Unlock the Genius that will Move the World: Japan as the global startup hub

"2032, Japan Becomes a Startup Hub"

Phil WICKHAM:
The theme of today’s discussion is a book I published in 2023, "Unlocking Japan’s Genius: How Tokyo Can Become a Global Start-up Hub by 2032”

In my 35 years of experience in innovation, the most important factor I consider is “imagination.” So, for my book and for 11KS, we imagined what Japan could be like in 2032. It is a vision of a future in which Tokyo is one of the world's leading startup ecosystems, generating innovative ideas that can change society, attracting entrepreneurs and investors from all over the world.

We would like more Japanese innovators to be able to create more companies, receive support for commercialization at an earlier stage, and have access to global resources of worldwide scale by connecting with global ventures.

11KS aims to connect Japan's vast potential, including its great infrastructure and human resources, to the global innovation ecosystem, and disseminates information at three levels. At the top is information from experts shared to the public, mainly in the form of books. The middle level is the exchange of information and ideas between specialists and experts at events we stage (with corporate sponsorship) that bring together top experts from Japan and abroad. The bottom level is the promotion of interactions between individual researchers, and to encourage that, we collaborate with universities all over Japan.

Japan is already becoming a global startup hub. In this situation, the support the government should provide is not to build race cars, but to develop the racetrack. It is necessary for Japan to deregulate in line with global standards, welcome talented people from around the world, and support globally minded startups and investors. I hope that in 2032, the Ministry of Economy, Trade and Industry (METI) will be able to call itself the “Ministry of Economy, Trade and Innovation.”

Creating a Path to Mobilize Human Resources, Technology, and Facilities to Promote Innovation

SAKOTA Shohei:
METI launched the policy planning program "PIVOT" in the summer of 2024, based on MVV (Mission, Vision, Value) formulated in March 2024. Innovation is one of the six themes that we have chosen, with the aim of presenting solutions to essential issues that are not limited to the responsibilities of each department and improving the "individual capabilities" of young officials.

The Innovation team is made up of seven members interested in the integration of innovation-related policies and the creation of a culture that produces innovative talent. The seven members are divided into three teams and are compiling proposals after exchanging opinions with a total of nearly 100 people.

The original theme was about the mobilization of innovative resources, but we did not know where to begin. Then, we found Mr. Wickham's book, which led us to decide to focus on startups at the center of innovation and deepened our discussion. Since startups face the challenge of acquiring the necessary resources to advance their business, we focused our search for solutions on three themes: human resources, technologies, and facilities.

With regard to human resources, we have focused on cross-border learning and compiled a collection of case studies and guidelines. Cross-border learning refers to the process whereby employees from large companies traveling back and forth between their home organization and the startup they are working for, thereby gaining skills and experience that they would not be able to get within their own organization. The guidelines also add that it is important for learners to have a "companion" who provides ongoing support to them and acts as a bridge between their home organization and the startup. In addition to developing human resources and creating new businesses, we believe that introducing a different organizational culture will also have the effect of leading to organizational transformation.

About technologies, we focused on the intellectual property rights aggregation business. In order to encourage startups to proactively utilize unused intellectual property and to generate startups through carve-outs of intellectual property from large companies, METI will prepare guidelines and a collection of case studies on intellectual property rights aggregation business and work to publicize and disseminate.

Regarding facilities, we summarized the efforts made to date at national research and development agencies and universities and organized the issues in order to share research facilities at the National Institute of Advanced Industrial Science and Technology (AIST). We introduce examples of sharing at AIST and the National Institute of Technology and Evaluation (NITE), as well as a matching platform project for sharing facilities run by startups.

In the future, we believe that we should strengthen our comprehensive efforts to promote the mobilization of innovative resources in an integrated manner, based on the individual discussions we have had on the themes of human resources, facilities, and technologies.

Comment

SHIMIZU Hiroshi:
In Mr. Wickham's book, he emphasized that the mindset of Japanese entrepreneurs should be unlocked, and I feel that this change is already happening. Many students in my seminar have joined startups or started their own businesses, and it seems that more talented young people are aiming to work in startups. What we need to do is to consider strategies to further encourage this trend. From your perspective, what do you think is the most important factor for Japan to become a global hub?

In this regard, I would like to request the government invest in public goods. In order to generate knowledge that will become the origin for startups, it is important to invest in research and development (R&D), which tends to be under-invested if left to the market, such as basic R&D, advanced human resource development, and low-cost, high-quality reskilling. Without it, we will end up reaping short-term results at hand that sacrificed medium-and-long term growth. Also, traditionally in Japan, companies and the lives of the individuals who work there are closely linked. However, since startups need to experience failure, I think that companies are merely a box for conducting businesses, and that it is necessary to separate the lives of companies and individuals.

PIVOT is a very good initiative, and other government ministries and agencies are making similar efforts. Thus, I think there are benefits to collaborating with them. However, since diversity is important for innovation, rather than consolidating into one entity, it would be better to work independently while loosely cooperating.

I entirely agree that mobility of management resources is important. As the mobility of people, goods, and money increases, they will flow to promising areas, so it is desirable to keep the barriers as low as possible. The first thing that likely affects the reduction of mobility constraints is probably total factor productivity (TFP). In other words, it would have been better to look at growth accounting and have further discussion of what works there.

Phil WICKHAM:
It is true that the mindset of young people in Japan is changing considerably, but we all need to move the discussion to the next level. At Stanford University, many students start their own businesses, but most of them fail and end up working for companies like Goldman Sachs or OpenAI. Becoming a startup founder is like aspiring to be a great professor, a great surgeon or a great athlete: it may seem glamorous, but in reality it is a long process of hard work and competition that few people are prepared for.

99% of innovation is people-driven. Due to its size and high quality of life, Tokyo attracts many of the country's top talents, but it also attracts highly skilled immigrants. The global venture community is now coming to Japan in search of opportunities.

One of the things a startup needs is to have early buyers, and in Silicon Valley there were large local computer companies that would acquire startups. In New York, similar structures existed in the advertising, entertainment, and financial industries. Like New York and Silicon Valley, Tokyo is home to hundreds of large companies, and with just one Suica card, you can conduct many business meetings in one day.

One of the reasons there are no startups coming out of Singapore is that local companies have not acquired startups. In Japan, a major challenge is how to get large companies to take the risk and buy startup technology. To achieve this, it is important that just one company emerges in Japan, like Spotify did in Scandinavia or Mercado Libre in South America. This will give other entrepreneurs the confidence to think, "If they can do it, so can I."

Q&A

Q:
In recent years, innovation has been concentrated in fields that require huge initial investments, such as AI, quantum computing, and biology, and it seems that these are not areas that startups can afford. How should we think about the relationship between initial investment and startups?

Phil WICKHAM:
Startups are built not on investments in technology, but on new business models that are made possible by technology. In other words, rather than building large-scale AI infrastructure, startups provide services by using existing AI infrastructure. For example, Uber is a complete Internet business―communication over the Internet, maps that run on the Internet, payments over the Internet―a business made possible by the Internet, yet no one refers to Uber as an Internet company. Similarly, I believe we will see that more and more companies will emerge that use AI, but are not referred to as AI companies.

Q:
Big startups like Spotify are building ecosystems. What kind of support should the Japanese government provide for startups to grow the ecosystem?

Phil WICKHAM:
Startups that are 100% government funded usually fail. If the government is going to support this initiative, I think it would be better to spread many seeds widely rather than investing huge amounts of money into one place. Spotify received a grant from a seed fund created by the Swedish government, but in order to receive it they had to raise funds from other sources, including venture capital.

Mexico and Singapore have similar multi-fund programs and have developed impressive ecosystems. The critical point is to not set boundaries that are too restrictive. It is important to allow free investment from and to other countries without thinking too much about the national boundaries.

Professor Shimizu commented on growth accounting—Japan's accounting laws are a major barrier to foreign investors, so deregulation in this area will also be necessary. It is difficult for foreign investors to determine whether a Japanese startup is profitable or not, so I think it is necessary for Japan to align with global standards in accounting.

Q:
What do you think about the fact that support for startups is divided up among various government ministries and agencies? Furthermore, isn't now especially the time for us to cooperate with the United States?

SAKOTA Shohei:
As Professor Shimizu commented today, when it comes to innovation, it is better not to have a command center exerting complete control, and some flexibility should be maintained. Striking that balance is extremely difficult, and I think that if we could clarify what constitutes public goods, it would become easier to formulate policies. Furthermore, our relationship with the United States will become increasingly important in the future. I believe that Sozo Ventures can serve as a bridge, and our ministry would like to continue discussing this matter further.