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Japan Giving Its Start-Ups a U.S. Education, With Limited Success

Asia: It is sending fledgling firms to American incubators to learn entrepreneurial ways. But applicant pool is thin, and cultural barriers may be culprit.


An innovative experiment by the Japanese government to unlock the secret of America's entrepreneurial energies has gotten off to a rocky start.

By placing a handful of their most promising high-tech start-ups in American business incubators for several years of intensive parenting, the Japanese hoped to pick up some tips on high-tech nurturing and, with luck, grow the world's next technology giant-killer.

"Maybe we can create the next Microsoft, Yahoo or Sony," said Shinya Fujii, the former Sony Co. executive in charge of the TigerGate 2000 program, an undertaking of the Japan External Trade Organization, or JETRO.

But six months after its launch, three out of five participating U.S. technology incubators--including USC's popular EC2 Annenberg Center Incubator Project--have yet to find a suitable Japanese start-up from a disappointing number of applicants. With each passing day, the entrepreneurial gap between Japan and the United States widens further.

TigerGate's slow start raises doubts about Japan's ability to duplicate the environment that has helped make the U.S. a leader in technology innovation.

Even supporters of Japan's good intentions question the wisdom of trying to transplant America's high-tech sizzle to one of the world's least hospitable climates for entrepreneurs.

However, Japan's involvement in this effort illustrates just how badly it fears being left behind as the technology revolution reshapes the way the world lives, plays and does business.

"JETRO may be a little clueless in implementation, but they're certainly in the right arena, the right ballpark," said Jon Goodman, executive director of the EC2 incubator. "They've just got to figure out what the rules of the game are."

Why should Japan, still the world's second-largest economy despite a decade of stagnant growth, be worried?

The answer lies in such countries as Ireland and Israel, which in less than a decade have gone from being global laggards to shining lights, propelled to a large degree by a burgeoning high-technology industry backed by small-business-friendly government policies.

And the link between entrepreneurship and economic well-being is becoming more obvious by the day. Entrepreneurial activity accounted for as much as one-third of the difference in growth rates among 10 countries, in a recent study by Babson College, the London Business School and the Kaufman Center for Entrepreneurial Leadership. The level of entrepreneurial activity ranged from 8.5% in the U.S. to a meager 1.5% in Japan.

"Entrepreneurship facilitates economic adaptation," said professor Paul Reynolds of the London Business School, a co-author of the report. "The U.S. is by far the most adaptive system there is."

Countries such as Japan, Singapore and Malaysia have discovered just how hard it is to close that gap. These governments have invested millions of dollars trying to create a more entrepreneur-friendly world. That includes erecting wired business parks, dismantling lucrative state-controlled monopolies and expanding financial markets to create new avenues of cash for start-ups. The Japanese have even started up an entire college devoted to entrepreneurship.

But that turned out to be the easy part.

Entrepreneurship is as much a way of thinking as a strategic plan. It thrives in cultures where there is an openness to change, to new ideas, to creative differences. It falters when societies consciously or unconsciously restrict this creative chaos and diversity of thought through their laws, their schooling, their family pressures.

Among those leading the pack--the U.S., Canada and Israel--entrepreneurial activity is considered an "integral and accepted feature of economic and personal life," according to the report. In countries with low entrepreneurial rates, entrepreneurship is a "structural and cultural anomaly."

No surprise, then, that when Americans were asked whether starting a business is a respectable occupation, 91% said yes. When Japanese are asked, the figure plummets to 8%.

"Until the dinner-party conversation between parents and their children changes, you're not going to change the tendency of people to get involved in start-ups," Reynolds said.

The barriers to launching a new technology business in Japan remain daunting.

Launching a small business costs at least $750,000 to $1 million, even with declining real estate prices and reduced red tape. Venture capital, though gaining respectability, remains scarce. Bankers, already hobbled by a decade of huge debts, remain reluctant to loan money to newcomers. The education system does little to prepare budding capitalists, and a deep fear of failure remains a powerful barrier to any Japanese stepping off the traditional path.

"In Japan, they have a saying that the pheasant that flies, gets shot," said Thomas O'Malia, director of the Greif Entrepreneur Center at USC.

In recent years, the Japanese government has taken steps to improve the climate for those hoping to spread their wings.

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