Report No.12
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Japan Entrepreneur Report No. 12 October 2003
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- Japan's "invisible" economy
- Prashant Jain links Japan, India
- Entrepreneurship lessons from Japan's Walt Disney
- Japan at the brink?
- Bits and bytes
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Japan's "invisible" economy
Few people who haven't lived in Japan realize that only ten percent of
the Japanese economy consists of internationally competitive, export-
driven industries symbolized by global brands such as Toyota, Sony, and
Nintendo. Fully 90 percent of Japan's economy is domestic, and much
of it consists of inefficient, uncompetitive service businesses -- an
"invisible" economy not seen or experienced by the world outside of Japan.
Yet this "invisible" domestic economy is the key to Japan's
revitalization.
The nation's export sectors, long subject to international price and
quality competition and the harsh logistical realities of globalization,
are booming. It is domestic industries -- health care, retailing,
construction, agriculture, real estate, finance, information technology
services, agriculture, transportation and logistics -- that need
jumpstarting. And the shock needs to come from better productivity, not
fresh demand.
"Improvement in productivity is virtually the only way to create
growth," said Toshiro Muto, Deputy and Governor of the Bank of Japan,
speaking at a recent conference. "We will not be able to count on an
increase in the population as a source of economic growth."
In short, Japan's $4 trillion domestic economy needs the kind of
revitalization that entrepreneurship can spark. That means huge
opportunity for entrepreneurs bold enough to take on risk in these often
less-than-glamorous domestic sectors.
This month JER correspondent Carl Kay starts a series of interviews with
foreign entrepreneurs who are making their mark on domestic business in
Japan. Happy reading!
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Prashant Jain links Japan, India
"It doesn't matter whether Japanese companies choose India or China for
doing software development offshore. They tend to fail either way,
because the problem is not in India or China, but in Japan."
At only 36, Prashant Jain, founder and President of Softbridge Pte Ltd,
seems young to be making such judgments. But the India-born Jain has had
wide global exposure in his life and career so far, working throughout
Asia for tech companies from Israel and Japan, as well in the U.S. for a
dotcom.
The problem Jain set out to solve when he founded Softbridge in Tokyo in
June 2002 was the failure of Japanese companies to successfully move
software development projects offshore despite crushing financial
pressures to reap the cost benefits of doing so. We recently met with
Jain and asked him to analyze this failure and describe his remedy.
- Why does offshore development matter to Japanese companies?
Major Japanese corporations must compete on cost globally. If their
competitors are cutting software development costs drastically by
shifting work offshore to lower cost countries such as India, they have
to do the same to remain competitive. But offshore outsourcing of
software is a big global trend that Japan has missed. Many major U.S.
companies have opened development centers in India, but only a handful
of Japanese companies have such centers there.
- There seems to be a big opportunity offering offshore services to
Japanese companies.
There is, and my company initially targeted this market. We got projects,
but they didn't go well. The Japanese lacked English skills and
knowledge of the latest methodologies in software such as the Capability
Maturity Model (CMM) which is a management tool becoming widely accepted
worldwide. Japanese companies are not used to the normal level of bugs
that occur in any software development and do not spend enough time and
effort creating detailed project specs at the start, preferring rather
to keep changing things as the project moves along. Yet they expect the
price and schedule to remain unchanged. This may work well within Japan,
but in doing complex IT projects offshore, with the barriers of language
and distance, it is critical to get as much as possible firmly agreed in
writing at the start, as Americans tend to do.
- How did you overcome these initial failures?
I decided to go after the core problems: lack of IT and international
communication skills in Japan. First, we help Japanese companies bring
to Japan bilingual software engineers from India with skills in the
latest I.T. areas that can be applied immediately. We set up a program
in India to hire skilled engineers and teach them intensive Japanese
there before placing them at Japanese companies in Japan. Our engineers
can participate in all project meetings in Japanese, which makes a big
difference in how quickly they become productive and how much value they
deliver to a client during a project. Nobody else except Softbridge is
bringing in people fully trained in Japanese language and culture.
Once our engineers have working relationships at the client, they can
help that company deal with offshore software teams in India much better
than the clients do on their own. With the human infrastructure in place
to improve greatly the chances for successful projects, finally we are
able to service the huge demand in Japan for offshore development.
- Tell us about your residential program in India.
To get maximum leverage from offshore development, the Japanese need to
upgrade their skills in English, IT project management and the latest
software technologies. So we have set up a residential program in India
for Japanese companies to send their people to study English and I.T.
for two to four months. Typically they send new recruits as part of
their extended orientation period. Some send more experienced staff; a
few months in India are a quick cure for the isolation and complacency
that can develop in domestic-oriented Japanese companies.
- So why is your company headquartered in Singapore?
I have Permanent Resident status there. Also it is much easier to set up
a company in Singapore, taking just a day there as opposed to many weeks
in Japan. The government there is more supportive of venture companies
in terms of tax policies and incentives. Singapore is a good base from
which to extend my current business model, to offer Japanese companies
engineers from countries other than India including the Greater China
area.
- But your focus is Indiac
India has recently gained favor in Japan due to concerns about China's
handling of SARS and a general concern of concentrating too much country
risk in China. Also IT management skills are much more advanced in India
than in China, which is critical when you're dealing with large teams
and complex projects. But we do not deny the importance of China and are
building it into our model for the future.
- Pioneering a new service in Japan is never easy, even for Japanese
people. Has being a foreigner helped in any way, or perhaps made it
harder?
Japan seems very closed to new vendors; a lot depends on relationships.
Early on I set up an Advisory Board of senior Japanese executives at
larger companies, people I knew from my earlier career in Japan, and
they have been immensely helpful in opening the doors at my first
clients.
- How can you teach engineers Japanese so quickly? Most foreigners
struggle to learn Japanese.
Hindi is actually closer to Japanese in structure than English is to
Japanese. It's not so hard for Indians to learn Japanese.
- We'll take your word on that, Prashant. But we clearly agree that you
have identified a key problem in Japan's IT sector, and we look forward
to hearing more about Softbridge's progress. Thanks.
My pleasure.
Prashant Jain, CEO
www.softbridge-s.com
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Entrepreneurship lessons from Japan's Walt Disney
Think of Japan's best-known postwar entrepreneurs and you will likely
come up with names of builders like Akio Morita, Konosuke Matsushita and
Soichiro Honda. Their hard work and ingenuity helped turn Japan into a
manufacturing superpower. Japan, however, has had few "soft" industry
titans like Bill Gates to regenerate its sagging economy.
One notable exception is Shintaro Tsuji, the founder and president of
Sanrio Ltd. For more than four decades, his company has churned out
some of the world's best-known cartoon characters, including the ever-
present Hello Kitty. Tsuji, 75, did not become the king of cute
overnight, though. Like most entrepreneurs, he overcame adversity, broke
many of the "rules," capitalized on opportunities and kept his company
focused on a handful of simple messages.
Mr. Tsuji is a born entrepreneur. After World War II, he made soap,
alcohol and other goods in his school's labs and sold them on the black
market. After landing a job in the Yamanashi Prefectural government, he
tired of his desk job and started teaching courses in commerce. With his
bosses' blessing, he opened shops in Tokyo that sold products from
Yamanashi.
Wanting to call his own shots, he quit his bureaucrat's job in 1960. He
took his savings and money borrowed from his former bosses to create the
Yamanashi Silk Center, an extension of the promotional shops he had set
up. The company nearly went broke when a customer filched on five
million yen in purchases, so Mr. Tsuji and his staff sold sandals in
front of bath houses to make ends meet.
Soon after, he started painting strawberries on the sandals to spice
them up. Sales took off. That's when Mr. Tsuji realized the added
value in decorating things. Sell ordinary sandals and you'll make a
dollar. Sell sandals with fancy designs and you can charge five. Tsuji
was way ahead of his time. He soon drafted designers to overhaul the
rest of his growing lineup of products. By the mid-1960s, he started
importing some of America's best-known consumables, including Barbie,
Hallmark cards and Snoopy.
There were plenty of failures, of course, but Tsuji kept his car hooked
to the growing character goods train. He hired in-house designers so he
could retain the copyrights to the designs. Then one of his minions
struck gold in 1974 with Hello Kitty. Suddenly Sanrio was in the big
leagues. To expand his empire, Tsuji branched into movies and theme
parks, both of which left him with piles of red ink.
Sanrio's business cranking out thousands of products emblazoned with
characters remains key, though. Sales in Japan are slowing because of
the weak economy and aging population, so Tsuji has turned its sights
increasingly to markets overseas, including the United States. Though
Sanrio now generates more than U.S. $1 billion in sales a year, Tsuji
still works like a small businessman, signing off on most designs and
keeping a constant eye on the company's operations.
Mr. Tsuji's entrepreneurial saga is now covered in a new book by Tokyo-
based authors Ken Belson and Brian Bremner entitled "Hello Kitty: The
Remarkable Story of Sanrio and the Billion Dollar Feline Phenomenon."
See <www.hellokittythebook.com> for more about this "soft" industry
titan.
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Japan at the brink?
Here is some striking commentary from a bestseller I picked up at a
bookstore the other day:
"To state the case very simply, the Japanese government today is in a
state of confusion, and as a result the people themselves are perplexed
and troubled. Widespread unrest and uncertainty have become both the
cause and the effect of our current dilemma, which is far more deeply
rooted than a simple economic slump....These are not ordinary times.
The country is on the road to collapse...I can only conclude that it is
because of the lack among our politicians of a long-term concept of the
direction in which Japan should move..."
The book is "Japan at the Brink." The second chapter, "Japan at the
Brink of Collapse," contains even more provocative commentary and
prescriptions for solutions to Japan's economic dilemma.
What struck me is that legendary entrepreneur Konosuke Matsushita --
founder of Matsushita Electric, the maker of Panasonic, Technics, Quasar
and National brand merchandise -- wrote the book 27 years ago. It
reminds me of that old Sicilian proverb: "The less things change, the
more they remain the same."
But seriously, I do believe that Japan is on the brink -- the brink of
an economic revival. So says the smart foreign money that's driven the
Nikkei up nearly 25% this year. Time to start a new business!
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Bits and bytes
Lance Lee, president of the American Chamber of Commerce in Japan (ACCJ)
and founder of IGC Japan and The Resource Group, will speak at the next
Tokyo Entrepreneur Association of Tokyo meeting on November 4. Lance
will discuss his experience doing business in Japan over the past 30
years and how the ACCJ helped him along the way. See <www.ea-tokyo.com>
for details.
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This issue marks the first full year for Japan Entrepreneur Report.
Thanks for reading -- and please pass this issue along to a friend.
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Tim Clark
Senior Fellow
SunBridge Corp.
Voice 813.5459.0765
Fax 813.5459.0629
clark@sunbridge.com
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Copyright 2002-2003 Tim Clark
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