Japan Startup Trends 2024: Here's Why Global Companies Should Expand in the Japanese Market

In the year 2024, the startup scene in Japan was booming like never before

In March, I traveled to Tokyo for a week-long business trip, visited various IT events in Japan that I had always wanted to visit, and consulted with the Tokyo Metropolitan Government's Business Concierge, an organization that supports overseas startups.

I think the change in Japan compared to 2023 was that there were more recruitment, investment market, global expansion, research sector, and startups (including re-startups) as the Japanese startup industry became more active. This made me recognize that there will be further changes in 2024, and I should take advantage of this trend.

*This article is based on the session transcript and Q&A from JAPAN INNOVATION 2024, the session and Q&A from STARTUP AQUARIUM 2024, and the Business Concierge Tokyo consultation. 

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Japan's startup scene is thriving, with many new startups being created

In 2024, the Japanese startup landscape is more vibrant than ever. 

As of December 2023, there were a total of 14 unicorn startups in Japan (with an enterprise value of $1 billion or more and 10 years or less in business). Compared to the US and China, there are still many more unicorns to be made. 

There are about 20,000 startups in Japan today, compared to 12,696 in 2022, which means there was significant growth. 

About 78% of Japan's startups are located in Tokyo, but there are also many new startups being built in places like Osaka & Kyoto, Fukuoka, and Nagoya.

Additionally, the number of startups looking to go global has increased to the point where about 20% of companies are founded with international expansion in mind.

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1) Crunchbase “The Crunchbase Unicorn Board (Dec 10, 2023)
2) STARTUP JOURNAL(JUN 7, 2023)

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Which countries do Japanese startups tend to go to?

The number one overseas market for Japanese startups seems to be the United States, and the number two is Southeast Asia, especially Thailand.

The reason might be that the U.S. is the pioneer of technology such as biotech, data business, and agritech.

It's relatively easy to apply the thesis researched in the U.S. to the service, whereas it takes more resources to localize the service in Japan.

Southeast Asia, especially Thailand, is a culturally friendly country for Japanese companies. This makes it comparably simple to do business in Thailand.

Japanese startups that have entered Thailand now are providing ESG technology services such as environmentally friendly low-carbon technology, or startups that have turned web3 technology into a service. 

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What Japanese enterprises need to do to network with foreign companies

Typically, when you're funded by an international VC, you will also connect with local players through the networks introduced by the VC.

Foreign companies that are just starting out are less likely to meet with local enterprises, so (getting introduced through VCs) compensates for the hurdles that newcomers face. It also brands you as a company that is backed by a solid VC.

Of course, just being referred by a VC doesn't guarantee a friendly relationship. It's equally important to figure out a win-win situation.

Networking is all about finding one key person and doing good business with that key person, even if it goes wrong 999 times. So Japanese startups too met a lot of different people. Sometimes networking can be slow because of cultural and language differences. 

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If you want to do business networking with Japanese people, remember this

On the plus side, the networking culture in Korea and Japan is similar. For example, it goes something like this : You introduce yourself by saying "I work for a company and what I do" and then exchange business cards. 

At one Japanese company, it was always a routine to eat at a ramen restaurant after work. While chatting with colleagues about business, there was an American sitting across from them who laughed and said like this.

"You guys are talking about interesting things, I want to join you." 

It turned out that he was a PhD student at a graduate school in Japan. He later connected the Japanese startup with a local company in the US. It's an interesting story that shows the difference in networking between different cultures.

In Japan, people who attended the event had a clear sense of purpose to do business with each other, so it might take less time to make business connections with the people we met at the event. 

If Korean startups want to network with American startups, it would be helpful to come to an event in Tokyo near you, because there are quite a few American startups and officials at events in Tokyo. 

Also, introductions through VCs, open innovation, and local governments that support foreign startups in Japan, such as the Tokyo Metropolitan Government, can provide a lot of support not only in the early stages but also as the foundation of business in Japan.

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Define Your Selling Points for Open Innovation in Japan

Open innovation seems to be a concept that has been used in Japan since 2010. 

It refers to the process of collaborating with other companies to create new businesses and commercialize them. Startups and venture companies work together with major or medium-sized corporations, or participate in new businesses of major or medium-sized corporations. 

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It's been around for 10 years, but it hasn't really taken off in Japan yet.

The biggest reason (for the lack of open innovation in Japan) is that both major companies and startups have not defined open innovation internally.

It's really tough to transform the internal atmosphere into one where everyone agrees that we need to do open innovation to achieve a better business than we have now. This is because you have to convince a lot of stakeholders and may have to change the organization itself. So the bigger the company is, the harder it gets because there are more people to persuade. 

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Obviously, it's hard to make a decision (to do open innovation)

To do open innovation, you have to create a team that has to do the actual work. And the internal people have to actively provide resources to the open innovation team.

Therefore, the first thing to be done is to show how supportive and open the company is for open innovation and to make the internal employees understand that they should do open innovation.

In other words, you have to determine your target market. We need to define how far we want to go and how much we have the resources at the moment. 

If you look at the graph below, there's a lot of work to be done. We need to know when we're going to do open innovation, to what extent we're going to do it, and what we've done so far. It's a complex process, and it doesn't happen overnight.

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In the future, there will be more open innovation cases between international startups/mid-sized companies and Japanese major/mid-sized companies. This is due to the need to create and expand a number of successful practices. VCs are also offering accelerating programs for open innovation.

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How Japanese VCs value foreign startups

Revenue and target evidence is important. Of course, you should have positive goals, but Japanese VCs tend to see a business plan that is realistic and specific.

For example, if you write a goal of achieving 1 billion yen in sales in Japan in the fourth quarter of 2024, you need to write how to do business in Japan, how to create business channels, which partners to partner with, internal staffing plans, roles of employees, and how to provide these services to meet the needs of the market because the current market atmosphere is like this before that. 

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Know your market before entering to Japan

Even if it is challenging, you must study the Japanese market in advance because no matter how close you are to Korea or China, Japan is a different country. 

When pitching, there will be some places where you can pitch in English, but in major companies in Japan, especially in the financial sector, many executives are more comfortable with Japanese. So if you prepare a Japanese pitch in advance, you can show your commitment to the Japanese business.

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Patience and understanding on Japanese corporate culture

I also recommend preparing yourself with the characteristics of Japanese business and corporate culture. One of the things that other overseas companies entering Japan often mention is the slow pace of business. 

Especially in large companies, it's quite slow to make decisions, because the agenda goes up the chain of command one by one through reporting (After the CEO approves it, then everybody moves forward) This organizational structure also contributes to the lagging growth in Japan.

There's a "nemawashi" process where you have to convince them before you present your agenda. Organizationally, you have to tailor your story so that they have no choice but to approve it. It takes a long time because you have to get approval when you're ready to present the business. Once you get the CEO's approval, things move quickly.

Likewise, it's also a trait of Japanese companies that they don't change business once it's signed.

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You can understand that (the Japanese market) opening up to domestic and cross-border startups is such a huge change. 2024 could be the year of the Japanese venture business!

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‍Written by ZIPANG (Link)

※Original Source : 2024년 일본 스타트업 업계에 뛰어들다 ‍