CIAO DATE: 04/02

Japanese Entrepreneurship: Can the Silicon Valley Model Be Applied to Japan?

Since 1992, the Japanese economy has been utterly stagnant, with signs of weak performance at every turn. Since 1997, Japan's economy has experienced negative growth, a situation unprecedented in the postwar era. Most large Japanese corporations have engaged in extensive restructuring during this period, which has in turn contributed to 4.8 percent unemployment–higher than rates in the United States. Further, in 1998, the closure rate of small companies (3.8 percent) exceeded the start-up rate of new business ventures (3.7 percent).

This grim scenario has not always existed. Japan once fostered phenomenal growth, from the smallest of ventures to the largest of multinational companies. As is evident in organizations such as Sony and Honda, Japanese entrepreneurship once led the world in innovation. In the 1990s, however, this torch has passed to the U.S. economy, which has enjoyed an extraordinary boom, due in large part to Silicon Valley venture businesses. Why have Japanese entrepreneurial activities, formerly so robust, lagged behind? In asking this question, other questions arise. Despite the present business climate, how can Japan revive its economy? How can it absorb its unemployed workers? Most important, how can Japanese entrepreneurship again take the lead, and restore the country's economic health? This paper seeks to address these issues.

In the past, Japanese entrepreneurs fought an uphill battle. Cultural and regulatory obstacles in the Japanese business environment actually curbed the formation of new ventures. Recently, however, dramatic, positive changes have been enacted and even more are underway. Will these changes prove sufficient to foster the entrepreneurship so vital to Japan's future?

Before beginning a detailed discussion of recent improvements to the system, it is important to understand the current status of venture capital investment in Japan.

Full Text of Discussion Papers Article (PDF, 24pgs, 224 Kb)