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Why tech startups should focus on the Japanese market now : Advice from Cross-border Expert
"We will create 100 unicorn companies."
In 2022, Japan's Kishida administration announced the "Five-Year Plan for Startup Development," a plan to increase startup investment in Japan to 10 trillion yen over five years with the goal of creating 100 unicorns (privately held startups with an enterprise value of $1 billion or more).
Since then, it's safe to say that 2023 has been a year of global startups knocking on the door of the Japanese market, especially from South Korea, which is located right next door to Japan. Experts expect this trend to continue through 2024.
One of the leading figures in this trend is Ryeoil Kim, CEO of Starsia Venture Studio (SVS).
He has been working on connecting Japanese companies to Korea and Korean companies to Japan since before the pandemic, even before the topic of international startups entering Japan became a hot topic. As a result, he has seen the startup ecosystems in both countries and contributed to the synergy.
In the future, how many more cross-border startups will be established and grow in the Japanese market? What should startups from overseas, including Korea, consider when entering Japan?
Asia Tomorrow caught up with Mr. Kim to learn more about venture investment in Korea and Japan, his focus on helping startups enter the market, and his insights on the characteristics of the Japanese market and new businesses overseas.
Q. Please introduce yourself to Asia Tomorrow readers.
I'm Ryeoil Kim, CEO of Starsia Venture Studio (SVS). SVS is a subsidiary of Starsia, headquartered in Tokyo, Japan. We are in charge of supporting Korean companies entering Japan in all aspects.
Q.What did you do before becoming CEO of Starsia Venture Studio?
I worked at Merrill Lynch Japan Securities & Investment Banking (IB), where I was involved in IPO advisory and M&A, including listings.
Later, I joined PIXTA, a digital content platform, where I was in charge of listings, IP, business management, business development, and M&A. In 2017, I also supervised PIXTA's entry into new businesses in Korea through the acquisition of a Korean company.
The financially skilled executive startups need, but rarely have
Q.You've begun your career in finance. How did you make the transition from traditional investment banking to startups?
I've been interested in startups since I was a college student. Various entrepreneurs, including the then CEO of SoftBank, Masayoshi Son, had achieved business success in the internet industry. I was a college student at the time when startups started gaining attention as their stories were shared in books and interviews.
Also, my brother had started several startups since he was a student. I witnessed the actual exit of his company from the sidelines. I myself was very curious about entrepreneurship, interning at a venture company when I was a university student.
Q.So you could have started a business right away, but was there a particular reason why you decided to go into finance first?
I thought startups were all about 'managing', but there were very few people who could run a company/organization, especially those with financial expertise. On the other hand, There were very few people (compared to now) who were moving from foreign and Japanese financial institutions to startups.
I expected that the startup ecosystem would grow in the future, and that the demand for management skills with financial backgrounds would also increase, so I decided that I should join the financial sector first and learn how capital markets actually work. From my point of view, it was a strategic choice.
Q.That's interesting, what was it like when you moved from investment banking to startups?
At a startup, my role was similar to what I did in the traditional financial industry, because I tried to join a startup that was about to go public, or a startup that was thinking about expanding into new businesses overseas. I wanted to apply my experience to a startup. So at PIXTA, as the head of corporate strategy, I was in charge of business planning, M&A, business development, and investor relations, including preparation for going public.
It was definitely different being in an advisory role versus running a business.
Even if an investment banker can provide you with a numerical understanding of an organization and its business, it takes a completely different skill set and energy to create a plan within a company and bring together multiple stakeholders to execute that plan. You have to look at the business from a fundamentally different perspective (than an investor), including how you run your team and how you structure your organization.
From Japan to Korea: Trials and errors of starting a new business overseas
Q.You have since played a big role in PIXTA's entry into the Korean market. I'd like to know how you came to enter the Korean market.
I am Korean residents in Japan. I know the languages and cultures of both Korea and Japan. That was my characteristic and strength, and I wanted to be a part of it. As a businessman, I thought it would be beneficial for me to understand both the Korean and Japanese sides of the business. I wanted to contribute to the harmonious convergence of Korea and Japan.
Q.I think "human network" is the key to expanding globally. What was the first thing you did to enter the Korean market?
PIXTA is a marketplace for exchanging digital works. You can think of it as the Japanese version of Shutterstock.
There are global conferences on digital content and copyright that are held periodically. I attended them regularly, which gave me the opportunity to interact with people in the industry overseas. This global network was well established even before we started to expand abroad and try new businesses.
(To enter the Korean market), we first needed to do market research. This is where the network was very helpful. I met with several Korean partners to learn about the Korean market and to see if there were any startups in Korea that PIXTA could acquire. While considering acquisitions, I also met with the startups' clients and creators (who are their customers) to get their opinions on the product and company.
Q.You must have met with a lot of stakeholders to map out the market and analyze the company.
Yes. But it wasn't that hard, because I spent the first part of my career in the financial sector(!), so I was used to being immersed and working closely with businesses.
Q.How did your entry into the Korean market go afterward?
Eventually, we made the decision to close our Korean business. I decided to sell the company I had built in Korea and move to Japan. It was an opportunity for me to learn how dynamic and challenging it is to enter an overseas market and start a new business.
Q.Why is it difficult to establish a new business in an offshore market?
First of all, it is not easy to localize the product and organization to the local market.
For example, I was entering a new business in Korea from Japan, and of course, we localized basic things like payment methods to suit the Korean market.
However, it was not easy to localize product design, usability, etc. Reorganizing an existing product into a service that is optimized for the subtle differences in the region and culture and the experiences that users have accumulated over the years was a challenge.
We also had a hard time building a new development system (for foreign markets). Even if you have an existing service that's already doing well, you need to have a development system in place when you introduce it to an overseas market. If you have difficulties here, it can take too much time to develop the local product, or you may not be able to develop it further at all.
Q.Optimizing the product and organization for the local market is still a huge obstacle.
The second reason why it is difficult to start a new business abroad is the unique sales and marketing practices of the local market.
Even if you're an internet company, it's not as easy to cross the gap in the sales and marketing base as you might think. For example, in Japan, we do search advertising based on Google, while in Korea, there is a separate search engine that is mainly used in that country. Naturally, advertising and marketing methods are different, and it's not easy to figure out and master them.
Sales are also done quite differently in each country.
Even if you hire local staff and sell in a local style, you'll still end up with a gap in your organization's operating style. For instance, sales organizations in Japan have a culture where everyone is rewarded for sales performance and reporting is highly valued. However, in Korea (in my experience), incentives based on sales performance are important. This means that the way we run our sales organization in Japan may not work.
Q.Just as you needed help knocking on doors in global markets, it seems that you need help in many ways in establishing new business locally.
I think we need to work on business planning, structure, and system so that sales performance can eventually lead to product and business growth. It seems that you need to have local partners in the new foreign markets and work closely with them on product and organization optimization, new business planning and structure.
Why tech startups should focus on the Japanese market now
Q. On the flip side, it sounds like there are also struggles for international startups to enter the Japanese market. In particular, what are some of the challenges that global startups face in Japan?
The companies knocking on the door of the Japanese market are usually tech startups. They probably have competitors in Japan that offer similar services to theirs. Therefore, when recruiting country managers or executives in Japan, you have to make an appealing offer.
It's not just about salary, because it's not easy to recruit good people locally by simply offering a higher salary than a major Japanese company. This is why it's important to have a "commitment" from the headquarters before starting a new business overseas. You need to offer better treatment than your competitors as well as provide discretionary rewards such as stock options to employees who take on new business around the world. Only then will the new business come to reality.
In addition, when expanding into global markets, we need to raise the visibility of overseas business to the point where the CEO takes the initiative to lead the new business or dispatches executive-level personnel to the local market. This requires a shift in thinking, even to the point of thinking "Japan first, Korea second", so that we can succeed in the difficult challenge of reaching new markets and taking advantage of new business opportunities.
Q.It might be tough for executives to make such a shift in thinking and decision-making. Can you tell us more about why we should focus on the Japanese market?
First of all, I would like to emphasize the competitiveness of Korean startups. I think Korean startups can be attractive players in the Japanese market for three main reasons.
Korean startups have high quality engineers (from what I've seen so far). They are fast to release new features and often have good product usability. Considering the current shortage of developers in Japan, the composition of Korean startups' workforce increases their chances of winning in the Japanese market.
The competencies of Korean startup founders are also strong enough to shine in the Japanese market. Their ability to take risks, execute rapidly, and have a fiercely competitive mindset stand out. We believe that these capabilities drive the success of Korean startups in the Japanese market.
Also, the size of the Japanese market is impressive. For example, Japan's software market is the 4th largest in the world. It is said to be six times the size of the Korean market. In particular, Japan has a large population (compared to Korea), a large share of the domestic market, and still has a lot of room to explore the digital transformation (DX) market. If you're an entrepreneur, it's worth paying attention.
Most importantly, the barriers to entry into the Japanese market are much lower than they used to be.
With global social media taking center stage, local marketing is less difficult than it was before. If your service is cloud-based, such as AWS, you can easily cross the border and do business in Japan. Business-to-business (B2B) business is still quite guarded, but I firmly believe that business opportunities (within Japan) are opening up rapidly.
From Korea to Japan: An accelerator merging two countries
Q.What do you do for startups from overseas (including Korea) that are trying to enter the Japanese market?
At Starsia Venture Studio, we operate under the mission of merging the Korean and Japanese startup ecosystems. We help startups enter the Japanese market in three main ways.
First, we provide overall support for Korean startups to enter the Japanese market. Since we have an accounting and auditing firm among our affiliates, we can provide overall management support for global startups, including accounting, taxation, and legal services.
In addition, the scope of assistance provided by Starsia Venture Studio to Korean startups extends to sales, marketing, recruitment, and public relations (PR) for business expansion.
When Korean startups enter Japan, they tend to assume that the business ecosystem is similar. If they don't see results within six months, they often assume that it's not worth it. However, Japan has different characteristics from Korea in almost every field, including accounting, taxation, legal, sales, marketing, recruitment, and PR. Setting up a Japanese office with a local partner and localizing your business, products, and organization is a must.
Q.In addition to business support, what kind of business is Starsia Venture Studio engaged in?
Our third direction is to act as a bridge for strategic investment (SI) and financial investment (FI) in startups between Korea and Japan.
After all, in order for the startup ecosystem to grow, we believe that 'capital' needs to flow first. After investments in startups are actively made, worthwhile challenges can follow.
From that perspective, Starsia Venture Studio serves as an accelerator for Japanese investors to invest in Korean startups, and for Korean VCs to invest in Japanese startups. Especially when preparing to enter new markets, it would be much more helpful for startups to receive investment from local investors, as it would give them the opportunity to start knocking on the doors of new markets in earnest.
That's why Starsia Venture Studio is working hard to spread the word about the Korean and Japanese startup ecosystems through media outlets such as KORIT, as we believe that the market can be stimulated when the startup ecosystems of both countries grow together.
Q.I would also like to hear about your plans for this year.
Personally, I feel that the Japanese market has started to open up since 2023. Since last year, startups from abroad, including Korea, have either just entered the Japanese market or are in the early stages of their business. It's a time of revitalization.
Starsia Venture Studio intends to help offer them the solutions they need to expand their business in Japan. We will be joining hands with talented partners in each sector, such as sales support and PR, to organize package deals for entrepreneurs seeking to tap into the Japanese market.
We also hope to continue our role as an accelerator for venture investment in both Korea and Japan.
(More tor read : Japan Startup Trends 2024: Here's Why Global Companies Should Expand in the Japanese Market)
Q.It sounds like you're going to have a busy year in 2024. What are your future ambitions?
Starsia Venture Studio is also a startup. We need to grow along with other startups.
Thankfully, we are gradually becoming more recognized by people who have invited us to participate in various events. To repay this favor, I would like to build Starsia Venture Studio into a representative brand that combines the Korean and Japanese startup ecosystems.
On a personal level, I also want to grow my influence by being active in the Japanese market, which is something I feel is necessary these days.
‘Outgoing power’(發信力) refers to the ability to deliver a message, awareness, and publicity. Beyond making meaningful matches through my existing network, I want to be influential enough to contribute to the Japanese startup ecosystem. In many ways, 2024 looks like it will be a year of growth for me.
Written by Jinny (Underdogs)
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