Why Isn’t Entrepreneurship So Popular in Japan?

Japan has had a continuous record of low entrepreneurial activity in the Global Entrepreneurship Monitor (GEM) since 1999. In 2015, Japan’s total early-stage entrepreneurial activity (TEA) rate was estimated at 3.8%, well behind the US (11,9%) and China (12,8%) – the largest economies in the world. According to Anna Fifield, the Tokyo bureau chief for The Washington Post, one of the main factors which hold back Japanese entrepreneurialism is a lack of role models. “[…] in Japan, we don’t have start-up role models or a good understanding about what a start-up is, so people don’t have much confidence about starting their own business,” confirms Yoshiaki Ishii, Director of the New Business Policy Office at the Ministry of Economy, Trade, and Industry (METI), which provides support for local startups.

The Economist claims that Japan has a modest startup rate because of quite unfavourable social attitudes to entrepreneurship. Only 31% of Japanese people think of entrepreneurship as a good career choice compared to about 65% of Americans, 66% of Chinese people and 79% of Dutch people, according to the 2014 GEM report it refers to. The status of entrepreneurs in Japan is not as high as in the US, admits Toshiko Oka, CEO and Founder of Abeam M&A Consulting Ltd. A “typical Japanese parent often does not support his or her child’s aspiration of becoming an entrepreneur,” adds Tomoko Inaba, a local entrepreneur. Most of them highly value a corporate career. The same attitude prevails among the youth: a salaryman climbing the career ladder is a role model for many graduates, notes The Economist. “For Japanese university students, the No. 1 goal is still to enter a big company; No. 2 is to become a bureaucrat, or maybe a teacher. An entrepreneur is still seen as a much lower position,” comments Tadashi Takiguchi, President of the Waseda University Entrepreneurial Research Unit. In addition, there is high regard for lifetime employment. As a result, many mid-level corporate workers do not consider quitting their jobs to start their own business.

Japanese entrepreneurs also face the challenge of securing funds because of a risk-averse culture. They cannot rely on venture capital or angel investors because these concepts are still relatively new there, Fifield observes. “If you combine angel investment, venture capital, and crowdfunding, the difference between capital available to startups in Japan and U.S. is roughly $1.2b vs $75b. Granted, Japan is a smaller economy, but it is still about 1/3 of the U.S. in terms of GDP,” explains James Riney, Head of the 500 Startups Japan fund.

See also Some Facts About Startup Finance in Japan.

Fifield notes that investors often ask entrepreneurs to provide long financial statements and five-year plans. There have been cases of asking for a 20 or 30% stake in a company in return for investing only $10,000. “In Silicon Valley, investors routinely give exponentially more for single-digit stakes”, Fifield comments. In many cases, a bank loan is not an option either: Japanese banks are unwilling to lend unless you have ‘a proven history of business success’. However, the situation is gradually improving at large banks, Fifield observes.

The Wharton School of the University of Pennsylvania makes a connection between low entrepreneurial activity and education in Japan. In its opinion, local educational institutions should take more responsibility for “presenting entrepreneurship as a viable option to their students”. As Kosuke Mori, a graduate of Tokyo University, recalls, “virtually none” of his classmates sought to become entrepreneurs after graduation. Today, more than a decade later, he still does not know if anyone else from his class has also started their own business. He admits that he would not have dared to set up his first company, a financial data aggregator, if he had not got education and connections in the US.

Similarly, Robert Laing, Co-founder of Gengo, a translation agency, thinks that Japanese universities are too risk-averse, and do not prepare nor encourage their students enough to pursue an entrepreneur’s career. He argues that the success of Japanese entrepreneurs depends on 3 factors: (1) studies abroad, (2) proficiency in English and (3) business connections in the US. In his opinion, the Japanese educational system should focus more on promoting study exchange programmes and English language proficiency among students.

Finally, the OECD Entrepreneurship at a Glance publication (2016) highlights a gender gap in access to training and finance as a reason behind Japan’s low entrepreneurship rates. There are 31% of men and only 17% of women who have access to formal and informal training on how to start and grow their own business. These figures differ a lot from the OECD average, where 50% of men and 43% of women are able to access such training. There is a similar gender gap in access to finance. 34% of men and only 21% of women in Japan think that they have good access to finance to start a business, while the OECD average figures are 34% and 26% respectively. The OECD data support the conclusion of the 2015 Female Entrepreneurship Index that Japan ranked 44th out of 77 countries needs to improve conditions for female entrepreneurs.

References:  [1] Anna Fifield, The Washington Post / [2] Global Entrepreneurship Monitor (GEM) (2016) / [3] The Economist / [4] Global Entrepreneurship Monitor (GEM) (2014) / [5] Knowledge@Wharton / [6] Julie Makinen, Los Angeles Times / [7] James Riney, 500.co / [8] Women entrepreneurship, OECD Entrepreneurship at a Glance (2016) / [9] Female Entrepreneurship Index (FEI) (2015)