An Entrepreneurial Spirit Begins to Emerge in Japan

An Entrepreneurial Spirit Begins to Emerge in Japan

NEW YORK -- (BUSINESS WIRE) -- August 10, 2004

The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting regional development in Japan. It can be viewed at:

http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus35.html

Japan was Late to Adapt its Business Model to the Needs of a Maturing Economy

The technology and U.S.-driven dot.com boom of the late 1990s accentuated rigidities in the Japanese economy -- helping many to come to the overdue realization that Japan’s traditional business model impinged on its ability to compete in a rapidly changing world economy.

Today, however, a new model is emerging. It combines many of the entrepreneurial tools, practices and mechanisms that have helped to drive new business formation and innovation in the U.S. with the hard work, dedication and attention to quality and detail that have made Japanese firms such a formidable presence in markets around the world.
Reform Measures Initiated in the Mid-1990s Helping to Achieve this Transformation

The Japanese government adopted a detailed “Action Plan for Economic and Structural Reform” in late 1996. Substantial progress has been achieved through deregulation and reform measures directed toward corporations and consumers as well as the financial and public sector.
Macro Reforms Accompanied by Promotion of Business Formation and Development

In October 1999, the Japanese Diet convened an extraordinary session to strengthen small and medium-size enterprises (SME). Specific measures were enacted to reform the Japanese over-the-counter market, to create new sources of venture capital and to promote more flexible financial and corporate structures. Other measures allowed the use of stock options, established Technology Licensing Organizations, provided training to entrepreneurs, facilitated restructuring and enhanced corporate governance and the development of new growth sectors. SME's were categorized into different categories, each with different goals and objectives. These included:

- Venture businesses that can take advantage of initial public offerings (IPO's) in the over-the-counter market.

Goal: to have an equal number of IPOs as the United States. For example, in 1998, the U.S. NASDAQ market had 287 IPOs, while Japan had only 62.
Update: About 500 companies have listed on Japan's three stock markets for emerging companies since June 2000. Only about 150 firms listed on the NASDAQ market in the three years through 2003.

- Competitive SME's with distinctive goods or services.

Goal: within 3-5 years to have an increase of 1,000 new venture companies based upon the results of University research.

Update: As of the end of March 2004, 799 venture companies had been established based on research conducted in Japanese Universities.

Furthermore, nearly 15,000 new companies have been established following a simplification of business registration procedures in February 2003.
Japanese Become More Appreciative of Entrepreneurial Career Path

Today one can find entrepreneurs seeking funding, training and support through angel and networking organizations. Major foreign VC and private equity firms are also active. Numerous business incubators are forming, and local firms and other specialized entities are making investments and providing support to emerging companies in Japan.

One of the many byproducts resulting from this trend is increased labor flexibility. Younger people are coming to view entrepreneurship as a legitimate career option. Additionally, while business failure in Japan has traditionally meant losing ones reputation and assets, today, a growing number of entrepreneurs are getting second chances.
Entrepreneurs and Investors are Driving a Robust IPO Market

The move to embrace and reward entrepreneurship is evident in the robust performance of the Japanese initial public offering market in recent years. This is reflected in the 160%+ rise in the JASDAQ in little more than a year.

Many might be tempted to view the heady performance of these IPO’s as reminiscent of the speculative behavior seen in U.S. markets only a few years ago. Time will tell whether these securities can sustain their value, yet unlike the U.S. -- where many of the securities listed were VC-driven vehicles with little or no operating history -- a good number of the listings now being seen in Japan are based on the performance of established firms. Many have decades of operating history -- and appear to be using the IPO vehicle to adjust their financial structure away from the traditional “cross-shareholding” and “main bank” commercial lending orientation they have relied upon in the past.

Furthermore, many of the Japanese firms listing today are profitable. According to data compiled by the Nihon Keizai Shimbun, total pretax profits for non-financial firms listed on Japan’s three markets for emerging firms – rose 15.4% to approximately $4.5 billion for the year ending March 31st. This is the second annual increase in the three years since these markets were established.