Digital Osaka

Back to Contents of Issue: November 2002


Japan's second city desperately needs an image makeover; entrepreneurs and visionaries are planning everything from technology clusters to waterways filled with fresh flowers to give Osaka a boost.

by Alex Stewart












CALLING OSAKA "DIGITAL" IS a bit like calling Birmingham, England, "trendy." It might be, but if so, only a few still know about it. Just as Birmingham seems stuck in its industrial past, Osaka is stuck with an image of a slightly cranky, fuddy-duddy commercial past. What the city fathers and local business want to do is change that perception.

Japan's economy before the war thrived on the textile industry, and Osaka was the center of it. Trade with China had been a mainstay. After the war, this business closed down, while new business developed more and more between Tokyo and the US. Then, from the 1960s, computerization began to concentrate more power (information) in Tokyo. Slowly but surely, the great Osaka business names moved away too -- Sumitomo, Itochu, Marubeni and Nisho-Iwai -- leaving Osaka a shell of its old self.

Ironically it is computers again, or more precisely the Internet, which gives Osaka a chance to level the playing field with its nemesis. The Internet makes a dispersed style of working possible, allowing people to work away from Tokyo for longer periods of time. The face-to-face element cannot be removed, but it can be reduced, as email, video conferencing (3G video cellphones) and other tele-conveniences shrink the time-space gap. Tokyo does not have a monopoly on information in the new Internet age -- look at all the new venture communities popping up around Japan, especially near big universities. Sapporo is a good example. Osaka is another.

The face-to-face element, however, does give Tokyo the edge, since most decision-making and end demand is concentrated where the major head offices congregate. I am an example of a knowledge worker who resists the metropolitan force field. To make things happen faster I have no alternative but to visit Tokyo for occasional meetings, but I can resist the pull for longer periods thanks to the Internet, and as a result level the playing field with companies in Tokyo, which carry much higher overheads (and suffer a lower quality of life, I might add).

Digital Osaka as a story, therefore, includes several deeper issues about the nature of work and the contrast between living and working inside and outside Tokyo. From today's perspective it is hard to see the playing field leveling much, but the Internet certainly offers hope that more people will make the leap and start seeing the world as their oyster, wherever they are.

If market forces combined with enlightened actions by local governments work in an ideal combination, there is a chance that new clusters of venture businesses will form to create micro-economies, full of vitality, and relatively self-sufficient, as has happened in the US. The biggest problem facing smaller cities in Japan, though, is the absence of a risk culture, and the institutions that support it, notably the venture capital financing infrastructure. Conventional (certainly Anglo-Saxon) thinking views this as the chief inhibitor, but I wonder if this conclusion is too Anglo-centric. In Japan another way to stimulate the venture economy is emerging as an alliance of forces called san-kan-gaku, standing for industry, local government and universities.

The arena for a san-kan-gaku experiment in urban revival and promotion of a venture economy is now unfolding in a downtown area of Osaka called Semba. The area has a commercial history stretching back to the Middle Ages. It has the Osaka Stock Exchange and financial district on its northern border, formed by the Yodogawa River, with the original center of the retail industry, around the first Daimaru and Sogo department stores located in Shinsaibashi, on its southern border. It was once the center of the textile wholesaling industry and one of the most bustling areas of Osaka, but this has given way over the last few years to what the Japanese call shataa doori (empty-looking streets).



The initiators of this project have code-named it "Semba Digital Town." The original spark for the project seems to have been provided by Kazuyuki Konagaya, a professor at the Institute for Economic Research at Osaka City University, a university owned by the city government. In 1998 he went on a journey to the heart of the US venture revival experience, visiting several cities, including New York's Silicon Alley, San Francisco's MultiMedia Gulch and Boston's Route 128. He returned to Osaka, in his words, "to revitalize the city." Konagaya has the manner of a slightly excited schoolboy. He also has an infectious enthusiasm, which makes him the ideal link between government and the wider community.

After reading the conclusions of his visit to the US, the city government called on the Urban Development Corporation (UDC), a public agency set up in 1999 to help stimulate inner cities through rebuilding projects, to make an inventory of vacant land in Osaka. It found 976 vacant lots, one-third of them in the Chuo Ward, which includes Semba. At the same time the planning division of the central government -- the Ministry of Land, Infrastructure and Transport -- and Professor Konagaya's group carried out a survey to find out where IT venture businesses are concentrated in Osaka. It found four main areas, three of them located in spots bordering or overlapping with Semba, and one around Shin-Osaka station where the bullet train stops on its way to Tokyo. In all, it identified around 650 venture companies in the downtown areas near Semba, making it the fourth largest agglomeration of venture businesses, after Akihabara, Shibuya and Shinjuku, all in central Tokyo. These two sets of data got the team focusing on Semba because the district had the same traits as the areas Konagaya studied in the US. In other words, Semba is rundown, yet it has seen an influx of entrepreneurial businesses looking for affordable office space.

The Semba Digital Town project started life in July 2000 with the backing of the city government, the UDC, NTT West, the SOHO Association of Japan, Osaka Gas, Kinki METI and several quasi-public agencies. Konagaya chairs the steering committee. Below this are four working groups, covering IT infrastructure, SOHO incubators, business matching and the promotion of Digital Semba over the Net (www.semba-dt.net/).

Promotion of Semba over the Net is being handled by one of the few venture entrepreneurs active in any of the working groups, Akitoshi Fujikawa, who owns a Web software business called Agent Web. He was one of 800 (yes, 800!) graduates in his class from the IT department of Kansai Daigaku, one of the largest private universities in Japan. Unlike most of his contemporaries, he did not look for a job in Tokyo or a big company but started his own business. He now has seven employees and twice as many part-timers, most of them students at Kansai Daigaku. As the leader of the Web Promotion group, he says his goal is "to build up the name recognition of Semba by attracting companies and building up a virtuous feedback loop." He is also involved in a related project to set up Osaka's first IT cafE where people can network and hold events.

The most promising of the four working groups is the SOHO incubation initiative, Konagaya believes. The UDC just completed in October a 58-room SOHO complex designed by noted architect Tadao Ando. The complex sits on a 1,500-square-meter tract of land on the southern border of Semba with Shinsaibashi and America Mura, the heartland of Osaka's venture community. Konagaya describes it as a "flagship project to attract more small venture business to the area." Each apartment has two entrances to separate the office from the living quarters.

This is UDC's second SOHO complex (the first is in Shibuya) and it has plans for two more in Osaka. The ideal behind the complexes, Konagaya says, is to create a "digital town" where new business and living coexist just as they do in traditional business communities.



Konagaya is even more excited about a private initiative to establish SOHO incubators. He noted that while Japanese tend to be weak at sharing information informally and generally have a "weak attitude to risk," they could respond very well to working together in incubator communities. In this respect he is full of admiration for the ideas of a "producer" of restaurant themes and interior concepts for vacant buildings, called Shinhachiro Hata.

Hata has clearly "been around," working in the background of numerous property projects in Osaka, and he now seems to have found his vocation as a SOHO evangelist. He is the vice president of the SOHO Association of Japan and head of its Kansai chapter. When he learned of the Semba Digital Town project, it brought together all the elements he needed, notably an organization for matching the needs of landlords with the needs of SOHO tenants. He was in his element.

Another entrepreneur, Keisuke Ito, subsequently teamed up with Hata on the incubation project to provide the consulting know-how. Ito learned the principles of finance while working for a unit of Daiwa Securities in Osaka where he was involved in project-backed financing. In April 2000 he set up a venture capital incubator, Cyber Brain. It was the peak of the Internet bubble, so while he managed to raise money from investors, most of his IPO candidates became post-bubble victims. With his venture accelerator now more of a casualty ward, he changed tack to offer general consulting services to help put companies on their feet.

Hata's plan is to build a chain of what he calls "Partner Digital Boxes." The concept is to offer tenants access to a slew of small office services for a monthly fee of JPY60,000. Hata has so far established two so-called Digital Boxes. The latest one, called Alpha Digital Box, opened its doors in April and now has 25 tenants.

The reason, however, that Konagaya is excited about the Digital Box concept is that Hata has a much bigger vision of turning Digital Boxes into business "consortia." As a "producer," Hata sees the talent residing in 25 separate venture businesses located under one roof and looks for ways to tap this to solve particular problems or develop particular solutions. His current idea is to develop an "International Medical Health Center" offering Oriental-style preventive medicine and a fitness gym in downtown Osaka. Several of the tenants in Alpha Digital Box are members of the project consortium. Hata supplies the know-how for finding new uses for buildings, and members of his Digital Box community supply the can-do, keeping it all in the family.

It is a nice comment on the state of venture support in Osaka that there is a lot of other incubation space opening up. The most established incubator, i-Medio, was set up in 1999 by a local government agency, the Osaka Urban Industry Promotion Center. After a slow start, in part because of its inconvenient location down by one of the docks, it has evolved into one of the premier centers of multimedia talent in the Kansai. As a government agency it is also one of the committee members on the Semba Digital Town project. Its director is a relatively youthful and commercial-minded quasi-bureaucrat, Junzo Tominaga, whose standing in the local venture as well as government community is high.

But isn't there a risk of over-supply? Most incubators did not seem to fill quickly or still had spare office space to let. Tominaga counters that there are only 200 incubation spaces in Osaka compared with 230,000 companies. To reduce the risk of losing business to new initiatives in more convenient locations of central Osaka, i-Medio's strategy is to further enhance the facilities for multimedia development in order to create an even stronger technology cluster, Tominaga says. This is akin to the Kyoto Research Park's philosophy.



The third promising focus of the Semba Digital Town project is something called business matching. The city government has recognized the importance of e-marketplaces, which is a closely related field. For this year's White Paper on the Osaka Economy, published in July, the government's researchers focused on "Information Technology and Osaka Industries: How They Use IT and the Changes IT Brings to Work." The paper provides a detailed analysis of how wholesalers are deploying the Internet and IT to enhance their operations. It also noted that despite the way the Internet expands physical space, in Osaka (as no doubt elsewhere in Japan) users are more interested in building local IT communities or clusters so they can network face to face as well as online.

What is exciting for Osaka's e-marketplace promotional drive is that Osaka has the highest concentration of wholesale and trading companies in Japan. It also has the highest concentration of retail space, including the longest above-ground shopping arcade and the biggest underground shopping mall in Japan. According to one of the White Paper's surveys, around 60 percent of such shopping areas either have already or plan to have their own Web site. Another survey found that while only one-third of wholesalers have a Web site, an additional 50 percent plan to build one. The main problem the survey identified was a lack of people with Internet skills to implement Web projects -- for the tenants of the 200 incubator spaces in Osaka, this ought to be music to their ears.

If wholesalers or retail associations want to find Internet service companies, a good way is through one of the online business matching services. Semba Digital Town is working with a service called Jyu.Hachu.com (written 10.8chu.com) which is run by the Nippon Teleworking Association (whose secretary-general, Norimasa Yoshida, is also a committee member of Semba Digital Town). This association was set up several years ago, with funding mostly from big companies, to promote outsourcing online (this is what "jyu hachu" in the name implies). A member of the association can make a request for a service online and expect to receive numerous offers to choose from. i-Medio operates a business matching site as well, called Shoudan Jouzu, providing services mainly for companies inside the Kansai area. According to Tominaga, it is the largest B2B matching site after Rakuten and the largest offered by a public service agency, with 1,300 companies registered.

Despite the activity, Semba Digital Town is struggling to establish itself. It has problems with funding in particular. The city government provides indirect support and connections but not direct funding. However, on the positive side, Digital Town has provided a blueprint for other san-kan-gaku revival initiatives. One is Osaka Digital City in the area around Shinsaibashi and America Mura, which is southwest of Semba. This is the most dynamic area of Osaka in terms of venture activity; it does not have a problem drawing tenants. It appears to be in competition with Semba (NTT West is backing Semba Digital Town and Kansai Electric Power is backing Digital City). A third plan is to set up a community project that will be called Content Town in an area adjacent to the railway terminals of Hankyu Umeda and JR West. The fact that so many of these digital towns are bubbling up indicates at least that Semba Digital Town started out with the right idea.



But, as someone looking on all of this with foreign eyes, trained to see the world from the perspective, say, of London rather than Tokyo, what I find missing in Osaka, besides money, is the absence of a sense of lifestyle. Osaka is more or less a concrete jungle, lacking greenery and becoming a steamy heat sink in the summers. Osaka's famed architect Ando has proposed a madcap plan for a huge flower festival that would momentarily turn Osaka's numerous but ugly waterways into a Venice of the East. Presumably he hopes the positive publicity, like the famous 1970 Expo in Osaka, could roll back in one mighty swoop 50 years of more negative images. His way of thinking seems refreshing, radical and as useful in some ways as the more cerebral san-kan-gaku architectural plans for reviving downtown business communities. However, it seems that the city fathers prefer their architects to wait for orders from the top and that his ideas as yet are a step too far.

This leaves open the question of whether Semba Digital Town by addressing four issues related to infrastructure will be able to do enough when the "software" -- the thinking of bureaucrats as well as ordinary businesspeople -- remains risk averse (hiding behind corporatist solutions). The absence of venture capital and the risk-taking spirit, exemplified by the fact that so few of Akitoshi Fujikawa's contemporaries from Kansai Daigaku followed him into the venture business, even at the height of the Internet bubble, is certainly one of the deeper problems.

The positive fact, however, is that Semba Digital Town has defined the problem of urban revival and that solutions are being tested, albeit slowly. Ultimately though, it is going to be the actions of the Hatas, Itos and many other entrepreneurs that determine how well it all turns out. The government must also continue to provide enlightened support and to admit occasionally madcap ideas from visionaries like Ando so that Osaka's smokestack image is finally laid to rest. If this happens, the central government's e-Japan Initiative, launched in January 2001 to make Japan the most advanced IT nation in the world by 2005, will also have acquired real substance because it will be Japan and not just Tokyo that is becoming digital. @



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