Horace Greeley Had It All Wrong: Go East, Young Entrepreneur!
The Japanese don’t know it yet but they’re about to experience an unprecedented explosion of entrepreneurship. They can thank their economy.
The nation’s Economic Planning Agency reports that the index of consumer confidence is the lowest it’s been in 19 years. U.S. trade envoy Mickey Kantor is in town to pressure the Hosokawa government to broaden market access. Practically every week, Japanese companies with proud traditions of lifetime employment humbly announce major restructurings and layoffs. The same University of Tokyo-trained civil servants who had zealously supervised one of the world’s most regulated economies are now grasping the nettle of deregulation as essential to economic growth.
This bleak litany of Japan’s corpocratic woes is excellent news for entrepreneurs. All the elements are clicking into place for the sort of “creative destruction”--the expression articulated by Joseph Schumpeter, the patron economist of entrepreneurship--that can rejuvenate a stagnant economy.
That’s not to say that a new generation of entrepreneurs is poised to topple today’s Sonys, Matsushitas, Toyotas or Mitsubishis. But it’s become clear that a rising level of economic dissatisfaction is causing people to look beyond traditional efforts to simply try to improve existing business institutions.
“We have a sense of crisis in Japan’s current economy,” acknowledges a senior official at Japan’s influential Ministry of International Trade and Industry. “And we recognize that there are certain structural problems. (This lack of) entrepreneurship is a big problem. . . . Intel and Microsoft took over for IBM when it stumbled. But who in Japan takes over for Fujitsu or NEC?”
Ironically, MITI has spent more than a decade trying--and failing--to promote new business formation. Apparently, bureaucrats who regulate global enterprises have trouble giving birth to entrepreneurs. What’s more, why rock the boat during a rising tide? In the 1980s, it was easier to make money playing the stock market and real estate game than actually launching a new company.
But in terms of sheer entrepreneurial resources, Japan is superbly positioned in high technology, venture capital and business expertise. As for entrepreneurial successes, there’s a reason why Matsushita, Toyota and Honda have the names they do. In fact, Sony’s Akio Morita and Kyocera’s Kazuo Inamori are probably more global, more innovative and more entrepreneurial than most of their Silicon Valley counterparts.
But it’s also no secret that Japan’s business culture and administrative infrastructures have long been biased against start-ups, spin-offs and new entrants to a marketplace. If top graduates of leading universities don’t go into government, they’re expected to join top-tier companies such as Sumitomo and Mitsui. To this very day, most university graduates hired by leading companies fully expect to be employed for life.
Until very recently, job hopping between corporations was regarded as a psychological aberration. Getting a keiretsu --a business group--to buy an innovative new product from a start-up or the spin-off of a traditional company is still extraordinarily difficult. Indeed, Kyocera’s Inamori likes to point out that he had to first sell his semiconductor packages to Texas Instruments before any Japanese companies would pay attention to him.
Increasingly, however, words such as kigyo --for entrepreneurship--rather than keiretsu are slipping into business conversations. The stresses and strains of an economy in recession--along with a population that seems increasingly frustrated by the political chicanery and regulatory corruption that appear to have slowed a general rise in their standard of living--are changing Japan’s conversations about the future.
“More and more, Japan’s businessmen say they are now going to make business by themselves,” observes the MITI official. “They recognize the problems of the Japanese economy and they want to become more entrepreneurial. They’re looking for some dreams. . . . When I talk with young business people, they say they are now looking to leave large companies they work for.”
To be sure, most of that is just talk. But the burst “bubble economy” and the declining rates of return on traditional investments inevitably mean that a growing number of bright, energetic and ambitious Japanese now have more incentive than ever before to launch new ventures. Deregulation reduces market barriers. Companies desperate to reduce costs are more willing to test a new supplier. Retrenchment makes it harder for companies to promote the young managers it wants to keep. Older managers are being cherry-picked to join the Japanese affiliates of what were once American, Korean and Taiwanese start-ups. More and more Japanese seem prepared to explore their options if the price is right.
Indeed, both MITI and the Ministry of Finance are discussing how to create new stock exchanges to build a better venture capital infrastructure for new enterprise. Needless to say, these exchanges could bring about more foreign investment in Japanese innovation.
To be sure, there is no certainty that a rising population of entrepreneurs will effectively transform Japan: There are always more failures than successes. What’s more, Japanese entrepreneurship--just like Japanese capitalism--is likely to have its own unique features. For example, it’s quite possible that spin-offs from large companies striving to manage costs while pursuing new market opportunities might be a more likely scenario for the future of Japanese venture capital than slavish imitation of the Silicon Valley start-up.
Small companies have always played an important role in Japan’s economy, but there has never been a more propitious time for new enterprises to proliferate. Japan’s ability to grow vibrant new businesses--not merely its ability to more cleverly restructure its older, larger ones--may be the true measure of how well the country’s economy can navigate the decade.
