Stanford researcher Kenji Kushida says Japanese social norms are shifting from being highly unfavorable to a tech startup culture toward one much more supportive of it.

Japanese corporations are evolving and adopting a “startup culture” to boost their business creativity and country’s economic prospects, a Stanford expert says.

“We can see that over the past 15 years or so, changes to the overall Japanese political economic context as it undergoes gradual but substantive reform over the past couple decades have created a far more vibrant startup ecosystem in Japan than most people – both inside and outside Japan – realize,” said research associate Kenji Kushida of Stanford’s Walter H. Shorenstein Asia-Pacific Research Center.

Kushida wrote in a new research paper that, over the past decade, Japan has undertaken significant reforms that are now bearing fruit – reforms ranging from monetary and fiscal policy designed to encourage private investment to a range of regulations surrounding corporate law, university organization, labor mobility and financial market reforms.

As a result – and combined with changes and challenges facing Japan’s large company sector – the country’s people are embracing a “vibrant startup ecosystem,” Kushida said. He is optimistic that such a transformation can occur in a country where stability and corporate loyalty – not necessarily innovation or creativity – have long been dominant social and business values.

Now, large Japanese firms are adjusting to performance crises and uncertain futures. As a result, the Japanese people are learning that with economic opportunity – the kind that startups promise – there also comes the risk of failure.

“A generational shift is accompanying social normative changes that are becoming more supportive of entrepreneurship and high-growth startups. Entrepreneurs and high-growth startups are celebrated in the popular media and in major events more than ever before,” Kushida wrote.

Silicon Valley networking

The influence of California’s Silicon Valley is a factor. For instance, Japanese Prime Minister Shinzo Abe last year spoke at Stanford about how his country is learning the lessons of Silicon Valley and trying to build networks into the region. So Japan is likely to see an increase in the quality and quantity of high-growth startups, according to Kushida.

He said, “The current relationship between Japan and Silicon Valley is one in which Japanese firms, ranging from large firms to startups, are looking for ways to actively harness Silicon Valley. Large firms are trying by becoming investors in Silicon Valley venture capital firms, setting up their own venture capital arms, setting up branches in the valley, and trying to engage in ‘open’ innovation by entering into tie-ups and attempting to acquire select valley startups.”

A small but growing number of Japanese entrepreneurs visited Silicon Valley either to start their own companies or to grow firms that were started in Japan, Kushida said.

Still, Japan’s tech sector is a long way from what one finds in Silicon Valley, where many of the world’s most “disruptive” and game-changing firms are located. He wrote, “When compared to Silicon Valley, the ecosystem is still small in scale, but so is virtually every other startup ecosystem.”

A growing flow of Japanese entrepreneurs and CEOs is coming to Silicon Valley to get more of a sense of how things work, Kushida said, adding, “That is what we are helping through research at the StanfordSilicon Valley-New Japan Project as part of the Japan Program at the Shorenstein Asia-Pacific Research Center.”

Kushida said that if current estimates hold, Japan should expect successful startups, all supported by a “stronger ecosystem of startup-related players, combined with more open large firms.”

These large firms, he said, will spin off entrepreneurs who leave to launch other new companies, which will accelerate the startup cycle in Japan.

Spreading technology globally

Key challenges facing Japan’s startup culture, Kushida said, are the need for more entrepreneurial role models and the “overall lack of experience in creating followers.” On the latter, he explained that while Japan has excelled at producing tech products for use in its own markets, it would benefit by getting other firms and parts of the world to adopt its products and services.

“Think of the negotiations that Apple undertook with telecom carriers around the world to roll out the iPhone worldwide, or how Google is continually negotiating with governments such as those in the European Union to allow its services to be adopted broadly,” he said.

Other Stanford scholars, such as Takeo Hoshi, have recently written about the reasons Japan was not able to pull out of a long recession that resulted in virtually no growth in the 1990s. One problem, as Hoshi described it, was that the Japanese government was unable to introduce much-needed “structural reforms” to overhaul its economic structures to increase business competition – such as deregulation to cut operating costs for firms, a key attraction for startup-minded entrepreneurs.

Japan’s “lost decade” originally referred to the 1990s, though the country has still not regained the economic power it enjoyed in the 1970s and 1980s. Some say Japan has actually experienced two lost decades if the 2000s are counted as well.

Kushida’s paper, “Japan’s Startup Ecosystem: From Brave New World to Part of Syncretic New Japan,” was published in the Asia Research Policy journal.

Clifton Parker is a writer for the Stanford News Service.

As the inaugural meeting of the Asian Infrastructure Investment Bank sets to convene, Stanford researcher Thomas Fingar discusses findings from his new book that seeks to study China’s objectives and methods of engagement with other countries. Much of China’s behavior is determined by its own cost-benefit analysis of the perceived effect engagement would have on its security and development.

As China has pursued modernization over the past 35 years, patterns have emerged that shed light on the government’s foreign policy decision-making, according to new research by Thomas Fingar, a Stanford distinguished fellow at the Shorenstein Asia-Pacific Research Center (APARC).

Since 1979, China’s foreign policy has been underscored by two priorities – security and development. Knowing those priorities, analysts can attempt to better study and anticipate China’s relations with other countries even in the wake of unforeseen events in the global system.

“China’s increased activity around the world has elicited both anxiety and admiration in neighboring countries eager to capitalize on opportunities but worried about Beijing’s growing capabilities. Yet as is the case with all countries, what China can do is shaped by global and regional developments beyond its control,” said Fingar, the editor of The New Great Game: China and South and Central Asia in the Era of Reform.

The book, which has a total of 13 authors, is the first in a series published by Stanford University Press that examines China’s changing relationships in Asia and with other portions of the world. It is also an outcome of the research project “China and the World.” Fingar, who heads the project, draws upon his experience from five decades working on Asia and more than 25 years in U.S. government, including as chairman of the National Intelligence Council.

Framework to analyze China’s foreign policy

One dimension of the research project examines how China’s policies and priorities are shaped by China’s perceptions about how much a country threatens or addresses China’s security concerns; a second dimension examines China’s perceptions about how much a country can contribute to China’s pursuit of sustained economic growth and modernization.

To explore these relationships, Fingar developed a framework for analysis using a matrix that displays, on one axis, China’s perceptions about the threat to China’s security posed by a country or region, and on the other axis, China’s perceptions about a country or region’s capacity to contribute to China’s development.

By comparing the position of a given country or region from one period to another, the matrix both predicts the character of China’s policies and reveals a pattern over time. The figure below illustrates China’s views in 1979 and 2016.

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In 1979, India and countries in Central Asia figured high on the threat axis because of their relationship with the Soviet Union and low on capacity to provide the resources China needed to jumpstart its economy, Fingar said.

At that time, China sought to address both its priority security concerns and developmental goals by improving ties with Europe, Japan and the United States. South and Central Asia were afforded lower priority, he said.

In the 1990s, however, China’s perceptions shifted as a result of the demise of the Soviet Union and a decade of economic success in China, Fingar explained. Shown in the matrix, China’s policies toward Central Asia changed as the region transitioned to a more favorable security position by 2000 and as China required additional resources (energy, technology, training, etc.) to fuel its growing economy.

Fingar said China’s increased engagement with South Asia was buttressed by a need for markets and investment opportunities, and furthered along by a reduction in the threat environment as India altered its relationship with Russia and Pakistan became a less valuable security partner.

Calculating who China will engage with and how has become much clearer, yet in some ways it has also become more complicated, according to Fingar.

“The countries that can do the most for China today often pose the greatest perceived long-term threat, namely the United States and its allies,” he said. “Conversely, China’s proclaimed closest friends—North Korea and Pakistan—can do little to assist China’s development and pose increasing danger to its security.”

Current policy applications

Over the past three years, Chinese President Xi Jinping has embarked on numerous projects with neighbors and other countries around the world, such as the “new Silk Road,” a trans-continental trade route that will link countries together, and the Asian Infrastructure Investment Bank (AIIB), a multilateral development bank that plans to lend money to poorer parts of Asia for building infrastructure.

The objectives of both initiatives are consistent with the China’s prioritization of security and development, Fingar said. The AIIB and Silk Road initiative indicate that China assumes there are gains from economic integration, and this is largely due to the fact that China has already benefited from past projects.

In 2001, the Chinese government launched concerted efforts to improve its relationships with Central Asian countries because of China’s concern that the United States was seeking to “contain” China, he said. Outcomes have included newfound markets for China’s manufactured goods and increased stability in separatist areas near or on its borders.

“By taking such a big stake in building infrastructure, China has changed the dynamic of the region,” he said. “Anybody can use a road, railroad or bridge. China has helped stitch together the economies of different countries in ways they have never been before.”

For China, the AIIB and the Silk Road initiative are also a form of “soft power,” said Fingar. The approach by the Chinese government evokes memories of U.S. “dollar diplomacy” early in the last century and Japanese “yen diplomacy” when financial assistance was extended to developing countries.

But Fingar doubts that “buying friends by building infrastructure” will be a major contributor to China’s quest for security and development. Going forward, the Chinese government must face the growing paradox between its foreign infrastructure projects and its principle of respect for sovereignty and territorial integrity, he said.

“When working in other countries, China cannot afford to dismiss internal stability, governance, rule of law,” he said. “Those facets are the baseline for building infrastructure.”

Related links:

The Diplomat - Q&A on Chinese diplomacy in the 21st century