The Bath Perspective
The Economist's Japan Summit 2010 Next Generation Leaders Winning Essay
Sami Hamdani, BBA current student On exchange at College of Business, Rikkyo University The secret is out. Quite simply, a key ingredient for sustained long-term growth and economic dynamism is the quality, frequency and innovative capability of entrepreneurship.
As the global transition from an industrial to what has been coined the `knowledge' economy continues, the driving force of `creative destruction' provided by entrepreneurs is crucial. Avoiding economic stagnation involves constant repositioning often towards high growth industries through the entrepreneurial activity of successfully commercialising new innovations. Peter Drucker defined such innovations as "...the specific instrument of entrepreneurship... The act that endows resources with a new capacity to create wealth". Countries, industries, sectors or regions where such activity is unable to thrive will be left behind today the difference between Silicon Valley and Detroit serves as a striking example of how these forces are shaping the future of our ever shrinking world. Potentially, mature, developed economies with highly skilled labour forces facing stagnation have the most to gain from entrepreneurship. Therefore, in the case of Japan the appeal of encouraging and cultivating such activity is clear. Despite being short on natural resources, after the war Japan rebuilt and rapidly achieved a remarkable level of prosperity due to its rapid advances in science and technology. Since 2001 the Japanese government has consistently allocated more than 3% of GDP towards R&D resulting in the world's third largest R&D budget at $165 billion. Statistics show that of all the new patents filed in the world each year, at least 40% belong to Japan. Curiously, this powerful innovative prowess is not reflected in the creation of new firms. Bloomberg Businessweek's ranking of the top 50 most innovative companies in 2010 lists only five firms from Japan, all of which were founded well over 20 years ago. In comparison 22 of the list are US firms, three of which Amazon, Facebook, and Google have come to prominence only in the last decade. Counting firms such as IBM that have undertaken total corporate renewals, or other famous new firms that arguably should have been included such as Salesforce.com, Twitter, First Solar, Netflix and Synthetic Genomics the list of new US firms would be very much longer. An environment not as conducive to entrepreneurial activity is a possible reason for this marked discrepancy. Over the past decade, Japan has implemented institutional, legal, and financial changes to increase the number of start-up ventures. Still in 2009 the Global Entrepreneurship Monitor (GEM) ranks Japan last among 54 countries, with a mere 3.3% of those aged 18 to 45 involved in entrepreneurial activities, compared with around 8% in the US and 6% in the UK. GEM also identifies cultural and social norms in addition to financial support as the two strongest deterrents to new business formation in Japan. The title of this essay suggests a rebuke to an old Japanese saying: "The nail that sticks up gets hammered down" a traditional quote meant to encourage conformity. Interestingly, the original version of the quote reveals a strong inclination towards collective rather than individual behaviour. The seminal works of Hofstede (1980) identify this as one of a number of other important cultural dimensions. Later studies sought to identify the optimal configuration of cultural dimensions that are most conducive to entrepreneurial activity. The most pronounced deviations of Japanese culture in its current state from the identified optimal cultural configuration appear along the dimensions of individualism, power distance and uncertainty avoidance. In turn each of these differences impacts the entrepreneurial environment. Individualism describes the degree of emphasis placed on individual rather than group accomplishment. According to the studies, more favourable environments promote individuals to act independently and seek opportunities in the absence of societal constraints. Culturally Japan is very collectivist. Success in its mainstream form is often perceived as employment or `assimilation' by large well-known corporations where one is likely to loyally remain until retirement. Prominent surveys that capture attitudes reflect this. The perceived quality and quantity of opportunities in entrepreneurship are by far the lowest among developed nations. Also, entrepreneurs are not highly regarded in society. Both these points are despite the fact that the number of universities offering lectures on business creation has nearly doubled since 2002.