This opinion piece appeared in several Japanese newspapers on Friday, July 8, 2022.
For many countries around the world, including Japan, fostering a robust startup ecosystem has become a priority in recent years. The role of startups in a nation’s economy is now widely recognized, with increased job creation and innovation. The prosperity of the US economy over the last couple of decades, for example, is often attributed to exponential growth of startups such as the Tech Giants. Behind the establishment of this startup ecosystem is the highly fluid American labor market and culture that encourages and backs risk-taking entrepreneurs.
Meanwhile, the rise of startups in Europe has also been remarkable in recent years, with the emergence of 86 unicorns (privately held startups with a valuation of $1 billion or more) in 2021. Unlike the US,many European countries have historically had relatively rigid employment systems and risk-averse cultures, and one can draw similarities to the Japanese environment. Japan, which only saw three unicorns emerge in 2021, could thus rely on European startup policies as a useful guide.
Following the footsteps of European startup policies
France is a nation where there has been a cultural shift in attitudes towards entrepreneurship in recent decades. Up until about twenty years ago, French college graduates were encouraged to pursue stable, mainstream careers at large companies with risk-taking discouraged and failure stigmatized. To address this challenge, the French Government introduced policies to foster entrepreneurship. The French public innovation fund program was constructed, offering tax credits to French citizens who invest in government-certified VC funds.
Over the course of 17 years, approximately 18 billion euros worth of investments have been made by retail investors to startups through over 300 VC funds. In addition to the provision of much needed risk capital, the program contributed to a shift in French attitudes towards startups. Citizens became more accepting of risk and reward, and the notion that failure is part of the process to eventual success. French President Emmanuel Macron’s target of reaching 25 unicorns by 2025 was achieved much earlier than anticipated this January.
Meanwhile, Estonia, one of the smaller economies in Europe, has been increasing its presence in the European startup scene recently. The government has pursued a strategy of promoting entrepreneurship and digitizing administrative procedures. Particular focus has been placed on attracting entrepreneurs and investors globally.
In 2017, Estonia introduced a program that issues visas to non-European Union (EU) entrepreneurs. In two years, more than 1,000 entrepreneurs applied from various countries, of which 281 permits were issued. Estonia was also the first country to launch the e-Residency Program, where one can register an EU-based company in Estonia and manage their business remotely from anywhere, accessing Estonia’s open business environment. With a small sized domestic economy, entrepreneurs have a mindset of seeking opportunities in the global market. Estonia is a great example of a thriving entrepreneurship ecosystem for a small economy.
Lowering the barriers to entry for entrepreneurs
Another country that has been gaining attention as a startup hub in recent years is Portugal. In 2011, the country introduced “Entrepreneur’s Desk,” an online portal that digitized and consolidated all procedures related to starting a business. Until then, it took the preparation of roughly 83 different documents, 11 trips to four different ministries and the filing of six applications to establish a business.
The Portuguese government lowered these barriers to entrepreneurship by greatly simplifying and streamlining these cumbersome procedures. The number of cases related to Entrepreneur’s Desk surged from 2,000 to 80,000 in the eight years leading up to 2019 and has contributed significantly to the country’s digitization. The government hopes to expand the software to cover a broader range of administration processes.
Japan possesses many necessary factors for innovation: abundant capital, world-class R&D, and individuals prepared well by a great education system. To effectively support startups, the key drivers of innovation, Japan should learn from Europe and take broad measures such as retooling regulations, education, and tax incentives. The critical challenge for the government will be eliminating as many barriers to entry as possible, increasing labor market mobility and making it easier for failed entrepreneurs to start again. Efforts should be made to educate society as a whole, about the positive image of startups, and motivate more people to start their own businesses, regardless of their age or gender. I am hopeful that the day that Japan is a startup powerhouse is near.