Japan is renowned for technophilia. However, contrary to the general belief, Japan lags behind its Western peers. With digitization taking center stage in COVID-era, Japan is looking to close the gap. This could encourage domestic start-ups to work towards tech innovation in different fields, which in turn is expected to spur private equity (PE)/venture capital (VC) funding activity, according to GlobalData, a leading data and analytics company.
Japan is the world’s leading manufacturer of industrial robots and has contributed significantly to development of EV battery technology. Sony designed the first Walkman while Olympus invented the NMOS active-pixel sensor (APS).
Surprisingly, despite taking an early lead in several technologies, Japan held 23rd rank out of the 63 countries in the International Institute for Management Development (IMD) World Digital Competitiveness Ranking 2019. While the US topped the ranking, countries such as Sweden, Denmark, the Netherlands and Norway were also much ahead of Japan and appeared among the top 10.
Aurojyoti Bose, Lead Analyst at GlobalData, says: “Japan lacks a conducive start-up ecosystem and has only three unicorns (Preferred Networks, Liquid Group and SmartNews), which is just a fraction of that in the US.
“The failure of some of the start-ups such as Seven Dreamers, which came to limelight due to its AI robot, and Laundroid, a home robot used to automatically wash, dry, iron, sort and fold clothes to a dedicated closet, dented the risk taking appetite of young innovators. Some cultural differences also contributed with young graduates preferring to join established firms over unstable jobs in start-ups.”
Interestingly, SoftBank Group’s Vision Fund invests heavily in start-ups in other countries but not in the home country. Between January 2018 – 10 August 2018, SoftBank was as an investor in 76 deals globally and none of these involved any Japanese target.
Bose explains: “Low birth rates and shrinking working-age population resulting in acute labor shortage have been forcing businesses in Japan to automate, which has been a key driver for robot adoption in the country’s manufacturing sector. And now, the COVID-19 outbreak is further fuelling the need to have a digital workforce.”
Realizing it, Japan seems to be keen on taking steps towards the development of start-up ecosystem in the country and has already laid out a roadmap aimed at having 20 unicorns by 2023 as part of the Ministry of Economy, Trade and Industry’s (METI) J-Startup program.
In addition, Japan announced plans in July 2020 to establish four base cities/start-up hubs to expedite tech innovation and attract investments from PE/VC firms.
Bose concludes: “With such initiatives aimed towards developing a conducive start-up ecosystem, things may change while also offering significant opportunities for PE/VC firms.”