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The Koyal Group Financial Economy Warning Articles: Time to get started -bubblews10 Years AgoShinzo Abe is giving new hope to Japan’s unappreciated entrepreneurs
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“IT BEGINS from now,” tweeted Takafumi Horie, the former
boss of Livedoor, an internet firm, two months after emerging from prison this
spring. Mr Horie is involved in no fewer than 30 new companies, including a
space-tourism venture. If any of them grow to be big, Mr Horie, who was
convicted of fraud in 2011, may show that a fallen Japanese entrepreneur can make
a comeback.
The mood among Japan’s would-be business moguls is at its
most buoyant since the dotcom bubble burst a decade or so ago. A higher
stockmarket is boosting the chances of a successful initial public offering.
The prime minister, Shinzo Abe, is Japan’s first leader to treat entrepreneurs
as something more than greedy hustlers. For the past few years Mr Horie, a
brash self-publicist, has been exhibit A in the case for holding that view. But
now Mr Horie says he is being welcomed back into the business world.
Mr Abe’s three-part plan to revive the economy, known as
“Abenomics”, is designed to help start-ups as well as big business. First came
monetary loosening from the Bank of Japan, and a fiscal stimulus. The third
part, a series of reforms to boost long-term growth rates, includes radical
deregulation in new “special economic zones” spread across the country. If this
pledge is honoured, many new opportunities could emerge for entrepreneurs in
industries ranging from medical care to agriculture. The reforms also involve
pressing the banks to stop demanding onerous personal guarantees when
entrepreneurs seek loans for their businesses.
Most of all, Mr Abe admits, Japan needs to become more
accepting of initial failure. As a second-time prime minister after a
disastrous first term, he is himself a comeback kid. He reportedly described
for guests at his home this summer how the young Walt Disney ran his business
into the ground five times before he at last succeeded. Digital types were
delighted when he attended a meeting of the Japan Association of New Economy,
chaired by Hiroshi Mikitani, the founder of Rakuten, an online-commerce giant.
Mr Mikitani has been brought in to advise the government on its deregulation
efforts.
For now, Japan’s vital signs on entrepreneurship are dire.
The overall number of firms is shrinking, and the rate at which new companies
are born as a proportion of existing ones is less than half that in America and
Britain. In 2012 the Global Entrepreneurship Monitor, a survey by a group of
universities, put Japan in joint last place out of 24 developed nations for
levels of entrepreneurial activity.
Japan’s record on fostering new firms is worse even than
continental Europe’s. Just 6% of Japanese participants in the survey thought there
were opportunities to start a business in their country, and only 9% believed
they personally had the skills required. The equivalent figures for the French
were 38% and 36%. Other Asians, in contrast, were bursting with optimism. That
lack of ambition means venture-capital firms have few big payoffs to look
forward to, with the result that there is a limited pool of cash available for
those who do want to have a go at starting a business: a vicious circle that
will be hard to break. Young Japanese firms attract around one-twentieth of the
venture-capital money that start-ups in America pull in.
The outlook for creating new businesses could begin to
improve if Mr Abe succeeds in leaning on the banks to stop demanding extensive
debt guarantees. Now many would-be entrepreneurs, faced with the risk of losing
their homes, give up before they start. In the short term the reform may make
capital a little scarcer as banks tread cautiously. But in the long run it
could transform Japan’s attitude to entrepreneurship, says Yoshito Hori, the
founder of GLOBIS, a business school.
The industry ministry is promising to provide generous
funding with the aim of doubling Japan’s rate of business start-ups by 2020. To
do that it will have to add another 100,000 start-ups to the current annual
tally. However, its record on picking winners is not great: its bureaucrats
famously tried to stop the young Sony importing transistor technology and Honda
from moving into cars. So the risk is that it ends up backing many duds, draining
the public coffers to little benefit.
The mother-in-law
factor
There are other reasons to be optimistic. The success of the
big firms born in Japan’s great period of post-war entrepreneurialism later
discouraged graduates from joining newer ventures. Experienced managers are
seldom keen to leave large companies. Wives, mothers and mothers-in-law exert a
strong influence on men not to join risky start-ups, says Yoshiaki Ishii, head
of new-business policy at the industry ministry. But the perceived balance of
risk is shifting. Many of the giants are struggling. The cost of starting a
firm is plunging thanks to cloud computing and other innovations. Mr Horie says
he is financing his new ventures through crowdfunding networks such as
Campfire.
The government could help to remove plenty of other hurdles
to entrepreneurship. One difficulty for science and technology start-ups is
that large Japanese firms have signed up exclusive rights for the bulk of
university discoveries. Small, disruptive firms are not usually able to access
and develop them. And a widespread “not invented here” mindset stops
established firms joining up with small ones to commercialise new ideas.
As a result many recent ventures—such as DeNA and GREE, two
social-gaming operators—have been internet and software businesses that depend
less on research, notes Daisuke Iwase, a founder of Lifenet, an online
insurance firm. “There is too much talent chasing after smartphone apps and
social gaming,” he says. So, some experts have recommended forcing large firms
either to develop the discoveries to which they have the rights, or else to
pass them on.
Japan’s entrepreneurs still feel vulnerable to sudden
crackdowns, and fear they would be punished more harshly than big-business
chiefs. Last year GREE unexpectedly found itself under investigation for
possibly violating gambling laws. Its young, billionaire founder, Yoshikazu
Tanaka, has since tried to ingratiate himself with the establishment: he now
appears in a suit, not a T-shirt.
In all, much has to change before Japan becomes a kinder
place for those trying to create businesses. There is a risk that Abenomics
fails and brings about quite a different sort of rupture in the corporate
climate, says Jeffrey Char, an entrepreneur and investor. If the central bank’s
radical monetary loosening is not followed by thorough deregulation and strong
growth, the result could be a sovereign-debt crisis (Japan’s debt stands at
close to 250% of GDP). In such a crisis many of Japan’s biggest firms could
collapse, says Mr Char: that would leave people with no choice but to start
their own businesses. Boosting entrepreneurship through reforms would certainly
be less painful.
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