How Japan Pushed to Globalize Its Startup Ecosystem During the APEC Week

Media coverage of the Asia-Pacific Economic Cooperation (APEC) forum was dominated by President Joe Biden’s meeting with Chinese President Xi Jinping on November 15 at Filoli, a historic estate just a few miles away from the heart of Silicon Valley. In the shadow of these headlines, Japanese Prime Minister Kishida Fumio and South Korean President Yoon Suk Yeol met at Stanford University for a historic summit discussion on November 17. The meeting, the seventh between the two leaders over the course of a year, represented the latest in a sudden, favorable reversal of the two countries’ relations after Yoon came to power last year. Notable in this meeting was a focus on strengthening science and technology cooperation between the two countries and the United States, and concrete efforts to link each country’s startup ecosystem with Silicon Valley.

For Japan, the week of APEC was marked by several key developments in its efforts to build stronger international connections for its rapidly maturing startup ecosystem. These included Kishida’s visit to Stanford University—which made him the second Japanese prime minister ever to visit Silicon Valley.

Japanese Minister of Economy, Trade, and Industry Nishimura Yasutoshi opened the Japan Innovation Campus, a Japanese government–funded facility in Palo Alto, and signed a memorandum of understanding at the University of California–Berkeley with its startup accelerator, SkyDeck, which has begun to support Japanese startups.

The opening of the Japan Innovation Campus. (Courtesy of Nishimura Yasutoshi/X)

And Minister of State Shindō Yoshitaka hosted several side dinners and sessions with Japanese venture capitalists, entrepreneurs, and ecosystem players as part of his agenda: bringing to fruition the government’s Global Startup Campus initiative to create a deep tech startup hub, anchored in U.S.-Japan university ties, in the Shibuya area.

These moves reflect Japan’s concerted effort to integrate more deeply into the global startup landscape—the next stage in its startup ecosystem development and innovation strategy. But despite the Japanese startup ecosystem’s considerable maturation over the past decade, it remains predominantly domestic with limited international linkages.

The Challenge to Globalize Japan’s Startup Ecosystem

Potential Japanese entrepreneurs face particularly high hurdles to compete in Silicon Valley—even more so than founders from many other countries, although the situation has improved in that past decade. Among many factors, three stand out.

First, the prevalence of strong, large firms that employ workers for their entire careers locks in significant portions of Japan’s top talent. This so-called lifetime employment offers job security in exchange for slow-rising wages that tend to be relatively low until workers reach their forties or fifties. This means that entrepreneurs and startup employees have less financial cushion when making the jump to start their own companies, especially when they are younger. Compared to other countries, Japanese startups have difficulty attracting top talent, even though lifetime employment has shrunk over the past couple decades.

Second, unlike countries with major diasporas in Silicon Valley—such as India or even South Korea and China—much of the Japanese business community in the region turns over every few years. Large companies typically rotate their employees’ assignments—and therefore often locations—every three years or so throughout their careers, and they generally treat Silicon Valley no differently. With a significant portion of the Japanese community leaving every year, companies are unable to provide sustained mentoring, and employees cannot establish deep interpersonal networks that require many more years to build—a contrast with many other diasporas whose populations move to Silicon Valley on a more permanent basis.

Third, the severity of the language and communication barrier makes it difficult for Japanese entrepreneurs to succeed in Silicon Valley. Japan’s education system still underperforms in providing its otherwise well-educated population with English communication skills. As a result, plenty of brilliant and capable Japanese entrepreneurs, some with advanced scientific degrees, cannot adequately communicate in English—despite being educated at Japan’s top schools and universities. The incompatibility of education systems also results in few Japanese who study as undergraduates or graduate students at the top U.S. universities, even compared to neighbors such as South Korea. This also means that very few Japanese entrepreneurs have interpersonal networks from U.S. schools to draw upon. The Japanese who have succeeded in Silicon Valley, mostly venture capitalists who specialize in linking between Silicon Valley and Japan, have MBAs or other graduate degrees from top American universities, suggesting the importance of these networks.

Put simply, although easier now than in past decades, being an entrepreneur in Japan is difficult—let alone operating in English and competing in Silicon Valley against top talent coming from all over the world. This is part of the answer to the question of why there aren’t more Japanese entrepreneurs in Silicon Valley. It is also the context in which the Japanese government seeks to support the efforts of its entrepreneurs to gain a foothold in Silicon Valley, such as through the Japan Innovation Campus.

Opportunities and Pitfalls of the Japan Innovation Campus

The Japan Innovation Campus could serve as an important platform for Japanese startups aiming to go global, especially those emerging from deep science and university research. However, nobody—including the government leaders responsible for securing its funding—is naïve enough to believe that a small accelerator in Palo Alto can singlehandedly globalize Japan’s startup ecosystem. After all, the world is littered with such government-funded startup incubation offices, most of which have had negligible impact.

Japanese leaders recognize that experimentation and time will be needed to make the center as effective as possible. To maximize the center’s impact, leaders should focus on outward-facing programming and Japanese business and startup community-building, as well as making the center an informal nexus of bidirectional Silicon Valley–Japan ties.

First, the campus can host outward-facing programs that showcase exciting Japanese startups and innovative collaborations between Silicon Valley startups and large Japanese firms to raise the profile of Japanese firms in the region. Some Japanese startups should be able to draw attention in the Silicon Valley ecosystem, but these companies are often unknown outside Japan, and their founders have no international ties. Programming that raises the profile of Japanese firms in Silicon Valley could help bridge this gap.

Second, the campus can provide a neutral platform to raise the cohesion of the Japanese business community in Silicon Valley to rally around Japanese startups. A surprisingly large array of Japanese firms from virtually all major sectors have a presence in Silicon Valley. Many have presences in shared offices, and some venture capital firms host employees of major Japanese companies in their Silicon Valley offices. However, there is no central focal point for early-stage Japanese startups. Some more established startups have built substantial offices in Silicon Valley, but they were well established in Japan before they put resources into their Silicon Valley offices. The goal of creating a neutral platform for the Japanese business community would be to share information and interpersonal networks. Large Japanese firms investing into Silicon Valley startups may discover unexpectedly strong partners or be able to introduce people to Japanese startups, for example.

Third, the more ties between Silicon Valley and Japan’s startup ecosystem, the better. The inclusion of Japanese startups in UC Berkeley’s SkyDeck accelerator is also an important step in this regard. Given the nature of startups, most will fail, and only a handful will be successful. However, given the relative international isolation of Japan’s startup ecosystem, the more entrepreneurs who get a taste of competing in Silicon Valley—still the world’s largest startup ecosystem measured by venture capital investment and number of startups—the better. Even if the entrepreneurs return to Japan, the experiences they gain, the interpersonal relationships they build, and the contributions they make can benefit both Silicon Valley and Japan. The positives for Japan are obvious, but Silicon Valley also stands to gain: historically, it has benefited from inflows of talent and the networks that they bring from all over the world—with Japan being a key exception. Silicon Valley can therefore also benefit from Japanese talent and contributions to scientific research, advanced engineering, and potential technological solutions to deep societal problems surrounding demographic aging and depopulation.

As the venue for APEC, San Francisco promised opportunities to engage with the region’s innovation ecosystem. Japan was able to take full advantage of the occasion by having multiple political leaders strengthen ties to Silicon Valley, as well as confirming exceptionally strong relations with South Korea. While Japan’s strategies to globalize its startup ecosystem will need patience, flexibility, and a tolerance for experimentation, thoughtful government initiatives can help set the stage for Japan to become a more influential player in the global technology and innovation landscape and strengthen the fabric of collaboration between the United States, Japan, and South Korea.