Japan’s designated start-up city hubs will drive innovation and create employment opportunities, says GlobalData

Japan, once a global technology leader, is losing race to its peers in producing tech unicorns due to lack of conducive start-up ecosystem. Realizing it, in July 2020, the country announced plans to establish four start-up ecosystem base cities in and around Tokyo (Tokyo Consortium), Aichi (Central Japan Start-up Ecosystem Consortium), Kansai (Osaka/Kyoto/Hyogo Kobe Consortium) and Fukuoka (Fukuoka Start-up Consortium). The designated start-up city hubs will drive innovation led economic growth and generate employment opportunities, says GlobalData, a leading data and analytics company.

Japan has only three unicorns as of September 2020 while the US boasts 239 and China 121. As a result, Japan has so far failed to generate investors’ traction. Private equity (PE) and venture capital (VC)/seed funding in Japan totalled US$8.8bn and US$2.2bn during 2020 (as of 10 September), respectively, just a fraction of that in the US (US$119.6bn PE and US$86.1bn VC funding) and China (US$22.4bn PE and US$38bn VC funding).

Aditi Dutta Chowdhury, Economic Research Analyst at GlobalData, says: “The scenario is going to change and Japan’s new initiative will help in attracting investments to these cities. The base cities, which are identified based on the existing ecosystem consisting R&D base and large size of working age population, are likely to emerge as Silicon Valley of Japan.”

The start-up environment in these base cities will be developed in collaboration with public-private endorsement, presence of academic and research institutions, availability of PE and VC/seed funding. The provision of entrepreneurship education and accelerator programs, strong overseas network and start-up pitch events will support the ecosystem.

The Ministry of Economy, Trade and Industry (METI) launched J-Startup program for the development of start-ups in 2018. Local governments are also adopting policies to architect their own unique innovation ecosystems optimizing their strength and opportunities.

The Central Japan Startup Ecosystem Consortium launched incubator ‘Station Ai’ in 2020 and ‘Aichi Open Innovation Accelerator’ in 2019. Fukuoka Start-up Consortium supports a start-up hub ‘Fukuoka Growth Next’.

According GlobalData’s City Economic Database, the hub comprising Tokyo Metropolitan Area, Hamamatsu Metropolitan Area, Nagoya City, Osaka Metropolitan Area and Kitakyushu Fukuoka Metropolitan Area accounted for more than 40% of Japanese population and contributed 50% to the country’s GDP in 2019.

Tokyo Metropolitan Area, a trillion plus economy overpopulated with 38 million inhabitants, accounts for an overwhelming share of 35% of national GDP and 31% total employment in 2019. Abundant resources and opportunities will nevertheless push its growth trajectory higher.

After Tokyo, Fukuoka and Osaka are the next emerging cities with an expected economy size of over US$200bn by 2025. Fukuoka, awarded with ‘National Strategic Special Zone for Global Start-ups & Job Creation’ and Osaka with its government backed start-up community ‘Osaka Innovation Hub’ grant entrepreneurial aids to facilitate their business, also welcome foreign entrepreneurs.

Ms Chowdhury concludes: “The designated start-up city hubs will further stimulate migration into these areas, with a projected 1.3% population growth by 2025, in contrast to the country’s depopulation trend.”

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