Issues Facing the Japanese Economy in 2013 (January 2013)

2013 Should be the First Year for 'Regional Community Revitalization through Entrepreneurial Activities'

Senior Fellow, RIETI

World's lowest level of entrepreneurial activities

The Abe Cabinet's new economic measures will kick in early in 2013. Experts share the perception that in order to dispel concerns over the hollowing out of domestic industry due to the so-called "sextuple whammy" and to restore the Japanese economy, a breakthrough led by innovation is necessary. From the viewpoint of creating new businesses and industries and providing many employment opportunities, innovation through entrepreneurial activities is particularly important ( Note 1 ).

However, entrepreneurial activities in Japan are at the lowest level in the world. The recent rate of establishment of new businesses in the United Kingdom and the United States stands at around 10%, while the same rate in Japan stands at only 3% to 5%, which is less than half and is lower than the rate of business closures (the Small and Medium Enterprise Agency, 2011). According to the Global Entrepreneurship Monitor (GEM) Global Report for 2011 (Kelly et al., 2012), the entrepreneurial activity rate in Japan stands at 5.2%, the fifth lowest among the 54 countries surveyed.

The Comprehensive Strategy for the Rebirth of Japan (endorsed by the Cabinet on July 31, 2012) supports entrepreneurial activities by setting a goal of steadily keeping the rate of establishment of new businesses above that of business closures by 2020. To reverse the low level of entrepreneurial activities in Japan, it is necessary for the new Cabinet to accelerate measures more actively to promote entrepreneurial activities by using the Headquarters for Japan's Economic Revitalization and other organizations.

Necessity for development of entrepreneurial orientation and entrepreneurial education

According to the above-mentioned GEM report, Japan is ranked the lowest in the world in terms of perceptions about entrepreneurship as a career choice. In addition, Japan is still at the lowest level in the world in terms of the status of entrepreneurs in society, although it has recently been on an upward trajectory.

A survey conducted in the United States shows that 90% of parents are in favor of their children becoming entrepreneurs, and 71% of middle school and high school students expressed their desire to start businesses in the future (Timmons et al., 2007). Hiroshi Mikitani of Rakuten, Inc. has said that his decision to start his own business came about after being exposed to a viewpoint that praises those who start new businesses by using their abilities during his study abroad experience in the United States (Mikitani, 2007). In the United States, there is a deeply-rooted culture in which entrepreneurs with the spirit of challenge are respected, and people of great talent start their own businesses. Such circumstances in the United States are incomparable to those in Japan.

U.S. Ambassador to Japan John Roos has stated that children in his country aim to be like Steve Jobs, the co-founder of Apple Inc., and that in order to promote entrepreneurial activities in Japan, it is necessary to praise entrepreneurs (Roos, 2011; Nikkei, 2012). It goes without saying that in order to promote entrepreneurial activities, it is necessary to provide an environment where people can easily start new businesses, for example, by making it easier to procure funds. However, in Japan, it is currently not realistic for many people to start new businesses. Therefore, in order to improve perceptions about entrepreneurship as a career choice, it is particularly important to actively provide entrepreneurial education that aims to develop the spirit of challenge, creativity, and other qualities that are necessary for entrepreneurial activities to people early in their life ( Note 2 ).

However, even though the number of universities that offer entrepreneurial education is increasing, it is estimated that only 0.8% of university students are receiving such education, according to a survey commissioned by the Ministry of Economy, Trade and Industry (METI) (2011). In addition, even though elementary and secondary schools are promoting career education, they are not widely providing entrepreneurial education. Entrepreneurial education seems to be lacking in Japan. Career education includes the development of creativity and other elements that are necessary for entrepreneurial activities, but in order to develop creativity to start businesses from scratch and the spirit of challenge, it is necessary to clarify the concept of entrepreneurial activity and to promote and strengthen entrepreneurial education at the elementary to higher education levels.

Entrepreneurial activities mainly in big cities

There have been many news reports recently about plant shutdowns by major companies in regional cities, and their governments, which had competed fiercely with each other to attract companies until several years ago, are bewildered. These prefectural and municipal governments are being asked to develop a self-sustaining economy in their cities without depending solely on major companies' plants. It is thus necessary, especially for the regional cities, to actively promote entrepreneurial activities, which contribute to the development of a self-sustaining economy.

However, prefectural data indicate that the rate of establishment of new businesses in big cities is high, and the same rate in many regional cities is below that of the nationwide average ( Note 3 ). The rate of establishment of new businesses includes entrepreneurial activities in all business categories, and the following table, which shows the spatial distribution of venture companies together with the distribution of university-launched venture companies and all companies, indicates a tendency for venture companies to concentrate in Tokyo.

Spatial distribution of venture companies, university-launched venture companies,
and all companies (top 10 prefectures)
Venture companies as a percentage of all venture companies nationwide (%) University-launched venture companies as a percentage of all university-launched venture companies nationwide (%) Companies as a percentage of all companies nationwide (%)
(1) Tokyo 28.4 23.9(1) 12.0(1)
(2) Osaka 9.7 6.5(3) 7.5(2)
(3) Kanagawa 4.1 7.6(2) 4.7(4)
(4) Aichi 4.1 4.3(6) 5.7(3)
(5) Shizuoka 3.5 2.0 3.4(9)
(6) Kyoto 3.1 5.6(5) 2.3
(7) Hyogo
(9) Chiba 2.7 1.4 3.1(10)
(10) Saitama 2.6 1.2 4.5(5)

Created by the author based on data provided by Nikkei (2004), the Small and Medium Enterprise Agency (2009), and METI (2009) (Ueno, 2009). The table covers 2,319 venture companies that were listed in the "Nikkei: Annual Corporation Reports of Venture Business 2004" and 1,809 university-launched venture companies that were in operation as of March 2009. A number from 1 to 10 in parentheses shows the ranking from first to 10th in each category.

Furthermore, regional data on universities offering entrepreneurial education in their undergraduate programs indicate a tendency for such universities to concentrate in Tokyo and other big cities (Ueno, 2009). Obtaining much information in regional cities is becoming attainable via the Internet and other means, but in comparison with big cities, it is undeniable that regional cities are facing certain disadvantages in developing entrepreneurial orientation. For example, people living there have fewer opportunities to gain the firsthand knowledge of active entrepreneurs and new businesses as well as inspiration from them.

Joint efforts by regional communities in promoting entrepreneurial activities

However, we are now in an era in which a regional city can expand businesses throughout Japan and to countries around the world, including the rapidly growing Asian markets, by rediscovering the value of the area's various resources and by using information technology, which has developed dramatically over the past decade.

I have lived and worked in regional cities twice in the past and realized that they have community-based connections, which big cities do not, as well as an environment that can easily assemble people who have strong energy and the desire to develop their area through cooperation among the government, industry, academia, and other means. It is possible that regional communities as a whole provide entrepreneurial education. For example, people can receive good-hearted advice from local business persons, financial institutions, business incubation institutions, and others, and can experience sales activities at a vacant store in a local shopping area. It is said that in the United States, local industries have a very close relationship with teachers and schools, and cooperation between the industry and academia is naturally accepted at the elementary school level and above ( Note 4 ). It seems that the new Cabinet's measures to promote entrepreneurial activities that give consideration to regional cities, including entrepreneurial education, and efforts to promote entrepreneurial activities in a unified regional area by using the strengths of the area are the key to revitalizing regional cities and the Japanese economy.
December 28, 2012
  1. ^ U.S. Ambassador to Japan John Roos has stated that innovation through entrepreneurial activities is the key to Japan's future growth (John V. Roos, 2011).
  2. ^ A report put together by the Chiisana Kigyo Mirai Kaigi (Conference for the Future of SMEs), the Ministry of Economy, Trade and Industry, 2012 states that efforts are necessary to encourage people to receive career education, including education on entrepreneurial activities in childhood. According to the report, several conference members claimed that people are likely to be motivated to start new businesses if they learn viewpoints about entrepreneurial activities and corporate management at the elementary and secondary school levels.
  3. ^ In terms of the number of business offices (from 2004 to 2006), the top prefectures are, in order: Okinawa, Tokyo, Osaka, Hokkaido, Hyogo, Fukuoka, Hiroshima, Miyagi / Chiba (the Small and Medium Enterprise Agency, 2008).
  4. ^ This is a comment made by Babson College Professor Kenichi Matsuno at the Entrepreneur Education Seminar (2006).
  • Donna J.Kelly, Slavica Singer, and Mike Herrington (2012) "The Global Entrepreneurship Monitor 2011 Global report"
  • Jeffry A.Timmons, Stephen. Spinelli (2007) "New Venture Creation : Entrepreneurship for the 21st Century(8th )" The McGraw-Hill Companies.Inc.
  • John V. Roos (2011) "Innovation and Entrepreneurship as Keys to Revival After 3/11,"
  • Toru Ueno (2009) "How University Entrepreneurial Studies Should Be," Keiei to Keizai [Management and Economy], Economics Society of Nagasaki University (in Japanese)
  • Entrepreneurship Seminar (2006) "Entrepreneurial Studies Supporting University-launched Venture Companies," Japan Ventures Review No.7 March 2006, The Japan Academic Society for Ventures and Entrepreneurs (in Japanese)
  • METI-sponsored research (2009) "Basic Survey on University-launched Venture Companies" Implementation Report, Japan Economic Research Institute Inc. (in Japanese)
  • METI-sponsored research (2011) "Report on Industrial Technology Human Resources Development Assistance Project (Entrepreneur Human Resources Development Assistant Project)" for FY 2010, Daiwa Institute of Research Ltd. (in Japanese)
  • Small and Medium Enterprise Agency (2008) White Paper on Small and Medium Enterprises in Japan (2008 Edition) (in Japanese)
  • Small and Medium Enterprise Agency (2011) White Paper on Small and Medium Enterprises in Japan (2011Edition) (in Japanese)
  • METI (2012) "Report Submitted by the Chiisana Kigyo Mirai Kaigi" (in Japanese)
  • Hiroshi Mikitani Concept of Success, Gentosha (in Japanese)
  • Nikkei Almanac of Venture Business 2004, Nihon Keizai Shimbun (in Japanese)
  • Newspaper article on December 18, 2012, Nihon Keizai Shimbun (in Japanese)

January 28, 2013

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