper environment." His park, a stone's throw from fields of pineapples and sugar cane, will have, he says, high-capacity Internet lines and top facilities for SOHO firms as well as larger ventures. It will also have a 320-room hotel, 36 condominiums, a conference building and -- along the beach -- 40 barbecue sites. "I want to prove that money or government alone cannot develop a community, but people can," he says.


Influential Okinawan Kouichiro Kokuba is Paul Chang's partner. "I create the atmosphere," he says. The puppies are a good start.

Not that there will be any lack of money going into the project. Chang reckons that total investment will reach around $40 to $50 million. There will also likely be no shortage of financial backers, for Chang's partner in the project is Kouichiro Kokuba. As one local told me, "It is impossible to be Okinawan and not know Kokuba." An extremely influential and controversial businessman with ladles of political clout, Kokuba is seen as the prefecture's "fixer." His sprawling business empire includes developing resorts for the island's thriving tourist industry. Regarding his partnership with the tech-savvy Chang, Kokuba says, "I create the atmosphere, he creates the business." Apart from attracting bright young things from the cities to develop software in the sun of Ginoza on the east coast of the main island, Chang is also targeting retired people who want to continue working in their own SOHO business after they retire. Though development is just beginning on the 6-square-kilometer park, Chang says he hopes to have his first tenants in by the end of this year and to have 100 in two years. One of those moving there will be Takashi Hiyane of Lexues, a developer of the Web-based Team Gear groupware. Set up last year when he was a marketing management student at Okinawa International University, Hiyane's firm now has 20,000 Team Gear users and 18 workers developing software in what was once a recording studio. For a huge space, his firm pays dirt cheap rent of ¥120,000. Workers are also cheap in Okinawa. Chang conservatively estimates that a local software engineer -- the somewhat prestigious Ryukyu University produces about 100 a year -- costs at least 30 percent less than his Tokyo counterpart.

Hiyane aims to become the first Okinawan New Economy firm to go public. Of his workers, six are from outside the prefecture. Yo Yasuda, from Tokyo, is one of them. The slim longhaired wannabe musician came to Okinawa "to get away from the stress of Tokyo." The now remarkably stress-free Yasuda has married a local woman and entertains no thoughts of returning to the big city. "I will never go back," he says.

Before he became prime minister and his slips of the tongue caused him much bigger trouble, Yoshiro Mori got into a spot of bother with the famously entrepreneurial Osakans for saying that they are only interested in making money. But Ryouichi Fujimoto, manager at a local venture capital firm and mover behind the Osaka Internet scene, agrees with Mori's sentiments. "In Osaka we concentrate on how to make money," he says. This attention to the bottom line, he reckons, helped the city's high-tech startups to stay afloat after the Internet bear market dried up funding this year. Though Fujimoto says that the coastal city will never replace Tokyo as the center for Japan's high-tech business, it has many advantages. Though a huge city by any standards, its sprawl is a good deal less than that of the Tokyo Metropolitan area. While still spread out, there are some Net ventures gathered around Nanko on the waterfront, where the iMedio and MADO incubators are located. According to Nathan Bryan, who has a five-person digital contents production firm based in iMedio, more startups will likely concentrate around Nanko.

Networking in the city revolves around Beta Valley, of which Fujimoto is a founding member, and, to a declining extent, around Frontier. Beta Valley is a typical copy of Shibuya's Bit Valley. It's just much smaller and more manageable. About 100 Internet ventures meet once a month in Osaka's Umeda district under the organization of a designated host to drink beer and swap ideas. Apart from being a play on the word Bit, Beta comes from the onomatopoeic Japanese expression beta beta, which means "to cling to" and when applied to people invokes the idea of camaraderie.

Toru Hasegawa of member firm Campion is happy with the coziness and is anxious that gatherings be kept small so that it's possible to meet people. His firm organizes electronic payments -- at ¥130 per transaction -- for those among the some 70 million post office account holders who don't have a credit card, mainly students, women, and the elderly. Last year, he put online a service he has been offering since 1992. He not surprisingly wants "to make electronic money the main currency." Though most of his customers are in the Osaka area, he says it doesn't matter where he locates, as he can run all the business online. Much more locally focused is Hirofuni Kamatsuka, who runs KuKu, which he claims is the first e-coupon specialist in Japan. Kamatsuka's business is relatively simple, if painstaking. He creates community maps showing, among others, retailers at which shoppers may spend digital coupons available from the shops' Web sites. His Kobe site gets 40,000 hits per day, and he will put the content in English, Chinese, and Korean in time for the World Cup in 2002. His aim is to keep a local focus but to spread through Japan. "I aim to make cyber cities throughout the nation," he says.

Though according to government figures there were 852 very broadly defined IT ventures in the prefecture in 1998, the feeling is that Osaka's Internet sector is still working on half power. "The sense that I get is that it hasn't really taken off yet," says Lester Patrick, who runs two online guesthouse-booking Web sites from Osaka. Though "there are a few people starting things," Patrick says, there is a stymieing tendency for Osakans to "habitually look to Tokyo."

Sweet Valley


Artwork about intercommunication outside the Softopia headquaters in Gifu.

"So what's Ogaki City famous for?" I asked the taxi driver as we trundled toward Gifu Prefecture's high-tech Softopia Japan Complex. "Nothing, it's famous for nothing," he said. Actually, Ogaki used to be famous as a center for spinning mills. The big companies, Toho Rayon, Kanebo, and Teikoku Seni and others all had production bases in the city of 150,000. But the allure of improved spinning and cheaper wages in China and Thailand decimated the industry and threatened to turn Ogaki into a deindustrialized black spot.

Ogaki may yet recover its fame, however. Governor Taku Kajiwara is spearheading a project to -- yes, you've guessed it -- turn Gifu into Japan's first Silicon Valley and an "information culture prefecture." Japan has so many wannabe Silicon Valleys that it may be hard to take Kajiwara seriously, but the Softopia Japan high-tech park, which uses ¥150 million of government money each year, is impressively planned and executed.

Already host to the giants of Fujitsu, NEC, and Hitachi, the park opened its doors June 1 to 70 venture companies, of whom about half are high-tech. Most are very small businesses. Until his move to Softopia's 24-hour ¥430 million Dreamcore incubation center, Daisuke Shimada's two-man operation, called Square Link, was run from his house. He doubles as a student at Gifu University. "In the daytime I go to school, and at night I work," he says.

Shimada does different jobs. He's now designing an online auction site for a computer shop in London, a gig he got through an exchange-student friend. He is also working on a project to enable surveillance cameras in homes to turn on lights and electrical appliances via the Net when an intruder is detected.

Next door is Shin Uchida of Murase Industries, who is working on a project whose details are secret. It's something to do with an information messaging system, he hints.

For these firms, Softopia literally provides a software utopia. Uchida says the building, designed to allow human networking with common-use computers and Parisian café-type tables in the corridor, gives him a place to keep up with the latest trends in information systems. And for Shimada, with a student's eye on costs, the office is great because it's rent free. "My monthly outlay is only about ¥8,000," he says. "Five thousand yen for electricity and ¥2,000 to ¥3,000 for phone calls." Internet costs are also free.

The long-term plan, says Yoshifumi Takai of Softopia, a company that is a curious mix of the public and private sector, is to double the workforce for all firms in the complex to 3,000 within three years and push it up to 5,000 thereafter. That number should be enough to draw more large companies to the park, and from there infrastructure should grow organically. Then the term Sweet Valley, coined somewhat prosaically by Governor Kajiwara earlier this year to symbolize a mix of the different sweets of Gifu -- air, water, honey, et cetera -- with the aspiration to create a local approximation of Silicon Valley, edges closer to reflecting reality.

Though Softopia is at the center of the Gifu dream, there is also the VR Techno Center in nearby Kakamigahara city that has around 30 firms.

And just how many high-tech ventures are there in Gifu? "It would be impossible to put a figure on it," Takai says. There are just too many firms being run from home that are not accounted for. "My wife's brother who runs a systems maintenance business is one of them," he says.

Those That Didn't Make It
Japan is a big place, and there are many high-tech sites outside of Tokyo that we didn't focus on. As you read this, beds are being moved out of the Yamazawa Hotel in Nagaoka City in Niigata as owner Chisato Jinbo converts rooms for rent to computer-related SOHO businesses. Jinbo is not giving up on his hotel business altogether -- he just says that "its outlook is unsure." So he is keeping a foot in both the new and old economies. He started his incubator hotel in February, letting out one of the seven hotel floors to software developers and computer ventures. Other rooms are gradually being reconverted. On a much smaller scale is Takao Furuhata of Ueda City in mountainous Nagano, a prefecture that hardly registers on the high-tech map. Furuhata and five others founded the humorously deprecating, a play on the word for countryside and all its attendant bumpkin connotations -- and spelled with an 'e' rather than an 'i' to indicate its ecommerce business. As part of his plan to sell Japanese goods to the US, and import American goods here, Furuhata joined the Beverly Hills Chamber of Commerce and opened his online shopping site in December. It has met with mixed success. In a reversal of the standard US charge that Japan is protectionist, Furuhata laments that "The Americans won't allow the import of Matsuzaka gyuu (beef steak) nor anything else, such as noodles containing beef." But he is busily looking at other angles to boost business. He says that he can be a bit more adventurous because the supervision of his site by the Ministry of International Trade and Commerce, which loaned him some "assistance money," has eased.

On a larger scale, we focused on the Sweet Valley of Gifu Prefecture to the exclusion of neighboring Aichi. Though Aichi capital Nagoya, Toyohashi, and Kanayama have many high-tech firms, and the prefecture's Mid Valley Internet Association boasts about 200 members, the combined public-private sector approach in the much less populous Gifu is far more impressive. A local government source says, however, that Aichi will likely start to get its act together ahead of its hosting of Expo 2005.

In just about every prefecture, incubators have been established or soon will be. A favorite are public-private projects referred to as "third sector." But though many of the firms in these third-sector incubators are high-tech, the government in general does not favor one area over another. Third-sector incubators are usually a motley crew of research groups, software developers, multimedia firms, Internet startups, and other old economy ventures, producing everything from animation graphics to gadgets for the elderly or medical equipment. Third-sector projects can be found in Kanagawa, Ishikawa, Ehime, Shizuoka, Yamanashi, Shiga, Mie, Chiba, Saitama, Tochigi, and just about any other of Japan's 47 prefectures. Apart from third-sector initiatives, universities are also tying up more and more with the private sector. Outside of Tokyo, the national universities in Osaka, Hokkaido, and Fukuoka are outstanding, though as the head of the computer science department of Tokyo's Hosei University recently said in a newspaper article, the colleges are simply not producing enough engineers. "It's nothing compared to the US," Toshiyasu Kunii said. "The severe shortage of computer scientists is endangering Japanese industry."

It takes all sorts to make a successful software firm, and all sorts of strategies. The ones that work best for Sapporo-based software and hardware firm B.U.G., according to its Web site, are hard work, entrepreneurial spirit, snowball fights, and eating sushi. One of the longest established high-tech firms indigenous to Hokkaido, B.U.G. aims to project an image of corporate levity. "It also," says company spokeswoman Ninako Mori, "is a company that likes to do what it wants." Four students from Hokkaido University founded the firm in 1977. It now employs over 80 engineers, focusing mainly on technical development, though it has spread into other areas, such as systems maintenance. The company is now based in the city's Techno Park, guiding operations from a large, futuristic black building that is sufficiently unsightly for it to have won the Nikkei New Office award. It is, however, probably the coolest head office location in Japan. Look out the window and you see a breathtaking natural backdrop of miles and miles of Nopporo Forest.

So is there any difficulty in being so close to Siberia and so far from Tokyo? Not really, says Mori. The firm has sales offices in Tokyo and doesn't find it that difficult to recruit staff, despite the harsh winters and relative isolation. Mori says people who don't want to live here don't apply to work here. "But" she says, "there are many people who adore Hokkaido."

Apart from being one of the fathers of the burgeoning Sapporo high-tech industry, B.U.G. is also responsible for making its own little bit of history. In 1995, it signed a deal with US firm RSA Data Security to import high-level cryptography. The deal passed relatively unnoticed, but it may yet be considered a milestone for Internet trade, for encryption is crucial to the success of ecommerce. People need to feel their credit card details are safe when trading online. But because this sort of technology can be used for military purposes, countries, including Japan and the United States, banned exports. The B.U.G.-RSA import deal represented Washington's first relaxation of restrictions. Thereafter the US government continued to ease the rules. And in June of this year, with Tokyo fearing that Japanese companies would be left behind in the world encryption market, the government here lifted the ban on Internet-use encryption software.

And in case you were wondering, the letters B.U.G. don't stand for anything.



The Yamagata Business Support Center focuses on high-tech research and incubation.

Yamagata is not the most happening city Net-wise in the Tohoku region of northeastern Japan. Sendai is. In looking at Tohoku, we could have chosen the smaller Net communities of Aomori, which hosts at least two incubators, or Iwate Prefecture, where the 300-firm strong Forest Alley Tohoku Internet group is based, and where Iwate University and local businesses are working together in a couple of areas, including a ¥15 million software development project. We could also have looked at Fukushima Prefecture, where the old samurai town of Aizu Wakamatsu is attempting to regain some of its former economic glory through online ventures, helped by the presence in the town of Japan's first computer science university, founded seven years ago. But we decided to focus on Yamagata, set in a valley surrounded by hills and marvelous countryside, because it's as good an example as any of how Net ventures can thrive even in the backwoods.

The brown-tiled building of Yamagata City's only incubator resembles a train station. Built by the government of the northeastern prefecture last year, it's part of the ambitiously named Arcadia Park. Sitting beside a field of maize and across the road from paddy fields and a mud-walled kura storehouse, it is definitely not Yamagata's answer to Silicon Valley. But inside are a dozen innovative tech firms.


Mihiro Matsuda, head of mobile content firm Chicmen, the "best-known Net outfit in Yamagata."

One is called Chicmen, which has a staff of 10, including a few part-timers, and is headed by Mihiro Matsuda, an information studies graduate from the local college of art. Matsuda is an interesting character. Upon finishing his studies, he considered entering a local company. "But," he says, "I imagined what I would be like in five years time and didn't like what I saw." So last year, he ditched any idea of becoming a salaryman and founded his own digital content company, which evolved into Chicmen. Involved in a number of projects which have a strong local tinge, it is easily the best-known Internet firm in Yamagata.

It offers information on local job listings, events, and restaurants through

i-mode. Some restaurants, for example, offer discounts to those who show money-off coupons displayed on their i-mode screen. But it can be difficult, admits Matsuda, to convince local retailers of its merits. Household Net connection rates are well below the national average of one in three, and many local firms tend to see the Net as a trendy gimmick rather than as a serious advertising tool. Because of this, the service will remain free of charge for participating companies for the next two to three years. Though Matsuda has his eye on breaking into the wider Japanese market and setting up an office in Tokyo, he is happy for the moment in Yamagata, and the area will always be home to the company headquarters. "But it's hard to find people with work experience," he says. Nor is there a long line of software engineers from other parts of Japan waiting to move to the sleepy city of 285,000 people.

On the plus side for businesses, workers are cheap. According to Miwa Yashima of History for the Future Programs (HFP), a relatively untrained worker in the area with computer expertise starts as low as ¥120,000 per month. Though it also designs sites to make money, the focus of HFP is to create a digital archive of customs, traditions, or other things of historical value. For example, government plans to expand the flow from a local dam means that some areas in the nearby town of Ogunimachi will soon be for swimming rather than walking.

But in Yamagata Prefecture, the train-station -- like incubator is not the only focus of tech activity. Matsuda is an active member of the Cho (small) Bit Valley network, which attracted about 200 people to its June meeting. The discussions help to make up for what Matsuda calls the lack of raw information on the Internet that people in Tokyo have. The feeling of isolation from Tokyo is one that is common among Net firms plowing their furrow away from the big cities. It can be compounded, says Studio Advantage owner Akio Akanuma, who has won international prizes for doing creative things digitally with pictures and images, by a deep conservativeness prevalent in country areas. The Yamagata Prefectural Government may have funded the incubator, giving local startups cheap space, high-speed Net connections, and a nice environment, but the economic emphasis regionally remains very much on agriculture.

Along with Sapporo, Fukuoka enjoys a reputation among the Net community as having the best pool of engineering talent outside of Tokyo. Sapporo hosts Hokkaido University, and Fukuoka hosts Kyushu University, both of which were among the nation's original seven national universities and both of which have been actively promoting the high-tech industry since the 1970s. Though, as with other areas, there are no solid figures on how many high-tech ventures have set up in Fukuoka, the prefectural government says there are 50 in its software research park and others scattered around, including some in incubators in the trendy downtown shopping and business center of Tenjin.

But apart from a good local education at some of the 20-odd third-level places of learning in Fukuoka, some reckon there are also local cultural factors behind the success. "People here don't mind being different from their neighbor," says Yoshiaki Kakuda of Pencil, a Fukuoka firm which does Web design and Internet consulting. Says Andreas Laestadius of Atmark, which customizes Web sites among other things, "Regarding design and DTP, Fukuoka has traditionally had a very active, creative community." Also, the Swedish national says, "In production figures, Fukuoka is third in the country, so at least when it comes to new-media kind of startups, the city has a good talent pool."

Though the city has a long tradition of entrepreneurship and has been at the cutting edge of electronics development thanks to the presence of firms such as Sony and Fujitsu, Kakuda says that when it came to the Internet, the big firms just weren't getting it. In the mid-1980s, Kakuda went to Silicon Valley during a two-week jaunt to the US. He came back convinced of the promise of the Internet. But the big firms weren't interested, he says. Others, such as Atsumu Yokoishi, were, however. Yokoishi, who founded Atmark, has turned it into a thriving business employing around 50 people.

Another Fukuoka pioneer is Masahiro Kabashima. His Ex-tools, which employs 37 workers, is based in one of the funkiest buildings in Fukuoka, and is now a leading 3D graphics designer.

These three entrepreneurs and others set up the 400-strong local Net association D2K at the end of last year. Kakuda's involvement was idealistic. His own experience of setting up a company without a pool of like-minded people with whom to share ideas, and his vain search for angel investment, persuaded him that D2K could give emerging firms a helping hand. The bimonthly meetings also offer a chance for people to get to know their rivals, which Kakuda says is important. But though the city was voted in one survey last year as having the best quality of living in Asia, there are some disadvantages, says Laestadius. "The disadvantage is the smaller market size and that corporate decision making is largely centralized to Tokyo. This also means we do not have perhaps the access to information that the Tokyo venture community has," he says.

But there are many signs of vibrancy. Last November, Fukuoka Prefecture set up the Fukuoka Venture Market in the Institute of Science and Technology. Each month, around 20 firms get on their soap box and give presentations to try and get venture capital funding to get off the ground or to fund development of inventions. Koichi Gono, a manager at the prefectural government's International Economy and Tourism Division, is brimming with enthusiasm for an initiative that he says is a groundbreaking one for Japan. Of the 163 firms that stood on the soap box by July, 25 had gotten capital and another 47 were in negotiations with possible partners.

"The most underutilized resource in Japan is college students -- they have plenty of time because they don't study," says Kyoto-based technology consultant Michael Robbins. And that, he says, is why Kyoto has so much to offer in the software field. "You have tons of universities," he says, "and tons of smart kids." Robbins estimates that there are about 300 Net or tech companies in Kyoto, many of them the creation of students.

Toshiyuki Kataoka, a second-year Master's student at Kyoto University's graduate school, has started two of them, including Web-based systems developer Yumemi. Nine members of his firm are students at Kyoto University. Another four of his acquaintances have also set up firms. "Most of the firms are involved in systems development or providing Net services such as online shopping sites," he says. "Kyoto University is near, so they can use many of the excellent engineers there."

Though as Robbins says, "The market in Japan is in Tokyo, there is no doubt about that," being in Kyoto is not necessarily a disadvantage. United Digital boss Koichi Okawa, who runs the world's largest e-magazine business, MagMag, says his Kyoto base meant he didn't have to bother with a regular sales force. From day one, Okawa wanted to keep costs, and thus advertising charges, low. This let him develop into an exclusively Net business, with sales and communications taking place online. His strategy has worked. The e-zine business, which employs eight, now has over 21 million people subscribing to over 15,742 magazines, with another 10,000 signing up every day.

The image of Kyoto is also important for branding and promotion, says Robbins. He points to firms such as Kyocera and Nintendo, which put forward an image of "Kyoto business being on the cutting edge." The temples help as well, providing an image of Kyoto as steady and trustworthy. Also, because of its smaller size -- Kyoto is only one-ninth the size of Tokyo -- "companies get a visibility they mightn't get in Tokyo," he says.

The startups in the city are concentrated around the Kyoto Research Park (KRP), with a smattering around the university. The only private research park in the country, KRP, which is owned by Osaka Gas, expanded to become an incubator as well as a research facility. Of the 130 companies, 45 percent fall into the new media or information technology category, which makes it one of the biggest IT business centers in the country. Software and Internet firms born in student apartments tend to move to KRP when they get bigger.

One that may do so is headed by David Moskowitz, who, as well as teaching English part-time, runs a three-person Web business to teach the language online. Moskowitz says he is interested in moving to KRP "just because they have all those companies there, such as MagMag. As far as contacts are concerned, it would be a great place to be."

Though incomparable to some other areas, the city government also pitches in to help budding firms. A semipublic committee, made up of Kyocera founder Kazuo Inamori, government officials, academics, and other businesspeople, rates startup business plans. Those who get an A grade qualify for low-interest loans guaranteed by the government.

Some reckon, though, that the government should be avoided at all costs. Ian Shortreed of Mercury Software Japan, which is based in Kyoto, offers very direct advice for small and medium-size startups. "Don't incorporate in Japan," he says. "Use a rep office. The need to incorporate in the Net era is over, and you kill your two greatest enemies in one stroke -- the Zeimusho (tax office) and the Tsusansho (MITI)." In an irreverent reference to government bureaucrats, he says, "You can bet these four-year Todai dummies are planning on taxing the Internet within Japan as I speak. They cannot tax an overseas entity."

There was a time when Okinawa was the clear economic basket case of Japan, with unemployment levels double the national average. Not any longer. Just as the southernmost prefecture is improving economically, its northernmost counterpart has been going in the opposite direction. Hokkaido's unemployment is now only less than a half percentage point better than Okinawa's. And it's getting worse with the sputtering Mt. Usu volcano driving valuable tourist yen away. But not all is glum for the island.

More than any place north of Tokyo, Sapporo is a veritable hive of high-tech action. About 60 of the larger firms, such as Fujitsu, Omron, and Matsushita, are in the city's Techno Park, but an increasing number are setting up shop in the so-called Sapporo Valley around the north exit of Sapporo station, where rents are cheap. Akinori Takahashi, a leading light in the local Internet sector and president of Data Craft, which provides a Web database of photos for graphics and arts media content, says that about 40 of the new ventures are Internet or software firms.

Takahashi and others set up the so-called Biz Cafe in June. The cafe is a copy of similar ones set up in Silicon Valley to provide a place for people to meet and swap ideas and meishi. It does serve food as well. VC firms have staff stationed on the cafe's second floor to meet with entrepreneurs. Though the focus is very much on New Economy companies, its organizers say that it was born out of the Old Economy failure of the Hokkaido Takushoku bank in 1996, then the nation's ninth largest, which forced the tightening of purse strings for new businesses.

But though the cafe will act as a lubricant for business activity, Takahashi is quick to point to prestigious Hokkaido University as key to Sapporo's high-tech boom. The engineering teaching staff there and in a couple of other colleges in the area is excellent, he says. The college also runs an incubator and provides assistance money for startups.

Similar to the situation in Kyoto, many of the local startups were founded by Hokkaido University students. One of them is B.U.G. (see "Those That Didn't Make It"), from which sprung other independent software firms, such as Softfront and Open Loop (see "Five Hot Startups"). But the daddy of them all is Sapporo-based game-software maker Hudson, which employs 400. Hudson Soft has begun outsourcing an increasing amount of software development to local firms, work that it had previously consigned to Osaka or Tokyo. The company believes that Hokkaido's bulging network of small software firms makes such development easier. VP Shinichi Nakamoto is a former student of Hokkaido U. engineering professor Yoshinao Aoki, who set up the Hokkaido society for the study of microcomputers in 1976, which is regarded as the forerunner of Sapporo Valley. According to a Hudson spokeswoman, the firm is keeping in close touch with developments involving up-and-coming firms, with an eye to possible investment.

There are reportedly quite a few Hokkaido high-tech firms considering going public on the Mothers market in the next year, including Sky Corp., which sells wireless phones and Internet services.

One of the reasons for the expansion of Hokkaido is that firms here tend not to simply pack up and shift to Tokyo when they get bigger. The reasons for this are varied. Minako Mori of B.U.G. says that because the high-tech community in Sapporo remains relatively close knit, there is more loyalty among workers and less chance that firms will headhunt staff. In the case of Takahashi, whose firm employs 44 people, Sapporo is simply where he was born and reared, and though he has a sales office in Tokyo, which accounts for 70 percent to 80 percent of sales, he says a move of headquarters is inconceivable. Besides, he says, "the nature here is beautiful and there is no shortage of skilled people."

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