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Entrepreneurs See Big Opportunities As Japan Begins A New Era

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May 1, 2019, marked the start of a new era in Japan. The country celebrated the succession to the Chrysanthemum Throne of Emperor Naruhito, scion of the world’s oldest monarchy, and the beginning of the new imperial period, Reiwa. But there’s a lot more going on: the economy is experiencing its longest expansion since World War II, inbound tourism is at an all-time high, and there’s renewed emphasis on international openness as a means to help companies grow. It’s an ideal time to start a business in Japan.

A legacy of entrepreneurship

U.S.-educated Japanese entrepreneur Ken Shibusawa thinks Japan has entered a new period of globalization and openness ahead of the Tokyo Olympic and Paralympic Games in 2020. Shibusawa has authored numerous articles and books about business in Japan, but he’s been attracting more attention of late because of a new banknote.

Due to launch in 2024, a new version of the 10,000-yen bill, Japan’s highest-denomination note, will feature his great-great-grandfather, Eiichi Shibusawa.

Known as the father of Japanese capitalism, Eiichi Shibusawa (1840-1931) was an industrialist active in the late 19th and early 20th centuries. He was responsible for the founding of hundreds of businesses including Japan’s first bank, Dai-ichi Bank, which is now part of the Mizuho Financial Group, as well as Oji Paper, Tokio Fire and Marine Insurance, Tokyo Gas, Sapporo Breweries, the Imperial Hotel, and hospitals and other nongovernmental organizations. His work helped Japan rapidly transform itself into a modern, advanced nation after centuries of samurai feudalism. Today, his approach to business is finding new resonance in the Reiwa era.

“My great-great-grandfather’s mission was to increase the wealth and prominence of the nation via the private sector,” says Ken Shibusawa. “He felt that it was important for businesses to be responsible to both shareholders and society itself. In modern-day terms, he was a champion of sustainability.” 

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A new openness

Having worked at J.P. Morgan, Goldman Sachs and Moore Capital Management, Ken Shibusawa is now CEO of business advisory firm Shibusawa & Co., co-founder of Commons Asset Management, and a director of the Japan Association of Corporate Executives. He says that although Japan’s population is declining, the country is home to many vibrant companies that are creating shareholder value, often by partnering with overseas businesses.

This comes at a time when inbound foreign direct investment (FDI) in Japan reached an all-time high of 28.6 trillion yen ($258 billion) at the end of 2017, according to the Japan External Trade Organization (JETRO), a step closer to the government’s goal of attracting 35 trillion yen ($316 billion) in FDI by 2020.

“One thing about Japan today that’s really different from the 1980s is that back then, Japan said, ‘We’ll do it our way—this is made in Japan,’” he says. “Now, with the onset of digital technologies and artificial intelligence, many manufacturing giants are saying, ‘Maybe we need a partner.’ So it’s become ‘Made with Japan.’”

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In 2007, Shibusawa cofounded Commons Asset Management to help individual investors take advantage of opportunities found in long-term investments. He believes that recent government reforms have successfully opened up corporate boards, which were once reserved for loyal insiders as a reward for long years of service. He believes that board diversity, including a healthy representation of outsiders and female directors, is vital to the growth of the Japanese economy. He points to Amazon as a particularly successful foreign company in the Japanese market due to its strengths in digital technology and logistics.

“Corporate governance isn’t shareholders saying they have all the answers and managers must perform. In a global society, it’s a matter of multi-stakeholders and diversity,” says Shibusawa. “We’re in a new era of globalization. My hope is that Japan’s younger generation of digital natives will take advantage of the fact that the internet has no borders. That’s one way for Japan to thrive beyond 2020. I’m not so negative about the aging population because you can take advantage of growth potential in the outside world.”

A tiger finds its roar

As Shibusawa points out Japanese households hold some 980 trillion yen ($8.8 trillion) in cash and deposits. That represents an enormous business opportunity. One startup that’s focused on this mountain of wealth while benefitting from Japan’s new openness is TORANOTEC, a Tokyo-based asset management firm founded in 2016. Reflecting a sense of wild passion for investing, the company’s name incorporates tora, Japanese for “tiger.”

In 2017, the company launched TORANOKO, a smartphone app that lets users invest small change from credit card payments. If a user buys something for 180 yen, for instance, the amount could be rounded up to 200 yen and the 20 yen difference would go into an investment fund matching the user’s tolerance for risk. Aside from being able to invest as little as 1 yen, another unique feature of the app is that users can invest the cash equivalent of points from Japanese loyalty programs such as ANA Group’s ANA Mileage Club air miles.

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“We saw a real opportunity in the Japanese market to create an entry point for wealth management accessibility for everyone,” says Justin Balogh, president and CEO of TORANOTEC. “Japan has a history of being a financial center but despite its status as a developed market there are gaps for entry-level investors.”

TORANOTEC has attracted attention for its innovation, receiving a 2018 Tokyo Financial Award from the Tokyo Metropolitan Government for helping meet the financial needs of Tokyoites. Meanwhile, it has drawn Japanese blue-chip companies as investors, including Seven Bank, Rakuten, Tokyo Electric Power, and Mizuho, whose banking app features TORANOKO.

“There are no impediments to doing business in Japan and engaging in the sort of collaborations and partnerships that we’ve been able to develop,” says Balogh. “Culturally, being a foreigner-led organization has not been a problem. The opportunity to work with significant corporate partners has been an excellent contribution to our overall business.”

TORANOTEC is also benefitting from Japan’s business ecosystem, especially its well-defined corporate and regulatory guidelines for financial companies.

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“There have been positive changes in terms of corporate governance in Japan,” says Balogh. “There’s a greater sensitivity to corporate governance issues and alignment with global standards.” 

Balogh points to the increasing prominence of non-Japanese on the boards of small, midsize and large companies, and the 2014 launch of the JPX-Nikkei 400, an index of companies with good governance. Subject to periodical review, the index consists of businesses that meet criteria such as having at least one-third or a minimum of three independent outside directors.

TORANOTEC is now focused on hiring additional staff and growing its services in Japan with more partnerships. Meanwhile, the company is planning to expand its business into Southeast Asia, where Balogh sees a significant opportunity in terms of the favorable demographics, smartphone penetration and regulatory environments supporting fintech.

“We’re spending quite a bit of time preparing for opportunities outside of Japan,” says Balogh. “It has been enormously helpful in our discussions overseas to demonstrate that we have a functioning, well supported business in Japan. Japan as a market and its most recognized corporations play very well when you have meetings around Southeast Asia.

“To be able to tell people about our shareholders and collaborations and to show them we built and launched a product in this market gives people a lot of confidence that we can bring that expertise and credibility to other markets in Asia as well.”
 

 

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