This is a rather personal episode. We have no guests this time.
It’s just you and me.
We talk a lot about Japanese startups on this show and the role they will play in shaping Japan’s economic future.
Well, today we are going to look at this from a different angle; one that puts the hype aside and looks at some cold hard numbers. The result is sobering, surprising and, believe it or not, kind of inspiring
So let’s get right to it.
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Transcript
Disrupting Japan Episode 91
Welcome to Disrupting Japan straight talk from Japan’s most successful entrepreneurs.
I’m Tim Romero and thanks for listening
Once again, I’ve got a special show for you today. There will be no guests, no beer, no playful banter with someone speaking English as a second language. Today it’s just you and me. For the next 20 minutes, I’ll be whispering in your ear about something I consider very important, but that not enough people are talking about.
It’s been a while since we’ve done one of these solo shows. They tend to among my most popular episodes, I get a lot of requests for them and I love doing them. I would like to do more, but you might be surprised at the amount of research and revisions that go into these solo shows. Not to mention the times when I get two-thirds of the way putting one together only to realize the primary thrust of my argument is flawed and the whole thing needs to be reworked.
Unfortunately, I’m not really smart enough to just turn on the microphone and talk for 20 minutes. It’s so much easier sitting down and talking to amazingly creative Japanese startup founders and innovators who are doing and saying crazy things.
Well, today, I’d like to share something with you that first occurred to me about a year ago. And the more I research it, and the more people I speak with, the more I become convinced it’s right. I’ve haven’t talked about it a lot before, because well, frankly, it’s something that a lot of people in the startup community here will disagree with — and some will disagree in very strong terms. But it’s important, so let’s strap in and get right to it.
Over the next twenty years, startups are not going to revive the Japanese economy, nor are they are they going to be the primary driver of innovation in this country. Don’t misunderstand, startups have a role to play, a very important role to play, but they will not be the primary drivers of change.
No. Japan’s mid-sized companies will be the primary drivers of both large-scale innovation and economic growth over the next ten years.
For this to make sense, we are going to look at the role that mid-sized companies play in the Japanese economy today, we’ll then step back in time both to see how things get this way and to understand why Japan is at such a pivotal juncture today, and then look at how thing are likely to shake out over the next 15 years or so.
Now, to the average podcast listener, this would sound like a dry topic, but you as a DJ listener are a special breed, and you’ll be rewarded for coming with me deep, deep into the weeds. If you come along, I promise that in twenty minutes you will have a new way of looking at mid-sized companies in Japan, and perhaps a new way of looking at Japanese startups as well.
You see medium-sized enterprises are the middle child in Japan’s corporate family. The large companies, the brands you know Toyota, Mitsubishi, Panasonic, Mitsui. For the most part are the remnants of the once incredibly powerful keiretsu groups. These companies are the oldest child. Everyone knows who they are. They are in the news. They have influence. They work closely with the Japanese government, both the legislators and the bureaucracy, to ensure that the needs of Japan’s large corporations are reflected in national policy and international trade agreements. And of course, the vast majority of government grant money, primary contracts, and economic stimulus programs are directed at these large corporations.
Japanese startups are the little brother. Startup companies have captured Japan’s hearts and imagination not because of their economic impact, but because they are new. They say, do and build crazy things and the country loves them for it. Startups get fawning press attention from the smallest of achievements. “Oh wow! You shipped a product! That’s awesome. We’re so proud of you. Here. Have $1million.”
Japan’s medium enterprises, however, have been stuck in the middle. For the past fifty years. they have quietly and reliably formed the backbone of the large companies’ supply chains, employing most of the workers and often thanklessly providing a steady stream of innovation. Doing the bulk of the work and getting almost none of the attention.
And, you know, every time Japan faces economic problems it’s the medium enterprises that bear the brunt of the sacrifices. They lack the connections needed to arrange government bailouts, and when the large enterprises are hurting, they relentlessly squeeze their medium enterprise suppliers.
A bit later on we’ll talk about why they’ve traditionally been able to get away with that, and how this power dynamic is about to change. But first, let’s look at the simple reason why the economic future of Japan depends much more on the medium enterprises than on the large enterprises or startups.
OK, so let’s nail down what exactly we mean when we talk about large, medium and small enterprises. For today’s discussion, I’m going to use METI definitions because, well because they’re METI and they are the ones that decide on how these things are defined.
For manufacturing companies, METI defines a medium enterprise as one with between 20 and 300 employees. Firms with less than 20 employees are small enterprises and those with more than 300 are considered large enterprises. For non-manufacturing industries, medium enterprises are those with between 5 and 100 employees. So medium enterprises are defined as a bit smaller in Japan than they are in much of Europe or the United States.
Now, with the definitions out of the way, the most important thing to understand about the influence of medium enterprises on the Japanese economy is that medium enterprises are the Japanese economy. They employ 54% of the Japanese workforce, so more than large and small enterprises put together, and they account for 48% of all corporate revenues in Japan.
So, with medium enterprises responsible for so much economic impact, what explains their lack of influence over economic policy and their lack of bargaining power with their customers?
Well, we need to step back a few decades to understand how Japanese medium enterprises got themselves into this mess before we examine how they are going to get themselves (and the rest of Japan) out of it.
It goes back to the keiretsu, or I suppose the zaibatsu if you really want to go way back. Basically, after the war, Japanese industry was organized into competing corporate groups called keiretsu. Each keiretsu had it’s own major bank, trading company, real estate company, heavy manufacturer, etc. The major firms in the keiretsu were bound together by cross-shareholding and interlocking directorships. And these large firms were supported by a vast array of lesser-known large and medium enterprises that made up their supply chain. These supply chains were tightly controlled and, with only a handful of well-known exceptions, a medium enterprise that was part of one keiretsu’s supply chain would not sell outside of it’s keiretsu group. The fortunes of these companies were inextricably linked to those of the keiretsu itself.
Now, this arrangement sounds terrible for the supplier, but it was not as bad as it sounds. Particularly in the early days. The large keiretsu companies took an almost paternal interest in the medium enterprises that formed their supply chains.
The large firms would provide technology transfer and training. They would often partially fund research and development at these firms, and best of all, they would guarantee them a certain level of sales and revenues. The owners and employees of these firms did not become wealthy, but their business was simple. They were protected from most market forces and never needed to develop sales or marketing functions, so they could focus on product development and production.
This arrangement worked well for everyone, particularly the large companies. As long as the economy was expanding rapidly, There was always enough money to go around.
But things began to change in the 90s. The yen become stronger, and that pushed up the price of Japanese goods overseas, and the large Japanese firms were no longer innovating the way the had been in the 60s and 70s. With money tight, the big keiretsu firms began to squeeze their supply chains.
They made other cuts as well, but these mid-sized companies bore the brunt of the suffering within the keiretsu groups. Not only were these firms pressured to relentlessly cut costs, but the dominant firms looked to these mid-sized companies as a way to solve their new staffing problem.
You see, the large Japanese corporations had basically promised their entire workforce lifetime employment. Now this made sense when labor was in demand. Since no large firms accepted mid-career transfers, it kept salaries low and employees loyal. Sure, there was always some deadwood who couldn’t pull their weight, but since there never seemed to be enough staff, you could always find something for them to do.
All that changed when sales started slumping, these unproductive employees became a real problem both in terms of morale and productivity. Well, the leaders of the keiretsu came up with a perfect solution. Just dump this deadwood into subsidiary companies and into the mid-sized enterprises that made up the supply chain. And if those mid-sized companies didn’t like it….. Well, of course, they didn’t like it. But if they wanted to stay in business, they would put these loafers on their payroll.
Over the last ten years, things have gotten even harder for these mid-sized firms. After stoically enduring decades of ignominy and insult, the corporate leaders of the keiretsu groups began diversifying their supply chains and importing cheaper products from China, Southeast Asia and around the world. From the point of view of the large companies, this optimization of their supply chain was clearly the right move, and it was, quite frankly, decades overdue, but those sales and revenue guarantees that those mid-sized companies have come to depend on are quickly going extinct. And with their disappearance, we are going to see a lot of mid-sized Japanese companies being driven into bankruptcy.
And that’s a great thing. In fact, the future of the Japanese economy depends on it.
I mean, obviously, it’s not great for those who go bankrupt. It’s terrible, but let’s look at the transformative shift that this trend has already put in motion.
You see, cut loose from their keiretsu ties and sales guarantees, a lot of Japan’s mid-sized manufacturing companies are suddenly having to learn how to market themselves and to sell their products. And since the Japanese domestic market is one of flat growth and declining population, that means a lot of these companies are beginning to look overseas for growth.
And that’s a fantastic thing. Because a handful of these mid-sized Japanese companies are going to do incredibly well overseas, and that is more than going to make up for those that are driven out of business.
Why am I so confident about this? Because Japanese mid-sized companies are making some of the most amazing and innovative products in the world right now.
I thought a lot about the best way to prove this to you. There are plenty of Japanese government reports and official statistics I could use, but let’s face it. The Japanese government is not really the most authoritative source of information about innovation.
So instead, I’m going to let Apple prove it to you. Take a look down at your iPhone that as a Disrupting Japan listener you have a 52% chance of owning. Well, I mean, not you specifically. You are listening to this on the same device you always use, and you have a 100% chance of owning that. I mean that statistically, 52% of Disrupting Japan listeners are listening to this show on an iOS device.
Ahh, but I digress.
My point is that we are about to dive into Apple’s supply chain for the iPhone because it’s going to teach us a lot about innovation in Japanese mid-sized companies.
Now Apple is in an enviable position when it comes to sourcing parts and labor for its products. They have the resources to actively and aggressively seek out companies all over the world that provide the ideal level of product or service required to create their products. Their supply chain is really a best of breed for relevant technology.
And this supply chain in truly global. There are over 700 companies that are involved in the manufacture of an iPhone, and do you know what country most of these companies are in? It’s China. Of course, it’s China, with 249 companies. But in second place is Japan, with 139 companies. Japan’s followed by the US with 60 companies and then things fall off pretty quickly with Taiwan at 42 and South Korea at 32 and then 26 other nations filling out the rest of the vendors.
So 139 Japanese companies are in the iPhone’s supply chain. That’s less than half the number of China, but more than double that of the United States. So who are these companies exactly?
Well, some of them are the large enterprises that you would expect; Japan Display, Murata Manufacturing, Sharp, Sony, Toshiba, TDK. But the bulk of these companies are names you probably have never heard of and are mid-sized, rather than large enterprises.
But for both the large and medium-sized enterprises, but the medium-sized firms, in particular, it’s worth asking what make them so attractive? It’s easy to understand why China is in the first place, you can produce goods at a massive scale and at low cost, but why is Japan is such a strong second place. Well, that’s a much more interesting question.
In fact, all the things that make Chinese companies an attractive addition to a corporate supply chain are almost the opposite in Japan. China has low labor costs, few environmental regulations, a large and flexible workforce, and very loose labor protections. Japan, on the other hand, faces a labor shortage, requires high salaries and very expensive physical plant, and furthermore, Japan has some of the toughest environmental and labor protection laws on the planet.
And yet, in this case, they seem to be out-competing the rest of the world.
The simple answer is the incredible innovation that exists at thousands of Japanese mid-sized companies. These mid-sized firms have always existed in the shadow of their keiretsu, quietly producing technology that always seems to be five years ahead of what is coming out of Korea and Taiwan. None of these Japanese firms are low-cost producers, they are all global innovators.
You know, there is a lot of talk in the United States today about bringing back manufacturing jobs, and that’s a worthwhile goal. However, most politicians seem to think that the answer is making the US more like China by loosening environmental and labor safeguards with a focus on reducing cost. I think these policy makers and politicians would be better served to look at nations like Japan and Germany who have much stricter regulations and higher costs but still manage to be global manufacturing leaders while providing their workers with a high quality of life. There really is a workable model for bringing back good manufacturing jobs.
In fact, looking at the US, Japan is a lot like California in terms of innovation in small and mid-sized companies. Salaries and rents are very high and you can no longer survive as a low-cost producer. You need to be the best in the world. The regulatory framework in terms of environmental and labor law and tax policy is not particularly business friendly, but these laws are widely popular among the citizens and they will not be changing anytime soon.
But once again….I digress. We are here to talk about what is about to happen with Japan’s mid-sized global innovators.
Apple has the resources to find them on their own, but as more and more of these companies have their keiretsu ties cut, more and more of them will begin aggressive overseas sales and marketing. Why overseas? Well, with domestic demand flat, the global markets are the only real path to growth.
OK. That all makes perfect logical sense. We know what should happen. We know what must happen. But what can we say most likely *will* happen to Japan’s mid-sized companies over the next ten years?
Well, let’s look at some hard numbers, or perhaps I should say let’s listen to some hard numbers.
To be sure, there is going to be a lot of pain among Japanese medium enterprises, and a large number of them are going to be going out of business. At the moment, the Japanese government is prolonging that pain by extending loans to weak or unviable SMEs around the country rather than focusing on business expansion.
Although there are some good government programs designed to help Japanese companies expand abroad, most of the government efforts are in terms of financial support. In fact, in 2016 20% of all SME financing across the entire county was made either directly from the Japanese government or guaranteed by the Japanese government.
Clearly, this is not sustainable.
Also, since we are looking for companies that can sell into global markets, we need to put aside the 75% of 660,000 medium sized enterprises that are in local or services based businesses. Once we do that, we are left with 165,000 mid-sized Japanese enterprises with the potential to go global.
Japan’s economic future, the ability to once again be recognized as a global innovator, really depends on these 165,000 mid-sized companies, or rather the relatively small subset that will survive in the coming era of global competition.
So why place my faith in the mid-sized enterprises rather than the large enterprises or the startups? Partially, it’s because the mid-sized companies are the ones with their backs against the wall right now. They can’t coast on massive cash reserves and lucrative government contracts the way large enterprises can, nor can they chase investment money and rely on a larger domestic market for growth the way that most startups do.
Growth looks different for startups. Of course, Japanese startups and mid-sized companies may both be operating in the same domestic Japanese market, but a startup with a $100,000 in annual earnings can easily grow at 100% a year without looking overseas, but an established mid-sized company with a $100 million in revenues simply does not have that option.
In order to survive, Japanese mid-sized companies have to solve real problems for real global clients, but the good news is that many of them are already doing that. There is far more world class technology in Japanese mid-sized companies than there currently is in Japanese startups.
And that’s not a criticism of some of the truly amazing startups in Japan. It’s a simple statement of fact. Even if we focus our attention on the fraction of the medium enterprises that have the potential to go global — those 165,000 firms — we are talking about a scale orders of magnitude larger than Japanese startups and with innovative technology that has already proven itself in global markets.
The twin challenges Japan’s medium enterprises face today if they are to transform from niche manufacturers with tight margins to highly profitable global brands are first leveraging and productizing their technology and second letting the world’s consumers know about it.
And here, I believe Japanese mid-sized firms can, and I believe they will learn from startups. The same techniques used by startups to inexpensively and rapidly develop and validate a new product can be used by these companies. The same techniques and tools that allow San Francisco startups to quickly build a global customer base can be used the Japanese mid-sized firms.
OK, OK. Even from here, I can hear you rolling your eyes at the thought of Japanese mid-sized companies being able to operate this way. You have every right to be skeptical. Particularly if you’ve worked with mid-sized firms here. Yes, many are frustratingly conservative and even provincial. But they are watching the sands shifting beneath their feet right now. These CEOs *know* that they need to change or die and they need to do it soon. Nobody wants to be remembered as being the CEO who had to shut down the business.
Will they be able to make the change? I think they will. At least some of them will, and that will be enough. If you are still skeptical, and I don’t blame you if you are, rather than thinking of the typical, or perhaps stereotypical, Japanese medium-sized business, think about the outliers. After all, remember our pool of promising mid-sized companies is 165,000 firms. If only one or two percent of these firms begin successfully adopting modern product ideation, validation, and growth techniques, the impact on the Japanese economy will be transformative.
Personally, I think a lot more than one or two percent are going to succeed. And they have a much greater chance of making this transformation than large enterprises do.
Changing the culture and the direction of a 200-person company is far, far easier than changing the culture or the direction of a 20,000-person company, let alone a 100,000-person company like NEC. A 300-person company — and remember METI defines mid-sized companies as having no more than 300 employees — can easily be turned around by a charismatic and motivated CEO who has a real vision for the future — and they can be put on track to grow into a 2,000 person and then a 20,000-person company.
In fact, Japan’s mid-sized companies are not so different in size than early to mid-growth startups in the US, and they could learn to be just as agile.
I travel a lot and everyone wants to be the next Silicon Valley. We all hear about the Silicon Valley of x Japan or Germany or the Midwest. I wish we could get over that. There is no magic bullet or secret recipe.
There is never going to be another Silicon Vally, each nation or location will need to find their own way. To learn what their own strengths and weaknesses are and the take the best practices from around the world and create something unique and that can not be duplicated.
And you know something, no country does this better than Japan. After Japan’s defeat in WWII, many economists working with the Occupation government concluded that Japan would never be able to fully recover economically. Its infrastructure had been utterly destroyed and she had no historical framework on which to build a competitive, capitalistic democracy. Many of these economists concluded that Japan would always remain a kind of protectorate of the US.
Well, we know how that turned out. Japanese industry studied the best practices from around the world and then adapted those practices to create a uniquely Japanese system that leveraged the nation’s strengths. And 30 years later Japan had transformed from a hopeless economic basket-case to the second largest economy on the planet. Having completely redefined the automotive, watch, consumer electronics, camera and other industries.
Never underestimate how fast and completely Japan can change once that decision is made.
And this time, I think it’s pretty clear that change is going to come from Japan’s mid-sized companies rather than the large enterprises or startups. The large companies are sitting on piles or cash and are not facing the kind of existential threat that would force them to change. There are amazing things going on in Japanese startups, but there are just not enough of them to really move the needle economically — at least not yet. And to be fair most successful startups technically are mid-sized companies.
No, once again, it’s left to Japan’s mid-sized enterprises to do the heavy lifting. We already know that some of these companies produce some of the best technology in the world and they have access to the same tools and techniques that the world’s most innovative startups do.
In many ways, Medium-sized enterprises in Japan today are in a similar situation as the keiretsu were in the 1960’s. They are largely unknown to global consumers. They have a domestic market that can’t support the level of sales needed to really fuel economic expansion. They have technology that has been proven competitive in global markets. And most important, perhaps, they have a widely available and tested set of global best practices that they can bring to bear in solving these problems.
Perhaps the CEOs of Japan’s medium-sized enterprises can take inspiration from Akio Morita, the co-founder of Sony. Now Morita was a genius in turning technology into transformative products — maybe even more so than Steve Jobs, although a generation earlier.
In the fifties and sixties, Sony found themselves in much the same situation that many of today’s mid-sized companies do. They had great technology and there were plenty of companies around the world that wanted to include them as part of their supply chain. Either as manufacturing components or as an OEM where they would put their own brand on their products.
Morita famously refused to consider such deals and insisted that Sony would make its own products and build its own brand. And in the decades to come this small Japanese company grew into a giant and transformed industry after industry. Introducing the transistor radio, the Trinitron TV, the audio CD, the first home video recorder, the Walkman, and I know it’s hard for our younger listeners to believe, but at the time of Morita’s death in 1999, Sony was by far the most admired brand in America, far ahead of such giants as Coca-Cola, GM or Apple.
Those who doubt Japan’s ability to productize innovative technology have a very short memory.
Of course, things will turn out differently time. They always do.
But with all the major media attention is focused on Japan’s biggest and most famous brands, and the startup media focused on the undeniably cool and quirky little startups springing up all over, the real agent of change is being overlooked.
This time, change is going to come from the middle.
If you have thoughts about some of the ideas we’ve just talked about or about these solo episodes in general. I’d love to hear from you, so come by disruptingjapan.com/show091. Or if you prefer, follow us on facebook or twitter, or drop by the Disrupting Japan LinkedIn group.
I’d love to hear from you.
But most of all, thanks for listening, and thank you for letting people interested in Japanese innovation know about the show.
I’m Tim Romero and thanks for listening to Disrupting Japan.
Insightful Topic for a Show…Congratulations Tim, it’s time someone thought of highlighting the potential profitability, both fiscal and cultural, buried in these mid-sized companies. Prior to leaving Japan in early 2016, I was a regular English Language Narrator for the NHK G program, “Science View.” I often recorded the voices of more than one scientist, doctor, inventor, developer, researcher and so on per show. For me, the most interesting aspect of each program were the kinds of new products, new materials, new applications & incorporations into existing products. Often, the results were unexpected, or even accidental. More often, the result came from the continued patient exploration and attention to detail that the Japanese are, quite correctly, known for.
The small to midsize companies were located around Japan, not only in the expected locations of Kawasaki or Osaka. I came away from that experience with a great deal of respect for these companies and the Owners that pursued excellence in the continuing face of difficulty in both development & Marketing. Unfortunately, my attempt at marketing my own business was a mild failure with both personal & financial consequences that led to a sudden Visa change and the need to shortly leave Japan.
Later, having come to terms with my situation, I vowed to return to Tokyo with a new, improved English Speaking Workshop Program(not Berlitz by another name) and focus on the opportunities presented by the 2020 Games. The Plan is to target both the Tourist needs, but most importantly, my perceived English Language Speaking needs of these Mid-sized companies. I believe the future of Japan could well rest with the internationalization of these Companies, and I for one am very happy to see that we’re in agreement here. Good job Tim…perceptive as usual.
Tom j Dolan
Hi Tom,
Thanks for listening. Yes there is amazing technology wrapped up inside these companies. I believe once they begin to use the startup techniques that are becoming so well known today, we are going to see a lot of new products from them.
Sorry to hear about your own business failure here. Japan can be pretty unforgiving about that – both legally and socially. My first startup succeeded and my second failed, but if the order had been reversed… Well, if I had failed first, I probably would not have had a second chance.
Your new target is a good one. There is an overseas tourist boom that will probably last well beyond the Olympics here. A lof of companies are looking to go global, and that means a lot of English education and services. Good luck with it!
Tim
Hi Tim and thanx for the encouragement. I’ll keep you posted as I progress towards a return…”I shall return!” has been used already but I borrow it with all due respect. Looking towards a possible trip later this year.
Thanks for sharing the thoughts.. so tired on the coverage of all these wacky startups. As a b2b business owner in Tokyo with a revenue split of ~ 70/30 global/japan I certainly see your point. However find it hard to see this kind of future. Simply from a lack of bilingual + global sales people located in Japan.. willing to be paid Japanese SME salaries.. willing to change culture ..
To counter the Apple product sourcing example, my guess is the sourcing was all done locally by Apple staff in Japan. As they have the scale to support it. Also to counter the Sony example, their a consumer product which is a vastly different game to b2b supply chain parts.
Perhaps a possible result is these mid sized suppliers disowned by their parent will find new keiretsu like companies in the global market, the ones that can afford boots on the ground to bridge the language/culture gap?
An alternative would be the middle ground and an Alibaba of Japan. Its surprising to find a number of supply chain companies with an online sales presence (in Japanese) who are completely incapable of building such a sales channel.. 60yo oji-san`s who still use WindowsXP… e.g. they are smart enough to partner with someone who does all the online gear and takes their sales cut.
Thoughts?
Hi Aaron,
Thanks for listening. Startups have a very important role to play, but I think the mid-sized companies will have a bigger impact. IN terms of Apple I believe their supply chain is selected in the US. They really are after a best-in-class set of suppliers and are willing to search the globe for them. I can’t speak to what’s going on at Sony.
I hope that Japanese mid-sized firms will not simply try to get themselves into a new supply chain since that would expose them to the same risks that get them into this mess in the first place, but it certainly could happen. I don’t think an Alibaba of Japan is an option, however. The technology here is expensive and very specialized. It will be up to the leaders of those companies to figure out how to productize their technologies.
Tim
Just cant see how mid-sized firms will expand beyond the supply chain. Think about it, how is it possible for a component manufacture to build an end product AND be a component supplier to companies who are competing with that end product. You can`t have it both ways. Betting the entirety of a $10M+ revenue company`s future like this takes enormous balls, to the point of almost being reckless.
My personal opinion is, these component manufactuer`s globalization market strategy is via their keiretsu. Which is an extremely inefficient approach. If it was a free and open market ala Alibaba style with no language barriers expect there would be quite a different dynamic in play. And of course its … a high quality, fair price market place..thats different to the Alibaba market.
The key is developing new products using either those components or more likely, the technical know-how they gained from developing those components and the processes needed to create them. There is no need to gamble the whole company on any one product. They can afford to experiment.
Its gambling between a binary outcome of who the customer is. The current primary (and dwindling) revenue stream as a component supplier. Or ditching component supplier business and building products, you can`t do both.
While startups cannot really have two different products, manny mid-sized companies can. That’s why they have an advantage in this race for innovation. For example, check out the interview with Seven Dreamers. They are q mid-sized company that used revenues from a medical device and carbon-fiber golf clubs to finance a laundry-folding robot.
Dear Tim, thanks for this interesting view which makes some sense. In my experience – I am in the science sector but also represent german SMEs – size always matters in Japan. So start-ups have a natural disadvantage. Also, start-ups in Japan are different to other start-ups, less aggressive, no venture capital to grow fast, so domestisized to a slow and long way to go.
Midsized companies are better suited to keep up the battle. I would put them actually into a larger frame, in Germany we go up to 500 but I think even a company with 1000 people, family owned, is different to the Panasonics and Hitachis.
So I think your view is very good and inspiring!
Best Regards
Lorenz
Hi Lorenz,
Thanks for listening. I think you are right. Family-owned businesses are at an advantage here. They are often lead by a CEO that can make real changes in the company.
Tim
Right on the point. Besides, the objectives of most startups are to grow to a sizeable scale before expanding overseas. The exact phase of going from startup to small enterprise to Medium Enterprise and so on and so forth.
Economies have always been hinging on medium enterprises, like the economy of Singapore: a thriving economy consisting of 99% SMEs that provided 65% of the employment.*
(Small and Medium Enterprise in Singapore is defined as having annual revenues of less than $100 million or not more than 200 employees).
*http://www.singstat.gov.sg/statistics/visualising-data/infographics/economy
Hi Austen,
Thanks for listening.
Interesting, when you add the small businesses back in, the amount of employment is about the same. I think the key number, however, is the medium business that are not service businesses, but are in high-tech manufacturing. They are the ones that have IP and are most likely to be able to develop products that can be sold globally.
Tim
Hi Tim
I fully agree with you
I have lived in Japan for 20 years and I really understand what is happening here and why non-Japanese feels weird about Japanese economy. The post-war politics created keiretsu groups and the government keeps issuing more laws to provide workforce and laws to supply the keiretsu and maintain the economy.
You already mentioned the points very excellently.
I ever worked in bank, it, consult and now I have to say Japan won’t change until one day the JGB defaults, I mean the corrupt of central banking system.
I feel sorry about the people who still believe the pension can make their life easier when they get old, i already give up the pension and the unpredictable future.
Is future so terrible?
I think it depends on the people’s hard work.
I here helps young researchers to startup. Most of them have techs but no dreams. (To be honest, the Japanese education system has stopped talking about future, bad.) they are more honest, hard work and are able to step in the global market after they are well trained. This year I have successfully help these researchers to startup a AI robot sports coaching business and everything works as planned.
Hi Tim
Really wish having a chat with you
Thank you very much
Daniel
Hi Daniel,
Thanks for listening.
I think there is a lot of reason for optimism here in Japan. The government as actually pushing industry to open up and innovate. A couple of future shows are going to talk about the big changes the FSA is making to force the banks to work with startups.
Tim
Well, Japan is a hierarchical economy and government intervenes more successfully then in other countries, if they intervene and that may take time. Its not market or opportunity driven but bureaucratic driven:-)
Hi Lorenz,
I wonder about that as well. I think the Japanese government is doing a pretty good job of pushing the large companies to work with startups, and I think letting Sharp get purchased by a Chinese company send a strong message to the old keiretsu leaders that they will be allowed to fail. In terms of the startups, the bureaucrats I talk with at METI all mean well, they challenge will be if they can stay out of their own way.
Tim
That is pretty true. I also think, they are doing very well in many areas, but they also do micromanagement into many organisations which they should better not do. Not because of bad intention, but bureaucrats are never good managers.
Lorenz
Lorenz,
Micromanagement is often a sign of someone who does not have enough to do. In these cases, it’s almost a certainty
Tim
The government moves so slowly that japan has been almost forgotten from the world in the high-tech fields. This problem not just came from the government but also the operation structure built over the past 50 years. No the improvement of working efficiency, no good future.
Anyway I will keep supporting young startup.
Thanks a lot.
Hi Tim, big fan of the podcast – keep up the good work!
I’m wondering if tracking JP mid-sized company’s patenting activity in the US or Europe would indicate which mid-sized companies are taking global expansion seriously and therefore are more likely to survive.
Hi Nicholas,
Thanks for listenting.
Yes, I do think that partnering activity would be one good indication of how seriously a Japanese company is taking their overseas expansion. However, I think the best measure would be the number that have established overseas offices.
Tim