Listen to this article
This article is published by the FT as part of a collaboration with Nikkei that started in 2013 to provide added insight to our readerships.
For every 100 Japanese businesses, five go bankrupt each year and five new ones open their doors. That is about half the comparable figures in the US and the UK. In short, Japan has a slow business metabolism.
True, that metabolism sped up a bit in the 2013 financial year, when investment in venture businesses rose 80 per cent year-on-year to reach Y182bn ($1.55bn at today’s exchange rate). But that is still only about 6 per cent of the amount invested in start-ups in the US.
Not surprisingly, spurring entrepreneurial activity has become an important element of Abenomics (the name given to a government stimulus package introduced by prime minister Shinzo Abe). Also important is fostering tie-ups between start-ups and large, established corporations.
Two IT ventures that exemplify the potential success of this strategy are Line, the Tokyo-based operator of a call and messaging app, and Dwango, which through its subsidiary Niwango operates the Niconico (“Smiley Smiley”) video-sharing website.
Both Line and Niconico are immensely popular, and the companies that run them are expanding abroad in ways that highlight Japan’s strengths when competing on the global stage in IT: cuteness or, to use the Japanese term that is gaining recognition worldwide, kawaii.
Many countries are helping drive the global IT revolution, including the US, China, South Korea, Israel and India. But Japan’s contribution is unique. Its offerings are soft and fuzzy, melding technology with animation, games and other elements of “Cool Japan”.
Take Line: the number of people using the Line app has grown to 560m since the service launched in 2011. Its users have spread beyond Japan to other parts of Asia and the west, including Thailand, Indonesia, India, the US, Spain and Mexico.
When the company held a press conference at the Tokyo Disney Resort in October to present its business ventures, costumed characters danced to a special song created for the event.
The characters in question — Brown the Bear and Cony the Rabbit — are familiar to anyone who uses the Line app on their smartphones to exchange messages. The characters appear on many of the “stamps”, or virtual stickers, that users can purchase to place in their messages.
Japan’s contribution is unique: soft and fuzzy, melding technology with animation and games
At the October conference Akira Morikawa, Line’s chief executive, sought to explain the popularity of the stamps, which have become a cash-cow for the company. “Communications have shifted. It is not just about the exchange of information any more, but also emotions,” he said. “The stamps are a universal language.”
Leveraging its smartphone app, Line has partnered with an array of companies in several sectors. It has teamed up with Mizuho Bank and Sumitomo Mitsui Bank for a payment system, with Sony Music Entertainment and Avex Digital for a subscription-based music streaming service, and with publishers Kodansha and Shogakukan for distributing online comics and other content.
The main feature of the Niconico video-sharing site is that it allows viewers to post comments on the video as it plays. Combining streamed video and social media is meant to foster a feeling of community among users.
For Nobuo Kawakami, Dwango chairman, the starting-point is his desire to build the antithesis of Google. If Google is all about algorithms and data analysis, Mr Kawakami prefers to see the world as filled with subcultures and open to inconsistencies, a view perhaps informed by his stint as an apprentice at Studio Ghibli, a cult animation house.
Niconico now has 43m subscribers, including 2.3m paid-for accounts, and a growing fan base. Its main store in Tokyo, where it showcases entertainment fusing the online and real worlds, features a studio for live broadcasts and a café. Niconico also scheduled a participatory event for users in Singapore in early December, and plans similar get-togethers to spread “Niconico culture” abroad.
In October, Niconico’s owner, Dwango, merged with Kadokawa, a publishing house that has been in business since 1945. Kadokawa had previously had success with the Kagerou Project, which produced novels and animation based on music posted on Niconico. The merged company will try to reproduce that winning formula.
The merger is symbolic of a trend in Japan in which start-ups and large corporations co-operate in pursuit of innovative ideas.
In September, the Ministry of Economy, Trade and Industry supported the business equivalent of a speed-dating event in Tokyo: 447 start-ups and 97 big companies participated in the so-called Tokyo Innovation Leaders Summit. Many large companies — including some of those that attended — are increasingly worried about their ability to create new value on their own.
For some, co-operation with start-ups is a potential solution. According to Japan Venture Research, in the first nine months of this year, nine of the top 30 biggest-spending venture capital companies were corporate VC firms.
Japan’s business metabolism may not yet be quite as fast as that of the US, but beneath the surface something may be stirring.