Why do Japanese Startups Struggle to Go Global

Japan has long been regarded as a global leader in technology and innovation, with enterprises such as Sony, Nintendo, and Toyota enjoying international success. Even so, the country has struggled to substantially influence the global arena when it comes to startups. 

This is partly due to the challenges that Japanese startups encounter when growing overseas, ranging from cultural differences to market obstacles. Despite a robust domestic market, these obstacles have made it difficult for Japanese companies to compete with their worldwide counterparts. 

In this five-part series, I will investigate the challenges and prospects of globalising Japanese startups and how they might overcome these obstacles to flourish in the global market.

Let us begin by outlining the cultural, structural, and market-related constraints impeding Japanese startups' global growth.

Cultural Factors: One of the primary challenges Japanese startups face in expanding globally is the cultural differences between Japan and other countries. Japanese culture is known for its strong emphasis on conformity, hierarchy, and respect for authority. These cultural norms occasionally contrast with other countries more independent and entrepreneurial cultures, resulting in misunderstandings and communication hurdles.

Additionally, Japanese startups may struggle with the language barrier, as English proficiency is not as widespread in Japan as in other countries.

Structural Factors: Another challenge Japanese startups face is the structural barriers within the Japanese business ecosystem. For example, the traditional Japanese corporate culture is known for its risk aversion and bureaucratic decision-making processes, which can stifle innovation and agility. Additionally, access to funding can be difficult for startups, as Japan's financial sector is dominated by large, established corporations that are less likely to invest in risky, early-stage startups.

Market Factors: Finally, Japanese startups face market-related barriers when expanding globally. One major challenge is the lack of internationalisation in the domestic market, making it difficult for Japanese startups to gain the global perspective and experience necessary to compete in the global market. 

Additionally, the Japanese market is highly regulated, making it difficult for startups to navigate the complex regulatory environment and comply with the necessary regulations.

Here are some real-world examples of Japanese startups that have struggled to go global owing to these barriers.

• Mercari: The Japanese e-commerce startup, which allows users to buy and sell secondhand goods online, has had a difficult time expanding globally. While it has seen success in Japan and the US, its attempts to expand into other markets like the UK and Australia have been challenging due to cultural and regulatory differences.
  
  
• Zozo: The online fashion retailer known for its Zozotown platform has struggled to compete with global giants like Amazon and Alibaba. It attempted to expand into the US market in 2018 but faced challenges due to differences in customer behaviour and preferences.
  
  
• Rakuten: While Rakuten is a well-established Japanese e-commerce giant, it has faced challenges in expanding globally. Its attempts to expand into the US market through its acquisition of Buy.com in 2010 were met with limited success, and it later sold the subsidiary to a private equity firm.
  
  
• Gree: The mobile gaming company has struggled to expand beyond Japan due to a lack of understanding of the global market and cultural differences. Its attempts to enter the US market by acquiring OpenFeint in 2011 were met with limited success.

Finally, when it comes to global expansion, Japanese startups experience a variety of hurdles, ranging from cultural differences to market constraints. Yet, by confronting these hurdles and adopting a global mindset, Japanese startups can overcome these obstacles and prosper in the global market. 

In the next part of this series, I will examine the strategies Japanese startups might use to overcome these obstacles and expand abroad.

By Siddharth Deshmukh
President, Indo-Japan Business Council
Founder and CEO, Shimbi Labs

*Photo by Louie Martinez on Unsplash