5 Things Startups Should Know Before Entering the Japanese Market

For any company, entering a foreign market is a big challenge, especially for startups with limited resources. There are many things to consider: language barriers, cultural norms, regulations, you name it. On top of that, the Japanese market has a few significant characteristics which are particularly unique compared to other Asian countries. Here are some key factors you need to know before saying “Konnichiwa”.

Chiyo Kamino

Contents Marketing Associate

1. “We want you!!” Japan boosts startup ecosystem

At the very first press conference at the beginning of 2022, Japan’s prime minister Fumio Kishida addressed that he will be supporting entrepreneurs and calling 2022 the “first year of the startup creation era” (*1).

In accordance with his announcement, the Japanese government created a new ministerial post to support startups on August 1st, 2022 (*2). Also, government subsidies or grants have been increased on many levels from early-stage startups to later-stage startups (*3).

Many investors are following this strategy. In 2021, the total amount of investment in startups in Japan has risen from 4.9 billion USD to 7.1 billion, which made a 46% increase compared to 2020 (*4).

Japanese corporate giants are also buying startups. In 2021, the number of startup acquisitions reached 136 cases which marked the highest number in the last 5 years (*4).

And it’s not just about Japanese startups. The Japanese government has eased the visa requirements for entrepreneurs to start a business in designated cities. It is so-called “startup visa” which allows entrepreneurs to stay in Japan for one year to prepare for starting a business. JETRO, a government-related organization to encourage overseas companies to start a business in Japan, has also introduced a service to support for entrepreneurs who are seeking business opportunities in Japan. Requirements for the startup visa vary in different cities, but for example in Kyoto, the local JETRO office provides hands-on support for startups to make a business plan and prepare related documents.

As Japan has lifted its travel restrictions which have been keeping foreign visitors at bay for the last two years, it is hoping to have more startups and entrepreneurs coming to Japan to expand their businesses.

2. The language barrier is still high

Even though Japan is considered to be one of the most advanced countries in the field of science and technology, its English proficiency actually ranks quite low in the world (*5).

Most Japanese business professionals are not accustomed to communicating in English on a daily basis, especially in conversations. In order to make efficient communication, it is crucial to provide enough information in written English preferably with video prior to an initial meeting.

Large companies can afford language specialists or interpreters upon request, but even in that case, preparing fact-based materials or data sheets is strongly encouraged to prompt mutual understanding.

Also, it is recommended to send an email to summarize the conversation right after the meeting as it helps Japanese participants to understand the discussions better and to navigate each other’s intentions more clearly.

3. Decision-making process is slow and sturdy

Japanese corporate culture is very different from the ones in Western societies, especially in the startup Industry. One of the most distinctive aspects of the Japanese corporate system is its decision-making process. It usually takes much longer than startups’ timeframe to settle on a plan of action.

In most cases, the one who is in charge of new business development does not have much authority over the course of the project. Everything has to be determined at meetings with everyone involved.

There is a specific Japanese term for this type of meeting, called “Ringi”. It is a process to reach a consensus among upper management by providing enough information to get approval from multiple departments before submitting an official proposal.

But such a comprehensive structure oftentimes comes with better ideas and solutions as it can be examined from many different perspectives.

It may require a lot of patience and persistence to stick with this type of wishy-washiness, but once you settle an agreement with a Japanese corporate, it will rarely be overturned or cancelled since everyone has already agreed to carry on the plan.

4. Japanese business is a serious business

While Japanese industrious work ethics, such as Kaizen (constant improvement), have been the driving force of its economic growth back in the 1960s to 80s, its diligence tends to result in rigid organizational structures and perfectionism which are not always compatible with startup culture.

The Japanese work environment is notorious for its long working hours, massive commutes, patriarchy, and strict seniority system. Those negative attributes lead to fear of new challenges, aversion to risk-taking approaches, and demand for meticulous details.

However, there are some advantages to adapting to this type of precision. It will give you an opportunity to improve your product and quality control, which can be utilized for future product development. Especially when it comes to security or safety measurements, Japanese companies will contribute a lot to refining your services or products.

5. Digitalization is not ubiquitous just yet

If you believe Japan is one of the most technologically advanced countries in the world, you may be surprised by the fact that some well-established organizations in Japan are still using facsimile machines to communicate. Japanese administrative and corporate systems are still very much relying on paper-based communication.

For example, presentation materials are expected to be printed prior to the meeting, and legal documents are required to be stamped and sent by mail instead of being submitted online with digital signatures. Exchanging business cards is a very important aspect of networking, and many corporations are still operating the same IT system since the 2000s. Surely the covid-19 pandemic has pushed society to adopt digital technology, yet there are still so many uncultivated fields to be digitized.

Why is Japan falling behind in digitalization? One of the reasons is the lack of human resources with adequate IT skills. Due to the aging population and the low birth rate, Japan has been suffering from labor shortages since the early 2010s. It is estimated that Japan will have a massive labor shortage of IT engineer by 2030 (*6), and the Japanese government launched Digital Agency in September 2021 to accelerate digitalization in the country (*7).

Many large companies also do recognize the importance of the conversion from analog to digital, however, they are unable to find proper personnel or solutions. There is a dire need to change society – and that is the very reason why Japan seeks startup technology.

The startup ecosystem in Japan has just been springing up, and it is still in an emerging phase compared to the ones in other major cities in the world. In other words, it is a very good opportunity for startups who want to take advantage of this dawn of the digital era.

From law firms to back offices to marketing, Plug and Play Japan provides connections with specialists or service providers for Japanese market entry upon request. For more details, please visit the following page:
https://japan.plugandplaytechcenter.com/startups/our-service-partner/

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*1) Editorial: Japan PM Kishida’s New Year’s speech plays it disappointingly safe
January 5, 2022 (Mainichi Japan)
https://mainichi.jp/english/articles/20220105/p2a/00m/0op/024000c

*2) Japan creates new Cabinet post to boost startup ecosystem
August 1, 2022 (Japan Times)
https://www.japantimes.co.jp/news/2022/08/01/business/daishiro-yamagiwa-startup-minister/

*3) Japan looks to take startup ecosystem to next level with more government help
August 10, 2022 (Japan Times)
https://www.japantimes.co.jp/news/2022/08/01/business/japan-startup-ecosystem-progress/

*4) Japan Startup Funding 2021: 1 Trillion Yen Milestone Within Sight
March 3, 2022 (INITIAL)
https://initial.inc/articles/japan-startup-funding-2021-en

*5) EF English Proficiency Index
2021 (EF)
https://www.ef.com/wwen/epi/regions/asia/japan/

*6) Japan to have a shortage of 270,000 AI and IoT engineers by 2030
October 2, 2021 (Updated April 7, 2022)
https://arab.news/yrq5g

*7) Can the New Digital Agency Transform Japan into a Tech-Savvy Society?
January 28, 2022 (nippon.com)
https://www.nippon.com/en/in-depth/d00773/#

Photo by Jezael Melgoza on Unsplash