Until recently, Japan had been a bit slow with introducing start-ups in the tech industry. Although the country ranked the third largest economy by GDP in 2021, the number of unicorn companies was below ten as of 2023 (far lower than hundreds of unicorns operating in the United States or China). However, experts say that Japanese Startups have undergone various changes within the culture and business policies, especially since the pandemic.

Japan’s Tech Industry: Before and After the Pandemic

According to some reports, a large part of stagnating development in the Japanese tech industry comes from its culture. People in Japan are said to be less prone to changes and mistakes. University graduates seek lifetime jobs with low risk, unlike Silicon Valley entrepreneurs who embrace high-risk, high-return ventures.

When COVID-19 hit in early 2020, it was the beginning of a different story. Many raised concerns over slow, mixed communications for pandemic-related information. The fact that communication was often based on mail was another pain point, as people obtain necessary information late or, in the worst case, never. Many workers were forced to start teleworking despite certain technical difficulties. The rate of teleworkers rose from approximately 17 per cent in 2016 to 27 per cent in 2021.

The Kishida administration started to pour more money into the tech sector, especially for unconventional agencies like start-ups. The year 2022 was designated as the “First Year of Start-up Creation”. The government outlined a five-year initiative to promote and foster start-ups, backed by almost 1 trillion yen (US$7 billion) worth of support. The plan includes tax breaks for large corporations acquiring domestic start-ups and enabling early-stage start-ups to access more bank loans.

Not only money but also human resources are slowly flowing into the start-up sector. For example, public service workers – considered one of the country’s most secure jobs – are seeking career changes with the emergence of start-ups recently. In 2022, Tokyo-based job agency En Japan reported that the number of public servants who moved to companies founded less than 20 years ago has increased by four times. 

Spotlight: Fast-Growing Startups of 2023

Several Japanese companies came under the spotlight with start-up fostering policies. One known start-up is PayPay, an online payment app based in Tokyo, founded in 2018 when cashless payments started to gain attention in the country. The number of users of this app shot up over the pandemic years, and it reached almost 57 million last year. The growth of this company partly owes to the administration’s recent policy changes; last October, the government allowed companies to pay out wages via digital wallet apps like PayPay. 

The country opening borders in October 2022 was good news for start-ups seeking foreign customers, too. TakeMe, also a company based in Tokyo, founded in 2015, secured more than $US1.8 million from its investors as international tourism became available again. 

When first founded, the company’s leading service was helping foreign tourists book tables at local restaurants without language barriers, partnered with travel agencies. Right before the pandemic, TakeMe introduced TakeMe Pay, which connected over 100 payment apps. During COVID-19, the company provided the contactless food ordering service TakeMe Order. 

Remaining Challenges for Japanese startups

Despite the growth within the Japanese startups ecosystem, several challenges exist. One of the biggest problems is cultural differences. In a society where people value societal harmony over individual successes or profits, some say it will be challenging for risk-venturing startups to find opportunities in Japan. Nevertheless, studies also show that this kind of traditional mindset has changed over time.

Fresh college graduates not wanting to work for start-ups is another challenge. Less than 2% of university students responded that they are planning to join start-ups after graduation, per the report.

Lack of connections outside of Japan is also a problem to be tackled. Research published by Carnegie Endowment for International Peace in February says Japan’s startup ecosystem has primarily developed compared to fifteen years ago. However, “global linkages” for collaborations are required for further development.