Japan Looks to Internet Entrepreneurs to Jolt Economy

TOKYO — When Susumu Fujita started up his own company two years ago, at age 24, he was just one year out of college, low on cash and even lower on believers.

Now, he is the picture of success --a kind of success that is beginning to change the conservativism and deference to the corporate status quo long the mark of Japan Inc.

Fujita is CEO of Cyber Agent, an Internet advertising company offering “click-guarantee” services in which advertisers are charged only after a set number of people click on their banner ads.

With use of the Internet now swelling--sales of personal computers actually topped those of color TVs in this nation last year--Fujita in March took his company public on Mothers, the new Tokyo Stock Exchange market for emerging companies. Its IPO brought in more than 20.6 billion yen, the equivalent of $189 million.

E-business opportunities are swelling the ranks of entrepreneurs in this country in what could provide a needed shot in the arm for Japan’s stagnant economy. Venture capital investment is climbing to record levels as more young Japanese turn their backs on the traditional corporate lifestyle.

The success stories of entrepreneurs such as Softbank Corp.’s Masayoshi Son have inspired many. Son is a true maverick. To escape discrimination here against ethnic Koreans, he left Japan to attend college at UC Berkeley and returned to become one of Japan’s richest men, controlling an empire of more than 300 companies worldwide.

In recent months, “Bit Valley,” a new commercial area in a trendy section of downtown Tokyo, has become a mecca for Japan’s Internet businesses setting up offices, hoping to follow in Son’s footsteps.

Just how much of an effect nascent Internet entrepreneurship will have is hard to gauge.

Akira Matsunaga, deputy director of planning division at the government’s Small and Medium Enterprise Agency, said the trend is difficult to quantify, partly because it is still so new.

But he said the number of start-ups in Japan clearly began to increase in the second half of 1999, and could surpass similar spurts of activity in the 1970s and ‘80s.

Many analysts believe the new entrepreneurial fever heralds fundamental change, the April downturn in Internet-related stock prices notwithstanding.

Koshi Okamura, a researcher at Daiwa Institute of Research Ltd., said entrepreneurs in Japan previously tended to have a solid background in sales, and it often took them 20 years before their companies went public.

“Now, they are young, well-educated,” he said.

Hiroshi Mikitani is one of the new breed. After earning an MBA from the Harvard Business School, he left his job with a major bank to set up Rakuten, an online shopping mall.

The 35-year-old said big companies often evaluate employees based not on ability but seniority, and employees tend to focus more on how to climb the corporate ladder than on making money.

“Their work centers around defending themselves,” he said. “There is a feeling of claustrophobia in corporate Japan.”

Sachio Senmoto, a former professor at the Graduate School of Business Administration at Tokyo’s prestigious Keio University, said that while in the past many of his students were sent by their big corporate employers, recently more have quit big companies to start their businesses.

The 1997 collapse of brokerage giant Yamaichi Securities, auto companies’ tie-ups with foreign partners and a slew of bank mergers have shaken the Japanese people’s trust in the once-unquestioned strength of the corporate status quo.

“People are beginning to lose faith in the establishment,” said Senmoto, who recently founded Eaccess Ltd, a high-speed Internet provider leveraging Digital Subscriber Line, or DSL, technology.

Because big companies are hiring fewer new employees, more young people by necessity must seek other options. Restructuring in the corporate world has caused unprecedented layoffs, and the promise of lifetime employment and seniority-based perks is becoming harder to keep.

Meanwhile, investors are increasingly willing to provide entrepreneurs with money.

A survey by the government-affiliated Venture Enterprises Center found a total 115.7 billion yen ($1.06 billion) was invested in 2,410 companies with 769.5 billion yen ($7.06 billion) remaining in balance for fiscal 1998.

Officials say with only 97 companies participating in the survey, it is only a small fraction of the venture capital available in Japan.

Yasuyuki Hamada, a Hokkaido University economics professor, says venture capital for fiscal 1999 will probably increase by more than 50%, a record high.

Although it is often difficult to tell whether a fund is Japanese or foreign, more foreign-affiliated funds are coming to Japan hoping to get a head start, Hamada said.

And the government is putting more money into supporting start-ups--the budget for the current fiscal year sets aside 194.3 billion yen ($1.78 billion) for small- and medium-sized businesses, up 2 billion ($18 million) from the previous year.

Since the opening of the Nasdaq Japan stock market June 19, Japan now has three markets for emerging companies. Nasdaq Japan alone expects as many as 100 companies to go public within its first year.

Of course, all is not roses.

Some experts say Japan’s budding venture businesses are still volatile because of their relative lack of management experience.

“Though it depends on economic trends and other factors, it will take more than 10 years before venture businesses in Japan catch up to the level of the United States,” said Hajime Ota, professor of economics at Shiga University.