FT SPECIAL REPORT Japan Technology & Innovation

Monday December 8 2014 www.ft.com/reports | @ftreports

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Tight budgets squeeze Titans slim down and fight back scope of research Academic discovery is being limited by Some companies are tiveHiroakiNakanishihaswonplaudits for his efforts to spin off consumer- commercial priorities finally trying to improve related operations in mobile phones, Page 2 returns to shareholders, computer parts and flat-panel TVs to concentrate on more profitable power Successors lack insight writes Ben McLannahan plants, rail lines and water treatment facilities. to nurture innovators At , a new chief financial officer, Top executives tend to hen an- Kenichiro Yoshida, is looking to do like- focus too much on costs nounced last Septem- wise, apparently given free rein by chief Page 2 ber it would sell a executiveKazuoHiraitochallengebusi- majority stake in its ness areas and customs previously con- Robotics W healthcare business to sideredsacrosanct. KKR, the US private equity group, One example is the dividend. Sony As companies look to investorsbarelyblinked. hadpreservedpayoutsoverthepastfive robots for sales the Healthcare had been a subsidiary of years, even while it was churning out government has the Osaka-based group for more than cumulative net losses of almost Y700bn 40 years but was always on the fringes, ($6bn), so that income-focused inves- made the sector a key accounting for less than 5 per cent of torscouldcontinuetobuythestock.But pillar of growth operatingprofitsinthepreviousyear. inSeptemberitstoppedpayingthedivi- Page 3 Yet according to Atul Goyal, a Singa- dend altogether, for the first time since pore-based analyst at Jefferies, the thecompanywentpublicin1958. $1.7bn divestment was a watershed Analystshavetakenheartthatradical moment – confirming that some of measures could be in store for the flail- Japan’s technology titans were serious ing TV and smartphone arms. JJ Park, a FT/Nikkei about boosting returns to shareholders Seoul-based analyst at JPMorgan, says: Co-operation viarestructuring. “Management appears finally to be fac- Healthcare was a profitable unit in a ingthestructuralissues,giventheyhave high-growth area, selling blood-sugar saidtheywilldownsizethebusinesses.” The FT and Nikkei, the monitoring equipment for diabetics. It is possible to overstate the scale of Japanese business media group, But under Kazuhiro Tsuga, president the transformations under way.Among started to co-operate in 2013 to since June 2012, Panasonic has been investors, Japan is often still seen as the give their respective readers focusing its management efforts and spiritual home of the flabby conglomer- greater insight by combining capital resources on four main busi- ate, with executives more concerned the best of the FT’s “outside” nesses, including auto products and with preserving market share than lift- view of Japan with Nikkei’s deep housing equipment, most of them sell- ingreturnsforinvestors. understanding from the inside. ing to other companies rather than Five years ago, The Onion, a satirical This report features three directlytoconsumers. news organisation, spoofed Yamaha by articles from Nikkei writers. So the healthcare division – nice as it Tough measures: Panasonic TVs still draw admirers, but the company is being forced to restructure — Bloomberg/Kiyoshi Ota imagining its chief executive saying: “At http://asia.nikkei.com/ was–wasbetteroffunderanewowner. the , we’re focused Panasonicisamongthebestexamples ative 8 per cent, on average, in the five ment – a sign that executives really care or at least thinking twice about offering on one thing and one thing alone – qual- ofaJapanesetechcompany“forcedinto years before Mr Tsuga – is expected to aboutthefuture”. so many gadgets to consumers appar- itysoundchips,ceilingbrackets,editing takingtoughmeasuresbecauseofstruc- top 10 per cent in the year to March. Many more Japanese companies ently more interested in the latest offer- software, race-kart engines, sports tural weakness”, says Mr Goyal, noting Selling a long-cherished business such active in the tech sector have become ingsfromSamsungorApple. board, flugelhorns, ATVs, sequencers thatthegroup’sreturnonequity–aneg- as healthcare “was a strong, bold state- more assertive in reshuffling portfolios, At , for example, chief execu- Continuedonpage4 Sharp displays may be the shape of things to come

tive business comes as the company widely. That makes automotive busi- Trends recovers slowly from bruising losses of nessattractiveforelectronicsfirms.” nearly $8bn in the fiscal years 2011 and Panasonic,whichsuppliesbatteriesto Growth is likely to come 2012, caused by a collapse in demand USelectric-carmakerTesla,isaimingto from the auto sector as forbigdisplays. double sales in its auto division to Y2tn In recent years, the company has ($17bn)– about 20 per cent of total sales consumer electronics shifted to the smaller and medium- –bythefiscalyeartoMarch2019. slows, says Kana Inagaki sized displays used in smartphones and In addition to car batteries, its auto tablets and hopes to increase sales for business includes displays, automotive displaysusedinvehicles. infotainmentsystems,cameras,sensors Display technology has seen all manner ButtheJapanesemanufacturersaysit andradars. of innovations, but the rectangular is trying to avoid making the same mis- In October, it agreed to buy a 49 per designofdigitaldevices–betheysmart- takes with car screens as it did with TV cent stake in Ficosa, a family-owned phones, televisions or computers – has displays. Spanish car-parts manufacture with heldswayfordecades. Yasuhisa Itoh, Sharp’s general man- hopes of developing self-driving tech- Now, that de facto standard is set to agerresponsiblefordevelopingthefree- nologyinthefuture. change. form display, says: “We focused too Sony has so far trailed behind in Sharp, the Japanese electronics group much in the past on enhancing display expandingitsauto-relatedbusiness,but that makes screens for Apple’s , performance. But it’s come to a point it aims to increase the sale of image sen- is preparing a display for mass produc- where customers don’t realise the value sors used in cars. Despite a massive tion in 2017 that it says can be shaped inthat.” restructuring involving PCs, TVs and into various forms. Circular TVs or Critics have often said Japanese TV smartphones, image sensors is one of funky phones with curvy screens could manufacturers lost touch with consum- thefewgrowthareasforSony. bethefuturefaceofelectronics. ers as they became obsessed with Kazuo Hirai, Sony’s chief executive On a more practical level, Sharp improving picture quality, while Asian says: “We’re going to invest in image developed its “free-form display” for rivals offered cheaper sets with display sensors and take on the challenge of potential use in cars. By breaking out of performance that may have been lower expandingtheiruseinnewareassuchas the clunky, rectangular shape and butwasenoughtokeepviewershappy. cars and wearable devices in addition to sharply slimming the bezels around the “So we decided to shift the axis of our smartphones.” screens, the displays can fit neatly into competition to [display] design,” Mr Still,analystssayJapanesecompanies thenarrowfrontpassengerarea. Itohsaid. face fierce competition, because the Sharp’s innovation speaks to a Sharp, which has been supplying dis- automotive shift is a global phenome- broader transition occurring in Japan’s plays for cars and aircraft for two dec- non with leading technology companies consumerelectronicsindustry. ades, is betting that more displays will including Google, Apple, IBM and Intel Companies including Panasonic, be installed in vehicles together with alleyeingthesector’sgrowthpotential. Sony, and Hitachi are trying to capture cameras and sensors to enhance safety Venture firms are also increasing growthintheautomotiveindustryamid features. their clout, highlighted by the rise of shrinking demand for TVs, personal Currently, Japanese electronics mak- Mobileye, an Israeli start-up that makes computers, and cameras. Japan’s elec- ers such as Hitachi, Panasonic and camera-based software for self-driving tronics groups are also grappling with generate from 7 to 16 per cent of vehicles. slowinggrowthinsmartphones. their sales from automotive-related BNP Paribas analyst Masahiro Waka- The global vehicle industry itself is products, according to Morgan Stanley sugi says Japanese companies could undergoing a tectonic shift, as stricter MUFGSecurities. benefit from the growing focus on car environmental standards call for green The brokerage said in a recent report: safety – highlighted by the rise in recalls vehicles powered by batteries or hydro- “In the automotive industry, orders are by automakers worldwide. “Japanese gen. More electronics components such steady and cycles are long, while in the electronics makers have an advantage as sensors and cameras are installed in electronics industry orders fluctuate intermsofensuringquality,”hesays. vehicles as demand grows for safer, Electronics groups such as Hitachi more comfortable cars with tech- and Panasonic have benefited from nologiestoassistdrivers. decades-long ties with Japanese auto- These trends have, in turn, makers in a conservative industry blurred the lines between the where the supplier system has electronicsandautosectors. depended on a close community of “I can clearly sense the parts makers. But even that struc- borderless age approach- ture is changing with carmakers ing,” says Shoji Inagaki, now competing to get hold of cut- Toyota’s general manager ting-edge electronics technologies in charge of developing vehi- beingdevelopedacrosstheworld. clecontrolsystems. “There are so many high-tech parts For Sharp, the focus on automo- coming in, so we can’t win the competi- tion unless we look at both existing sup- Flexible futures: Sharp’s screen pliers and new players,” says Toyota’s curves to fit round dashboards MrInagaki. 2 ★ FINANCIALTIMES Monday 8 December 2014

Japan Technology & Innovation Tighter budgets constrain scope of academic research

Life sciences The view that all research must be commercialised limits discovery, says Junichi Taki

ence, Technology and Innovation Hiroshi Amano came up with the basic much left over for research regarded as falling behind in terms of its volume of Determined: launched a programme called ImPACT, technologyforblueLEDsatNagoyaUni- lesscrucial.Thisnaturallydirectsscien- publishedscientificpapers. Isamu Akasaki which stands for Impulsing Paradigm versity in the mid-1980s, they launched tists into a few select fields where they Some scholars warn against taking a (left) and Hiroshi Change through Disruptive Technolo- a joint research project with Toyoda arelikelytoproducepracticalresults. single-track view of science – the idea Amano — Kaz gies. The council has selected 12 Gosei, an auto parts maker. The Japan Given budgetary constraints, it is that basic research is followed by Photography/Getty research themes – including rescue Science and Technology Agency sup- understandable that the government applied research, which in turn is fol- his year’s Nobel Prize in robots and organic materials that are ported the project, which aimed to put focusesitsinvestmentsonlyonstrategic lowed by commercialisation. Akiyoshi physics was particularly stronger than steel – and has assembled theinnovationtopracticaluse. areas.Thereare,however,sideeffectsof Wada,professoremeritusattheUniver- sweet for Japanese industry researchers from academic institutions Separately,ShujiNakamuradeviseda thisstrategy. sity of Tokyo, makes a distinction and academia. The award, andthecorporatesector. mass-production method for a high- “More researchers now waver when between “pure research aimed at eluci- T which went to three scien- The government will also establish brightness blue LED at Chemical they feel they lack a concrete purpose,” datingtheessenceofnatureandsociety, tists who developed blue light-emitting the Japan Agency for Medical Research Industries. says Yuichiro Anzai, head of the Japan and applied research that leads to solu- diodes, came at a time of growing con- and Development next April to support When Japan’seconomy was booming, SocietyforthePromotionofScienceand tionstospecificproblems”. cernaboutthefutureofthedisciplinein breakthroughs in pharmaceuticals and scientists could drum up funds for all aformerpresidentofKeioUniversity. Research aimed at comprehending thecountry. medical equipment. Research budgets sorts of research seen as having com- There is, he adds, a worrying ten- nature can produce practical innova- Thequestionis,howcanJapanensure related to the life sciences, currently mercial potential, on top of what they dency to change the direction of tions, just as seeking solutions to spe- that its researchers continue to make handled by multiple government received from universities or other research for the express purpose of cific problems may lead to a broader significantbreakthroughs? offices,willbeconsolidated. institutions. obtainingmorestatefunding. understanding of the world. The crux of The development of blue LEDs is a Japan has few ventures of the same But as corporate and government Emphasis ProfAkasakiandhisfellowNobellau- Japan’s challenge is to find ways to revi- textbook case of university research calibre as US start-ups, which fre- purse strings have tightened, funding on strategic reates developed blue LEDs by sticking talisebasicresearch. leading to commercialisation of prod- quentlydiscoverdrugprototypesbefore hasbecomefarlessavailable. to their guns. If researchers lose their The government council has started ucts. Amid Japan’s prolonged economic passing them to big pharmaceutical Today, the Japanese government areas could sense of mission or feel compelled to discussing a new five-year plan for sci- stagnation, this sort of co-operation has companies. The new agency may help emphasises research that promises sig- erode the change course midstream, they will be ence and technology, to take effect in been crucial for companies wary of fill this gap by developing drugs using nificantbenefitstoindustryandsociety. lesslikelytoproducetrueinnovations. 2016. investing in risky endeavours with no leadsfromuniversitylaboratories. This principle tends to guide public foundations The emphasis on strategic areas – People such as Prof Wada will be hop- guaranteeofsuccess. Thisyear’sNobelPrizeshowsnotonly budgetallocationsfornationaluniversi- of Japanese selectedbythegovernment–couldsub- ing the council can balance academia The government is supportive of what co-operation between academia ties. While considerable amounts of tly erode the foundations of Japanese and industry and devise an unconven- academia-industry collaborations. This andindustrycanachieve,buthowtimes money are devoted to endeavours science science. The number of researchers is tional policy that will allow both to year, the government’s Council for Sci- have changed. After Isamu Akasaki and expected to bear such fruit, there is not already on the decline. Japan is also flourish. Early adopters ring Successors lack the necessary insight the changes with to nurture talent and innovation

a clue about what has been lost and strongly aware of such things, they payment revolution about how the one-time epitome of Jap- cannotfindandnurtureinnovators.” aneseinnovationcouldregainitsedge. At influential companies such as “Sony was able to make interesting Sony, once seen as a symbol of postwar products and successively embark on Japan’s rebirth, few founders remain for the smart card payment systems. new businesses in Mr Morita’s day in top executive positions. Their suc- Mobile banking FeliCa, one such service developed by Management because the company had leaders who cessors now have to compete with Sony, became a key part of the Japa- knew talented people in the organisa- companies in South Korea and China, Phones will replace wallets nese payments landscape more than a Top executives tend to focus tionandcouldputthemtothebestuse,” such as Samsung and Xiaomi, as well with the next iteration of decade ago. on cost competitiveness theformerexecutiverecalls. as with rivals in western countries. contactless payments, reports FeliCa began life in 1988, and was This is not an easy task for Sony’s Today’s top executives, who think only developed for use on public transport rather than innovation and current leaders. The reason: as the in the short term, tend to focus on Jennifer Thompson services. Prototype “swipe cards” businesses shrink as a result, company’s organisation becomes more cost-competitiveness. Doing so, how- appeared the following year, and by says Masanori Murui complex, innovators become harder to ever, has mostly resulted in shrinking 1990 their use as a replacement form Smartphones: tapping a new market spot. This is a concern not only for top business. When it comes to everyday banking, of train ticketing was becoming wide- executives at Sony, but for those in After the global financial crisis in Japan is a paradox. The country has spread. biggest market for Apple after the US In New York, a silver-haired business- many Japanese companies. 2008,Hitachireportedarecordconsoli- some of the most advanced infrastruc- With the Japanese market for mobile andChina. man was getting into the car that had Nomura Research Institute con- dated net loss for a Japanese manufac- ture in the world but remains a cash- phonesgrowing,Sonydecidedtolookat He believes Apple’s mobile phone been sent to fetch him. He had with him ducted a survey of companies asking turer. The company later concentrated basedsociety. putting FeliCa technology inside hand- payments service will eventually be a sheaf of reports so thick that he could whichtalentsmakesomeoneaninnova- its management resources on its social Many Japanese choose to pay utility sets. It found a valuable partner in NTT rolled out in Japan, but the big question barelycarryit.Asthecarbouncedalong tor.Manytopexecutiveslistedimagina- infrastructure business, including the bills with hard currency at convenience DoCoMo, the country’sbiggest telecoms is whether it can compete with FeliCa in the busy streets, he rapidly sorted tionandaknackforfocusingongoalsas environment, energy and transport. stores. Restaurants and small busi- company, with a 60 per cent market termsofspeed. through the documents, selecting some necessarytraits.Innovatorsthemselves, Since then, earnings have recovered nesses often only accept cash. And it is share. And NTT was looking for new “Ifyou’regoingthroughShinjuku,one and handing the rest to his assistant. By however,gavequitedifferentanswers. sharply. not uncommon to see foreigners vent- mobileservicestooffercustomers. of the busiest train stations in the world the time he reached his destination, he In the survey, people including those During that time, Hitachi not only ing their frustration when they discover NotonlyweretheJapaneseenthusias- andyouhavetowaitforasecond,it’snot hadfinishedperusingthematerial. who devised i-mode, NTT DoCoMo’s selected and focused on certain busi- that they cannot use most cash tic early adopters of mobile phones, goingtoworkatall,”hesays. This man was , the late pioneering mobile internet service, nesses, but also implemented corporate machines, but are restricted to those NTT was also the first provider in the One criticism often levelled at Japa- founder of Sony, who turned the com- emphasised traits such as the power of reform to “collect optimum human operated by the post office or interna- world to launch a comprehensive inter- nese business is that manufacturers pany into a global powerhouse. A observation, curiosity and willingness resources, make optimum teams and tionalbanks. netserviceonthedevicesin1999. focus on adapting innovative ideas for former Sony executive who witnessed toendure trialanderrorprocesses. allocate people to optimum positions”, Despite this apparent reluctance to At the turn of the millennium, the domestic market, and place less Morita’s working habits firsthand “For top executives who have never according to Hidenobu Nakahata, vice- embrace new banking practices, the NTT DoCoMo and FeliCa formed a joint weightonsellingtheirideasabroad. revealedthesecretofhisefficiency: started a business, it may be difficult to president at Hitachi, who heads the Japanesewereearlyadoptersofcontact- venture named FeliCa Networks to However,Sonyhighlightsthesuccess- “Mr Morita did not read all of the understand the minds of innovators,” company’shumanresourcesstrategy. less payments and the “tap-and-pay” ful, early,export of FeliCa technology to reports. He read only the headings, As a first step, the company created a techniquewithasmartcard. Hong Kong, where it won a tender to which included the title, and chose personnel database covering all its Now a new form of that technology is provide the plastic Octopus smart cards reports based on who had submitted Akio Morita, the employeesaroundtheworld,enablingit Today there are about founder of Sony, beginning to emerge. Banks and tele- inthe1990s,originallyfortheterritory’s them. knew his workers’ to evaluate workers based on common coms companies have been predicting 60m FeliCa-enabled railsystem. “This was because he always knew potential and could global standards. It also eliminated the that a global cellphone payments revo- Octopus cards are now used across who was doing which jobs and who put it to the best seniority-based promotion system, an lutionisjustaroundthecorner,withthe mobiles in the country Hong Kong’s public transport networks couldbetrusted,”hesays. possible use entrenched characteristic of Japanese- mobile phone replacing both the wallet and as prepayment smart cards for a One of Morita’s talents was knowing styleemployment. andthesmartcard. implementmobilepaymentsservicesin variety of other purchases, from fast- all about his company’s top innovators says Hikojiro Isozaki, a consultant at Many Japanese companies have been However, the revolution is proving Japan. Other telco providers and hand- food restaurants to photo booths and andtheworktheyweredoing. NomuraResearchInstitute. criticised for failing to manage talented rather slow to get going. While the sys- set makers were soon included in the parkingmetres. Sony has long since lost its reputation “Through such experience, managers employees and technologies effectively. tem of using pre-paid smart cards that agreement, paying to implement FeliCa Industry insiders note that it would for innovation. These days, it is more improve their business sense and know Thissuggeststhereisplentyofpotential can be tapped against readers has taken technology themselves so they were not have been virtually impossible to associated with restructuring than with whentosay,‘Wemuststickwithit,even to be uncovered. To achieve that, offinmanycountries,usingahandsetto leftbehind. develop a mobile phone payments serv- inventing must-have products. Morita’s though we’re in the red,’ or, ‘This is the insightful leaders are more essential do the same has yet to catch up. This is Today, there are about 60m FeliCa- icefromscratchanywherebutJapan. knack for quick decision making offers timetogiveup.’Iftopexecutivesarenot thanever. mainly because of the complexity enabled phones in Japan, providing “There are so many players and there involvedinsuchanundertaking. access to some 100 services, according was no standard technology available in It not only demands co-operation toSonyresearch. the market in 2000,” says Masayuki between the telecoms companies The question now is how far Apple Takezawa, deputy general manager of Contributors providing the service and the manufac- Pay will disrupt the Japanese pay- FeliCaatSony. turers making the phone handsets, it ments system. In October, Apple Indeed, factors unique to Japan – its Ben McLannahan Keiichi Murayama Steven Bird also requires input from the financial unveiled its new mobile payments tech-savvy customer base and histori- Tokyo correspondent Nikkei senior staff writer Designer companies involved and technology service and “digital wallet”, Apple Pay. cally strong relationship between tele- Kana Inagaki Demetri Sevastopulo experts to ensure that the transactions This allows customers to use their coms providers and handset makers, Tokyo correspondent South China correspondent Andy Mears aresafeandefficient. iPhones to pay for certain products, which resulted in the creation of FeliCa Junichi Taki Lindsay Whipp Picture editor “Part of the problem is that too many instead of using cash or bank cards. Networks – were the ingredients that Nikkei senior staff writer Assistant news editor people are looking for their piece of the Mr Gibson says that at the end of the havemadethesystemwork. Jennifer Thompson For advertising details, contact: pie,” adds David Gibson, an analyst at first quarter, 8.1 per cent of all users of It is not clear, however, whether such fastFT Reporter Hong Kong Emma Boyde Michiko Hayashi, + 81 3 3581 2097 and MacquarieinTokyo. iOS (the Apple operating system) were factors will enable Japan to win in the Masanori Murui Commissioning editor [email protected]. Things were more straightforward in Japan, making it the third- comingmobilephonerevolution. Nikkei senior staff writer Monday 8 December 2014 ★ FINANCIALTIMES 3

Japan Technology & Innovation The ghost in the machine gets smarter

Outside robots earlier this year, reducing liabil- Robotics ity risks for the company. But the prod- investors seek to uct does not necessarily use cutting- edge robotics technology and it requires monetise opportunities, the manual assistance of a helper to in rescue, healthcare movethepatientontothebed. Some technological compromises and reconnaissance, were made to meet safety and cost con- reports Kana Inagaki cerns,officialssay. “So much is unknown about new care hen Google last year robots, including the risks,” says Hideo bought a tiny start-up Kawakami, who headed Panasonic’s founded by two Japa- roboticbedproject. neseroboticsengineers, Panasonic is not alone in betting on W it served as a rude the future of nursing care robots as awakeningtothethreatJapanfaces. Japangrappleswithanageingsociety.In New technology companies, includ- October, unveiled its prototype ing Apple and Amazon, show a rising ofahuman-likerobotthatcansmileand interestinowningroboticstechnology. blink, dressed in a pink blouse and a “You don’t have to worry about the whiteskirt. money.Youonlyhavetofocusonchang- By 2020, the company hopes this ingtheworld,”saidAndyRubin,headof machine will be able serve as a compan- Google’s robotics division at the time of ion for the elderly and people with the purchase. But Google’s investment dementia. wascrucialtothestart-up’ssurvivaland Robotics are part of Toshiba’s plan to breathed new life into Schaft and its increase its healthcare sales to $8.5bn two-leggedrobotproject. a year by March 2018, from $3.4bn Schaft was founded by professors of currently. But the company has been the prestigious robotics lab at the Uni- engaged in robot development since at versity of Tokyo, who spent a gruelling least the 1980s without the release of a year searching for investors in Japan deployedduringtheFukushimanuclear Here to help: (left to right) prototype Japanese companies are also banking successful mass-market product so beforeGoogleextendedalifeline. accident in 2011 that prompted Schaft humanoids created by Asratec, on robotics to play a role in sales amid far, beyond industrial use. The company’s clunky humanoid to develop its own robot that can with- Toshiba, Alderaban and Schaft are the decline in traditional consumer “Japanese companies often win in robot, designed to operate in disaster standdisasterconditions. designed for use in construction, electronics such as televisions and per- technology but lose in business,” says areas, was mocked and written off by In addition to military interest – with domestic work and (below right) sonal computers. They have high hopes MrHonda. the government as well as several Japa- recent advances in artificial intelligence disaster relief of the healthcare and motor manufac- Still, there are some encouraging nese tech and venture capital compa- and drone technologies – Silicon Valley turesectors. signs of innovation being unveiled by nies, according to Takashi Kato, the companies are starting to see profitable “But it’s hard for innovation in robot- big companies and university labs formerchieffinancialofficerofSchaft. civilianusesforrobots. ics to occur at big companies,” says through spin-offs. At least three start- “The fundraising was an utter failure, So is Japan. Following the Schaft sale Yukio Honda, professor of robotics at ups have been established by former butthatallowedustomakeupourmind to Google, Prime Minister Shinzo Abe theOsakaInstituteofTechnology. members of the Sony team that worked and go to the US,” recalls Mr Kato, the pledged to make robots a key pillar of Experts say that new technologies ontheAiboroboticdog. entrepreneurial investor who helped his growth strategy. His goal is to triple often entail safety risks that could Mr Abe has said he wants to trans- negotiatethedealwithGoogle. the domestic market for robots to damage a company’s brand. To avoid form Japan into a “powerhouse brim- Though few in Japan saw commercial Y2.4tn($20bn)by2020.Theworldwide this, they are prepared to ming with the entrepreneurial spirit”. potential in Schaft, its robot won an marketforindustrialroboticssystemsis spend years or even dec- But the financing challenges that Schaft advanced robotics competition spon- about $29bn currently,according to the adesondevelopmentbefore faced also underscore the cultural soredbyDarpa,theUSdefencetechnol- InternationalFederationofRobotics. amassmarketlaunch. stigma still attached to people leaving ogyagency,inlate2013. Taking their cue from government, And even after a series of tests, established firms to set up their own It was a demonstration by Schaft – Japanese technology giants, including those risks are often bigger than companies. along with Honda’s Asimo – that Presi- Panasonic, Toshiba and Sharp, are hon- therevenuegainsexpectedfromthe Mr Kato says: “Smart and tech-savvy dent Barack Obama came to see during ing their robotics skills. The companies The prime minister has products, says Mr Honda, who left people will flee to Silicon Valley if they his visit to Japan in April. In the US, are working on robotic suits, a human- pledged to make robots a Panasonicin2012. continue to face hurdles in the Japanese research into disaster-relief robots is oid with fingers nimble enough to do Panasonic’s robotic bed that turns market. A person frowned upon in often richly funded by the military. It sign language, and cleaning robots that key ‘pillar of growth’ into a wheelchair, for example, cleared Japan could suddenly be treated like a was US-made reconnaissance robots cantalkinseverallanguages. aninternationalsafetystandardforcare godintheUS.” Animated bears and bunnies score a hit with big business

Digital for a subscription-based music streaming service, and with publishers Kodansha and Shogakukan for distrib- utingonlinecomicsandothercontent. The main feature of the Niconico video-sharing site is that it allows view- ers to post comments on the video as it Start-ups plays. Combining streamed video and social media is meant to foster a feeling A chat-app sensation and a ofcommunityamongusers. video-sharing site show that For Nobuo Kawakami, Dwango chair- cute conquers all – especially man, the starting-point is his desire to build the antithesis of Google. If Google when backed by venture is all about algorithms and data analy- capital, says Keiichi Murayama sis, Mr Kawakami prefers to see the world as filled with subcultures and open to inconsistencies, a view perhaps For every 100 Japanese businesses, five informedbyhisstintasanapprenticeat gobankrupteachyearandfivenewones StudioGhibli,acultanimationhouse. open their doors. That is about half the Niconico now has 43m subscribers, comparable figures in the US and the Akira Morikawa: it’s about emotions including 2.3m paid-for accounts, and UK. In short, Japan has a slow business a growing fan base. Its main store in metabolism. usershavespreadbeyondJapantoother Tokyo, where it showcases entertain- True,thatmetabolismspedupabitin parts of Asia and the west, including ment fusing the online and real worlds, the 2013 financial year, when invest- Thailand, Indonesia, India, the US, features a studio for live broadcasts ment in venture businesses rose 80 per SpainandMexico. and a café. Niconico also scheduled a cent year-on-year to reach Y182bn When the company held a press con- participatory event for users in Singa- ($1.55bn at today’s exchange rate). But ference at the Tokyo Disney Resort in pore in early December, and plans that is still only about 6 per cent of the October to present its business ven- similar get-togethers to spread amountinvestedinstart-upsintheUS. tures, costumed characters danced to a “Niconico culture” abroad. Not surprisingly, spurring entrepre- specialsongcreatedfortheevent. In October, Niconico’s owner, neurial activity has become an impor- The characters in question – Brown Dwango, merged with Kadokawa, a tant element of Abenomics (the name the Bear and Cony the Rabbit – are publishing house that has been in busi- giventoagovernmentstimuluspackage familiar to anyone who uses the Line ness since 1945. Kadokawa had previ- introduced by prime minister Shinzo app on their smartphones to exchange ously had success with the Kagerou Abe).Alsoimportantisfosteringtie-ups messages. The characters appear on Project,whichproducednovelsandani- betweenstart-upsandlarge,established many of the “stamps”, or virtual stick- mation based on music posted on corporations. Niconico. The merged company will try Two IT ventures that exemplify the toreproducethatwinningformula. potential success of this strategy are The merger is symbolic of a trend in Line, the Tokyo-based operator of a call Japan’s contribution is Japan in which start-ups and large cor- and messaging app, and Dwango, which unique: soft and fuzzy, porations co-operate in pursuit of inno- through its subsidiary Niwango oper- vativeideas. ates the Niconico (“Smiley Smiley”) melding technology with In September, the Ministry of Econ- video-sharingwebsite. animation and games omy,Trade and Industry supported the Both Line and Niconico are business equivalent of a speed-dating immensely popular, and the companies ers, that users can purchase to place in event in Tokyo: 447 start-ups and 97 that run them are expanding abroad in theirmessages. big companies participated in the so- ways that highlight Japan’s strengths At the October conference Akira called Tokyo Innovation Leaders Sum- when competing on the global stage in Morikawa, Line’s chief executive, mit. Many large companies – including IT: cuteness or,to use the Japanese term sought to explain the popularity of the some of those that attended – are that is gaining recognition worldwide, stamps, which have become a cash-cow increasingly worried about their ability kawaii. for the company. “Communications tocreatenewvalueontheirown. Many countries are helping drive the have shifted. It is not just about the Forsome,co-operationwithstart-ups global IT revolution, including the US, exchange of information any more, but is a potential solution. According to China, South Korea, Israel and India. alsoemotions,”hesaid.“Thestampsare JapanVentureResearch,inthefirstnine But Japan’s contribution is unique. Its auniversallanguage.” months of this year, nine of the top 30 offerings are soft and fuzzy, melding Leveraging its smartphone app, Line biggest-spending venture capital com- technology with animation, games and has partnered with an array of compa- panieswerecorporateVCfirms. otherelementsof“CoolJapan”. nies in several sectors. It has teamed up Japan’s business metabolism may Take Line: the number of people with Mizuho Bank and Sumitomo Mit- not yet be quite as fast as that of the US, using the Line app has grown to 560m sui Bank for a payment system, with but beneath the surface something since the service launched in 2011. Its Entertainment and Avex maybestirring. 4 ★ FINANCIALTIMES Monday 8 December 2014

Japan Technology & Innovation Start-up scene begins to gain traction after slow start Titans fight

In the end he gathered enough cash to when starting out – well short of the improving, thanks in large part to a back and Venture capital go it alone, developing a self-financing Y6.2mtheysaidtheyneeded. Loans for start-ups and cluster of experienced firms such as One of the ‘seven pillars’ for business that grew into Bracket, a 30- The government knows things need new projects CyberAgent, SBI Holdings and Digital boost returns employee company based in the trendy tochange. Cases (’000): Garage, and characters such as shaking up the economy is TokyodistrictofShibuya. One of the ruling Liberal Democratic Total amount Regional banks Takafumi Horie, a disgraced tycoon to make life easier for risk Lastsummerhesoldupinastock-for- Party’s “seven pillars” for shaking up outstanding Shinkin banks & now reinventing himself as a start-up to investors stock deal to an ecommerce group the world’s third-largest economy is to (¥bn) credit co-operatives guru. Business “accelerators” have also takers, says Ben McLannahan calledStartToday,listedonthefirstsec- makelifeeasierforrisk-takers. sprung up around Tokyo and other big tionoftheTokyoStockExchange. Among the top measures are simpli- 250 20 cities, typically offering Y5m of seed Starting out was “really hard”,recalls fyingtaxproceduresforangelinvestors, moneyandsomelogisticalsupport. Continuedfrompage1 200 Yusuke Mitsumoto had a good idea: a MrMitsumoto,whoisnow33.“TheVCs “rationalising” the system of personal 15 On the debt side, too, there is . . . ”thelistwenton. website for small businesses to create were all really conservative. And loan guarantees, and changing laws to progress. The latest six-monthly report But analysts say there are significant their own online stores instantly, with- although I was willing to provide per- allow crowdfunding. From April next 150 by the central bank on Japan’s financial reasons why this new wave of restruc- outthehassleofhiringdesignexpertsor sonalguaranteestothebanks,therewas year,ventures should be able raise up to 10 system, published in October, shows a turingcouldlast. tryingtogetuptospeedthemselves. notrusttowardsnewcompanies.” Y500,000 from each investor, up to a 100 steady rise in loans to start-ups. The BoJ They refer to pressure from the But what he did not have was much Hisexperienceisnotunusual. total of Y100m. At the same time, the 5 says that the easing of credit standards administration of Shinzo Abe, prime moneytopursueit.Sowhenthe27year- Entrepreneursoftensaytheystruggle government recognises that Japan lacks 50 can be explained by banks’ aversion to minister, for companies to raise share- old quit his job in advertising in late to get up and running in Japan, where venture capitalists qualified to provide accumulating expensive government holder returns. Corporate governance 2008, he spent months appealing to big equity investors tend to be cautious and hands-on support – a problem that 0 0 bonds in lieu of loans, and a “growing was put at the core of the government’s Japanese venture capital (VC) firms debt investors like to see collateral and “training” and “inviting foreign 2003 05 10 13 awareness”oftheimportanceoffinding latest growth strategy this year, with suchasJafcoandcaptivefundsattached personal guarantees from the borrower. experts” could help resolve, according futuresourcesofrevenue. policy makers pushing three overlap- to big companies – only to be turned Even if a fund supplies equity capital, toapolicyplanpublishedinJune. Source: Bank of Japan “Ithinkthecurrentsituationismuch, pinginitiatives. downeverytime. valuations of businesses are typically The quality of homegrown VC execu- much better,” says Mr Mitsumoto, not- The first, a new equity benchmark – He also trooped around banks, which muchlowerthaninSiliconValley. tives can be “abysmal,” says Russell Japan and Hong Kong’sArbor Ventures. ing recent rapid growth in web- and the JPX-Nikkei 400 – was launched in said they were not interested in taking a That results in big gaps in funding. Cummer, chief executive of Exchange “Some have lots of money but no idea mobile-based businesses, in particular. January to steer funds towards compa- puntonabusinesswithnoassetsorrev- Last year a survey by a state-backed Corporation, a Tokyo-based financial how to invest, in what can be very “When I started, there were really very nies with above-average returns on enues – and certainly not in the depths bank found that entrepreneurs had an servicesgroupthathasraisedcashfrom human-capitalintensivebusinesses.” few people who knew about Twitter or equity and a good record of treating oftheglobalfinancialcrisis. average of Y2.3m ($20,000) in savings fundsincludingCyberAgentVenturesof Industry insiders say the situation is Facebook.” shareholdersfairly. The second, a new stewardship code for institutional investors which came into effect in April, was designed to encourage historically standoffish insti- tutions to challenge investee companies onthornymatterssuchaslowdividends Hope is that andalackofindependentdirectors. More than half of 160 sign-ups so far say they have accepted all seven princi- ples of the code, notes Yoshihiro Tan- aka, an executive director at Asuka more women in Asset Management in Tokyo, indicating thattheyare“sendingastrongmessage” toexecutives. The third initiative – Japan’sfirst ever the workforce corporate governance code, for compa- niesthemselvestosignupto–shouldbe ready by the summer of 2015. The code should serve as “an ignition key” towards“achangeincorporateculture”, will raise growth saysMrTanaka. A further catalyst for action is the weaker yen. In the two years from mid- November 2012, the Topix electric appliances index has more than dou- bled, adding Y24.7tn ($209bn) in mar- ket capitalisation, according to Bloom- berg data. That is testimony to the power of the currency to boost the prof- its of Japan’s companies, as dollar- Equality The targets for female participation are denominated exports and earnings overseasareconvertedtoyen. worthy but ambitious, reports Demetri Sevastopulo Overthefirsthalfofthecurrentfinan- cial year to March 2015, only the con-

hen Eikei Suzuki took labourforce,boostingthefemalepartic- A long way to go: spent most of his career at GlaxoSmith- to make changes, the government itself time off work following ipationrateby3percentagepointsto64 where are all the Kline,wherefiveoutof14currentboard hasalongwaytogo. Y24.7tn Y15.5bn the birth of his first per cent, which is “some evidence of salarywomen? members are women. “Gender equality Only11percentofnationalpoliticians Amount added to — Bloomberg/Tomohiro Topix electric child, it made progress”. Ohsumi is a topic across the world, but Japan is arewomen,andonly3percentofsenior appliances index ’s first- W news in Japan. In join- Keiko Takegawa, head of the gender not at the front of the pack. It’s more at civil servants are women. “This is the growth over half profit by ing the 2 per cent of Japanese men who equalitybureauinJapan’scabinetoffice, theend.” area where we ourselves have the big- two years weaker yen take paternity leave, the young politi- says the government is striving to bring One reason for the lack of women in gest headache,”says Ms Takegawa with cianbecameonlythesecondprefectural the 3.15m women who want to work but senior roles is a male-dominated corpo- alaugh. struction sector – boosted by public- governortotakethatroute. are not employed into the workforce. rate culture that is much slower in She says part of the problem is that works spending and projects related to Prime Minister Shinzo Abe wants Citing figures from the IMF, she says accepting women than other devel- parliament holds so many sessions for the 2020 summer Olympics – delivered more men to follow the example of Mr Japan could increase its per capita gross oped countries are. Ms Osawa says politicians to grill the government that better increases in recurring profit than Suzuki – who belongs to the cadre of domestic product by 8 per cent by that half the Japanese women who quit bureaucrats must work late into the the electrical equipment sector, accord- elite Tokyo University graduates who boosting its female labour force partici- theirjobssaidtheydidsobecauseofa nighttopreparetheanswers. ingtoMizuhoSecurities. have historically sacrificed time with pation rate to the same levels as seen in “dead-end feeling”. Whilesomewelcomethepush,others The tumbling yen is no panacea, of their families for their careers – as part northernEurope. Butforothers,theproblemisalackof are less impressed. Noriko Hama, an course. Many have discovered that of his policy to promote women in the The government has introduced childcare. On that front, Ms Takegawa economist who dubbed Mr Abe’s signa- more competitive prices, at least on a labourforce. numerous measures, ranging from says progress has been good. The gov- ture policy “Ahonomics” – in a play on dollarbasis,donotinstantlytranslateto Mr Abe has made “womenomics” a efforts to expand childcare places to ernment hopes to eliminate long wait- the Japanese word aho which means bettersalesvolumes. core part of his “Abenomics” policies, in urging companies to place at least one ing lists by 2018 by adding 400,000 “fool” – says the policies lack detail and Some of the notable laggards of the the hope that bringing more women woman on each board. In doing so, nursery school places. She says Japan focusonelitewomen. Abenomics-fuelled market since late into the workforce will raise Japan’s it hopes to increase the proportion of has added 190,000 places towards an She says a more vulnerable group is 2012 include JVC Kenwood, Pioneer growth potential. His supporters say he Japanese women who rise to become interimgoalof200,000byApril2015. single mothers trying to make ends Corp and Sharp. Hitachi and is giving women the kind of public sup- kacho, “section chief”, or to fill more This year, childcare benefits were meet on low-paid jobs in “black compa- Japan Display – formed from cast-offs portthathaslongbeenmissinginJapan, seniorpositions. raisedfrom50percentofyourlastwage nies”. from Sony, Toshiba and Hitachi – both while critics say his measures to make Machiko Osawa, head of the Research to67percent,andforbothmothersand ‘For women Sahoko Kaji, an economist at Keio made lukewarm initial public offerings women “shine” are simply vague poli- Institute for Women and Careers at fathers for six months. The government to advance, University, says the government has this year, and have since struggled to cieswithoutanyteeth. Japan Women’s University, says women wants to change the tax code, which introduced few concrete measures. She comeclosetotheiropeningprices. Kathy Matsui, the Goldman Sachs holdonly11percentofmanagerialposi- effectively penalises women who return there has to thinks things will change in the work- Nintendo, the Kyoto-based maker of strategistwhocoinedtheterm“women- tions in Japan, compared with 43 per toworkafterchildbirth. be a placeonlyafterabigculturalshift. video games and consoles, is another omics”, gives Mr Abe “B-plus” for his centintheUSand39percentinthecase It has also created a scheme called “There is only so much that Mr Abe subparperformer.ItsaidinlateOctober efforts. She says it is important that he ofFrenchwomen. Nadeshiko Meigara which rewards com- change in cando,”saysMsKaji. that a weaker yen added Y15.5bn to its has set targets – such as aiming to have That difference was highlighted when panies that provide a more welcoming perception “For women to advance, there has to first-halfprofit–equivalenttoalmost80 women occupy 30 per cent of senior Christophe Weber, a Frenchman, workplace for women. But the length of be a significant change in perception per cent of the annual net income it is managerial roles by 2020 – even if they became the first foreign president of the road ahead is illustrated by the fact among the amongtheoldergeneration.” forecasting. are“veryambitious”. Takeda Pharmaceutical this year. He that only 26 listed companies, including older But its latest quarter was still She adds that, since Mr Abe came to said: “This is the first time that I don’t NissanandHitachi,madethegrade. AdditionalreportingbyKanaInagakiand wretchedintermsofrevenues,withfall- power, 750,000 women have joined the have a woman in my team.” He has While Mr Abe wants corporate Japan generation’ NobukoJuji ingsalesinallsoftwarecategoriesandin everyhardwarecategorybartheWii-U. For inspiration, the laggards could look to Panasonic, whose shares have tripled in the two years since Mr Tsuga tookthehelm. Portable rooms and face exercisers look set to win fans Last month R&I, one of the top Japa- neseratingagencies,upgradedthecom- pany to a single-A from single-A minus, noting “shrinking deficits in flagging Consumer goods Mr Nagami’s Kotatsu Parka takes his causedastironlinethisyearwhenitwas panysaysthatithassold300,000Facial The sensor,when inserted into Lotte’s businesses”,solid free cash flow genera- portable room concept to a whole new endorsed by Cristiano Ronaldo. The FitnessPaos,morethanithadexpected. specially designed earphones, also tionandanimprovingequityratio. Recent inventions show the level. The kotatsu dates back to the 14th top-ranked professional footballer MTG says it developed the Pao using tracks biting and chewing habits and And in recent public statements, Mr century and is a low table with a heating appeared in Japanese-only advertise- research on facial muscles presented by sends the information to a smartphone Tsuga said he was considering acquisi- enduring appeal of quirky source beneath it and a quilted cloth sit- mentsfortheFacialFitnessPao. Tokyo University, one of Japan’s most app that will analyse and visualise the tions to improve the group’s position in but ingenious products, ting between the table top and its leg “Finally, I can train my facial mus- respected educational and research patternsithasrecorded. the auto parts and white goods market – writes Lindsay Whipp frame, extending over the laps of those cles,” he claims in the print version, institutions. The device will not only help people actions that would have been unthinka- seatedarounditonthefloor. though he manages to avoid being MTG says that the lines around the better understand the health benefits to bleafewyearsago. InMrNagami’stakeonthetraditional filmed actually using the strange-look- mouth are the most susceptible to the be gained from chewing, says Lotte, but Some recent inventions serve as a concept, four specially designed parka ingproductinthecommercial. ageingprocessandthattheaverageper- also, with some careful and precise bit- reminder that Japan’s appetite for the jackets, which can be zipped together to MTG, the Japanese beauty-product son only uses about 30 per cent of their, ing, enable them to control what they extraordinaryremainsundimmed. forma sortofwearablekotatsualthough makerbehindFacialFitnessPao,claims roughly,40facialmuscles. arelisteningtoontheirplaylist. The phenomenon of hikikomori – it is made from a stretchy, yet water- the device builds up facial muscles Popular innovations are often labour- The sensor is already being used in a young people who stay in their rooms proof, material, rather than the quilted around the mouth that are essential for saving devices and, with that in mind, public-private partnership project formonths,orevenyears, andlivetheir fabric that is usually employed over the keepingayouthfulsmile. Lotte, the Japanese-Korean conglomer- monitoringthedailylivesofelderlypar- lives predominantly online – has kotatsu. The product has a mouthpiece and ate, is developing a product that could ticipantsinHiroshima. prompted reams of research that Mr Nagami’s Hatra brand developed two flexible bars with weighted ends helpuserschangethetuneontheirplay- With Japan being one of the fastest- focuses on the problem, but it has also the Kotatsu Parka through a collabora- thatprotrudeeitherside,andswingver- listwithoutusingtheirhands. ageing societies in the world, there is an inspiredonefashiondesigner. tionwithtextilemakerKaytayTexinno, tically as the user bobs his or her head Lotte’s project is the Rhythmi-Kamu increasing focus on how technology can Recognising the tendency in himself, bag designer Yusuke Kagari and stylist- up and down. The company recom- (a combination of the English word contributetoolderpeople’shealth. KeisukeNagamidevelopedthethemeof curator Mikiri Hassin. The garment- mendsa30-secondexercisetwiceaday. rhythm and kamu, the Japanese for Lotte hopes that data gathered by the a portable room for his clothes, aiming cum-tablewarmercanbepurchasedfor Although the product looks amusing bite).Stillatprototypestage,theRhyth- Rhythmi-Kamu will prove useful for to take the snug, cocoon-like existence Y255,000($2,150). and has attracted humorous comments mi-Kamu uses a sensor device invented research in fields including medicine, ofbeingholedupinan–inevitablysmall Meanwhile, a completely different as well as doubts about its efficacy,sales by Hiroshima City University professor sports,beautyandeducation. – urban Japanese apartment out on to Japanese consumer product, which is havebeenstrong.accordingtoMTG. Kazuhiro Taniguchi, which reads facial thestreets. supposed to exercise facial muscles, Fourmonthsafteritslaunchthecom- musclemovements. AdditionalreportingbyNobukoJuji