Why Japan has Fewer Start-ups?

Good Old Days…

A study by Global Entrepreneurship Monitor (2003) has shown that Japan has the lowest entrepreneurship activity among the 37 countries that were surveyed. I was wondering about the reason, and after reading some past studies in the area, I discovered that the best predictor of the entrepreneurial activity is population growth. This makes sense because if there are more people, a) there are more opportunities, b) there’s low job security and low social security, and c) there are more people to compete against in order to survive. Then we might assume that developed countries usually have low entrepreneurship rates because there’s low population growth. However, Japan has a higher birthrate than other developed Asian countries like Singapore and Korea but scores lower on the entrepreneurship index.

As the matter of fact, Japan has a number of characteristics that make it a very suitable country for entrepreneurs such as:

  • Low tax rate (compared with the US or the EU)
  • High work ethic and masculinity culture (work is important, growth is essential, etc.)
  • Educated workforce
  • High integration with the rest of the world (compared with other large Asian, South American, or African countries)
  • Low crime rate and low piracy rate

Why, then, are there fewer startups in Japan???

  1. Japan scores lowest of all countries in regards to risk-taking behavior (according to the World Value Survey, 2005-2008). Starting a company with a few people on a small budget is taking a huge risk.
  1. Japan is a collective society, and in collective societies there’s low need for “individual self-achievement.” If you don’t have a strong desire for “self-fulfillment” or being very influential or very rich, you wouldn’t want to start a company.
  1. Japan has high power-distance in society. This makes things very hard for young entrepreneurs when dealing with suppliers, creditors, and even employees. Additionally, this makes decision making harder and longer.
  1. Japanese people have a low internal locus of control (belief that outside factors, government, city, big corporations, etc., can change things, but individuals can’t).
  1. In Japan, the best job is thought to be the most secure job; not the best paying job. That’s why the majority of students (even today) just want to get a life-time job regardless of the job itself.
  1. In Japan, one of the worst things is disappointing others. If you found a startup and if it fails, you will take others down with you.
  1. In Japan, the most important thing is “majime suru.” That is, how you are doing one thing is as important as, if not more important than, the result itself. This is against the startup philosophy. In startups, you have to achieve many things with a small workforce, with a small amount of money, and in a very short time. Because of these constraints, many things have to be “mecha kucha” (incomplete, imperfect) and this is against “majime suru” or the idea that process is more important than the result.
  1. In Japan, companies want to do business with big organizations with long history just to be safe. That is, if a few young techie guys go to a company and say, “Hey, we have this new web application and we will give it to you for free,” no company will talk to them because they are very young, they have no capital, and their company has no history. That’s why in Japan, companies list how much paid capital and the head count they have on their websites.
  1. Japanese culture has “long time orientation.” That is, from a Western point of view, it’s normal that a small company can grow exponentially (100% this year and 1000% next year). If a company grows this fast in Japan (e.g. 10 folds every year), people would think it’s very unhealthy. What is worse, a startup which is trying to reach a global audience or grow 5-10 folds a year might be seen very aggressive in Japan.

Startups need to move very fast. You can find these kinds of quotes on the walls of Facebook: “move fast break things” or “done is better than perfect.” But to a Japanese person, these things don’t make much sense. If you move fast and if you don’t check what you are doing, you will be disrespected in Japan. More importantly, Japanese people want to do things perfectly; it’s better to wait and do it right in the first place rather than trial and error.

  1. Japan has the lowest social network usage in the world as a result of smaller social circles (usually one’s circle is limited to co-workers and high school friends), where in the West, people have larger circles. Smaller friend circle means smaller social capital; that means it’s harder for Japanese to find individuals to collaborate with.

As it can be seen, most of these are related with “risk avoidance” and “long term orientation.” However, risk avoidance and long term orientation are not necessarily bad things. As the matter of fact, they represent the Japan Inc. philosophy which created high quality and durable products in the 70s, 80s, and 90s that ruled the world. We just have to teach kids that sometimes taking risks has more merits than demerits. And this surely is possible. Many Japanese universities are pushing study abroad programs that strengthen students’ ability to adjust to new environments. There are many intercultural and international events happening at Japanese universities that promote dealing with ambiguities and uncertainties. While you are reading this, perhaps one or two startup events are taking place in Tokyo. Times are surely changing. The question is, can Japan change before it’s too late?

originally posted in Japanese on StartupDating http://www.startup-dating.com/2012/04/10reasons-why-there-arent-many-startups-in-japan/

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