Stanford researcher Kenji Kushida says Japanese social norms are shifting from being highly unfavorable to a tech startup culture toward one much more supportive of it.

Japanese corporations are evolving and adopting a “startup culture” to boost their business creativity and country’s economic prospects, a Stanford expert says.

“We can see that over the past 15 years or so, changes to the overall Japanese political economic context as it undergoes gradual but substantive reform over the past couple decades have created a far more vibrant startup ecosystem in Japan than most people – both inside and outside Japan – realize,” said research associate Kenji Kushida of Stanford’s Walter H. Shorenstein Asia-Pacific Research Center.

Kushida wrote in a new research paper that, over the past decade, Japan has undertaken significant reforms that are now bearing fruit – reforms ranging from monetary and fiscal policy designed to encourage private investment to a range of regulations surrounding corporate law, university organization, labor mobility and financial market reforms.

As a result – and combined with changes and challenges facing Japan’s large company sector – the country’s people are embracing a “vibrant startup ecosystem,” Kushida said. He is optimistic that such a transformation can occur in a country where stability and corporate loyalty – not necessarily innovation or creativity – have long been dominant social and business values.

Now, large Japanese firms are adjusting to performance crises and uncertain futures. As a result, the Japanese people are learning that with economic opportunity – the kind that startups promise – there also comes the risk of failure.

“A generational shift is accompanying social normative changes that are becoming more supportive of entrepreneurship and high-growth startups. Entrepreneurs and high-growth startups are celebrated in the popular media and in major events more than ever before,” Kushida wrote.

Silicon Valley networking

The influence of California’s Silicon Valley is a factor. For instance, Japanese Prime Minister Shinzo Abe last year spoke at Stanford about how his country is learning the lessons of Silicon Valley and trying to build networks into the region. So Japan is likely to see an increase in the quality and quantity of high-growth startups, according to Kushida.

He said, “The current relationship between Japan and Silicon Valley is one in which Japanese firms, ranging from large firms to startups, are looking for ways to actively harness Silicon Valley. Large firms are trying by becoming investors in Silicon Valley venture capital firms, setting up their own venture capital arms, setting up branches in the valley, and trying to engage in ‘open’ innovation by entering into tie-ups and attempting to acquire select valley startups.”

A small but growing number of Japanese entrepreneurs visited Silicon Valley either to start their own companies or to grow firms that were started in Japan, Kushida said.

Still, Japan’s tech sector is a long way from what one finds in Silicon Valley, where many of the world’s most “disruptive” and game-changing firms are located. He wrote, “When compared to Silicon Valley, the ecosystem is still small in scale, but so is virtually every other startup ecosystem.”

A growing flow of Japanese entrepreneurs and CEOs is coming to Silicon Valley to get more of a sense of how things work, Kushida said, adding, “That is what we are helping through research at the StanfordSilicon Valley-New Japan Project as part of the Japan Program at the Shorenstein Asia-Pacific Research Center.”

Kushida said that if current estimates hold, Japan should expect successful startups, all supported by a “stronger ecosystem of startup-related players, combined with more open large firms.”

These large firms, he said, will spin off entrepreneurs who leave to launch other new companies, which will accelerate the startup cycle in Japan.

Spreading technology globally

Key challenges facing Japan’s startup culture, Kushida said, are the need for more entrepreneurial role models and the “overall lack of experience in creating followers.” On the latter, he explained that while Japan has excelled at producing tech products for use in its own markets, it would benefit by getting other firms and parts of the world to adopt its products and services.

“Think of the negotiations that Apple undertook with telecom carriers around the world to roll out the iPhone worldwide, or how Google is continually negotiating with governments such as those in the European Union to allow its services to be adopted broadly,” he said.

Other Stanford scholars, such as Takeo Hoshi, have recently written about the reasons Japan was not able to pull out of a long recession that resulted in virtually no growth in the 1990s. One problem, as Hoshi described it, was that the Japanese government was unable to introduce much-needed “structural reforms” to overhaul its economic structures to increase business competition – such as deregulation to cut operating costs for firms, a key attraction for startup-minded entrepreneurs.

Japan’s “lost decade” originally referred to the 1990s, though the country has still not regained the economic power it enjoyed in the 1970s and 1980s. Some say Japan has actually experienced two lost decades if the 2000s are counted as well.

Kushida’s paper, “Japan’s Startup Ecosystem: From Brave New World to Part of Syncretic New Japan,” was published in the Asia Research Policy journal.

Clifton Parker is a writer for the Stanford News Service.

Four scholars from Stanford University participated in a public panel discussion on Silicon Valley and Asian economies last month, part of a filming for an NHK Broadcasting series that aims to bring opinion leaders together to discuss issues facing contemporary Japan. The panel event will debut online this Friday.

“Silicon Valley is known worldwide as a place for many new innovative ideas, individuals and companies,” said Takeo Hoshi, director of the Japan Program at the Shorenstein Asia-Pacific Research Center (APARC). “Such economic dynamism is what many countries and regions across the world want to imitate. This is especially true for Asian economies.”

During the hour-long event, Hoshi moderates a discussion between William Barnett, a professor of business leadership, strategy and organizations at the Graduate Business School; Francis Fukuyama, the director of the Center on Democracy, Development and the Rule of Law; and Kenji Kushida, a research associate of Shorenstein APARC’s Japan Program.

The panel set out to consider how Silicon Valley realized success and its implications for Asian countries that seek to develop similar innovation-based economies. Panelists started by offering a single keyword that represents Silicon Valley in their own definition. They are: harness, social capital, and failure.

“The question that everyone is interested in is how to make use of Silicon Valley,” Kushida said. “How to ‘harness’ the innovation ecosystem that works fairly well here.”

A key component of Silicon Valley’s success is the high level of social capital found in the region, the panelists said.

“The level of informal cooperation…is higher than in other parts of the country,” Fukuyama explained. Silicon Valley has a norm of reciprocity and lacks extensive business contracts that impede fluidity of ideas, he said.

The panelists also explored the impact of government policy. They said that it provides an essential service in supplying a framework – at least initially – from which innovation-based economic activities can emerge.

“The government needs to set up a playing field upon which firms and entrepreneurs…can do the unimaginable,” Barnett said.

The U.S. government played an important role in a number of defense-related projects that led to the formation of new technologies, including the Internet. However, a government role “cannot smother and be too directive,” Fukuyama said.

Kushida notes that he leads a research project that looks at the institutional foundations of Silicon Valley and offers lessons applicable to Japan. Last year, Kushida and Hoshi authored a report with three other scholars that identifies six institutional factors that encourage innovation, and what the Japanese government can do to encourage development of a more effective innovation ecosystem.

Culture can play a powerful role, too, the panelists explained. They described how both organizational and national cultures can foster or impinge upon innovation.

Barnett said it may be “cool” to be an entrepreneur in Silicon Valley, but in Japanese culture, for example, it is the opposite. Barnett has studied entrepreneurs in Japan and has written many publications about how organizations and industries evolve globally.

Approaches to overcoming hard-fastened barriers to innovation include developing a culture of trust and acceptance toward failure, the panelists explained. Yet, they also cautioned against attempts to copy Silicon Valley too closely.

“I don’t think we should take this Silicon Valley gospel for granted – that disruption is always great and that things will always be necessarily better in social terms,” Fukuyama said.

The panelists recognize the outgrowth of high-tech areas in other areas around the world, and note that it is impossible to predict what innovations will come next and their impact on humanity.

The panel event was broadcast and live-tweeted with #SVAsia on Friday, March 4, from 4:10-5:00 p.m. (PST). The video can be viewed on demand here.