Awaiting a New Generation of Global Japanese Companies

Facebook, Zynga, Groupon, LinkedIn – the last 12 months have seen a succession of blockbuster initial public offerings by U.S. technology companies. Although their stock prices have fluctuated, these companies have established themselves as leading global players. Their success also raises a question: where are their Japanese equivalents?

Japan's global players seem a little stale. Toyota Motor Corp., Mitsubishi Corp., Sony Corp., and Nippon Steel Corp. have been around for decades. And their global importance has declined; Japanese companies' share of Fortune Global 500 revenue dropped from 35% to 13% between 1995 and 2011.

There are, however, signs of change. Many Japanese companies are renewing serious efforts to globalize their operations. And a few new players, such as Rakuten, GREE, and Fast Retailing (Uniqlo), are threatening to break through as global brands. It remains to be seen whether they are exceptions or leaders in a resurgence of Japanese companies on the world stage.

What is the current U.S. recipe for success, and how does it relate to Japan? First, the U.S. companies mentioned above have all offered an exciting new product or service that meets a core customer need, and they've executed well. Any number of Japanese companies have created revolutionary products and services as well – although they are arguably better at meeting the needs of Japanese rather than global customers.

Second, U.S. firms thrive in an environment rich with the ingredients necessary for business growth: talent, capital and technology. Entrepreneurial U.S. companies with great ideas can easily attract the best and brightest workers and fuel growth with external capital. Popular hubs of new business, such as Silicon Valley, Seattle, New York, are pushing the technology frontier.

In comparison, Japan still falls short. Lower labor mobility and most companies' unwillingness or inability to fully utilize non-traditional talent, including younger workers, women and foreigners, create a significant constraint (but also an opportunity). Japanese capital does not flow freely; investors are much more focused on protecting their assets than on generating bigger returns by taking bigger risks.

Third, U.S. companies follow a direct path to the global stage. Japanese companies have traditionally relied heavily on export markets. However, U.S. companies have the benefit of working and selling in English. They also are much more inclined to market (read "hype") their products than are Japanese companies.

Finally, U.S. companies benefit from growing up in an entrepreneurial "climate" that is highly conducive to dreaming, launching, and building change-the-world businesses. Entrepreneurs and self-made people are idolized, and even failure is dismissed as a part of the learning process.

In Japan, financial returns to entrepreneurs are lower and the newly successful often attract unwelcome scrutiny. Failure has severe career and personal consequences – especially for people without strong pedigrees.

Last month, while Facebook was going public, Rakuten boldly led a $100M investment in the U.S. social media company Pinterest, and Uniqlo announced plans to dramatically grow its international footprint. It's not clear whether either company will succeed, but they may signal the emergence of a new generation of global companies in Japan – and that is good for Japan and the global economy.

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