Japan has long been a nexus of technology and innovation in East Asia.
Even through the pandemic, Japan continues to rank high internationally among top startup ecosystems. Tokyo itself ranks fifth for global cities, and Japan as a whole ranks sixth among Asia-Pacific countries. As more and more German startups look east for growth opportunities, founders should take note of Japan’s long-standing reputation as a center for international business in Asia.
Here are just a few (of many) reasons why the Land of the Rising Sun is exciting for German startups wishing to expand internationally in 2022 and beyond.
Japan: A Global Startup Hub
Within the APAC region, Japan is well-known for its ease of doing business and both the quantity and quality of its global startups.
Even in light of COVID-19, the Japanese government has been highly supportive of startups. Entry support investment has come from both the public and private sectors, while leading research hubs continue to share business insights on the Asia-Pacific region. In 2021, startup investments exceeded US$8 billion – the largest amount in Japan’s history, and in 2022, analysts predict that number to be the same or higher.
At the same time, Japan realizes that investment alone is not enough for startups to thrive. In 2021, the government launched its Digital Agency to accelerate the digitalization of corporate and social infrastructures. In turn, this creates more opportunities for startups to help with digital transformation efforts.
In addition, a new division of the Ministry of Economy, Trade and Industry (METI) has been created to specifically support the startup ecosystem in Japan. In 2021, METI cultivated Fukuoka and Kyoto as leading startup hubs in Japan. In 2022, startup incubation and support will accelerate even further with additional state-sponsored funding and programs.
Here are just a few of the Japanese sectors and industries where startups can excel in:
1. Renewable Energy & Climate Tech
For startups working in the GreenTech and Climate Tech sectors, the Japanese market offers a number of opportunities.
Japan has ambitious sustainability targets, such as doubling the proportion of renewable energy by 2030 and achieving a net-zero society by 2050. These goals have resulted in significant investments in the Environment, Social and Governance (ESG) sector, as well as seen steep growth in demand for GreenTech talent.
In December 2020, Japan’s METI formulated its Green Growth Strategy towards 2050 Carbon Neutrality. The strategy focuses on 14 key sectors, including four Climate Tech industries:
- Offshore wind power
- Fuel ammonia
- Hydrogen fuel cells
- Nuclear energy
As a result of the national strategy, Japanese markets are an open field of opportunity for startups focused on renewable energy or Climate Tech.
2. Healthcare & Life Sciences
Healthcare and life sciences are other strong sectors of the Japanese market that are ripe with opportunities for German startups.
Japan is home to solidly established industries in pharmaceuticals, medical equipment, preventative healthcare, regenerative medicine, and nursing care services. But these sectors are expected to grow alongside Japan’s rapidly aging population. As Japan’s digitization of healthcare accelerates, the country will need more research and innovation in HealthTech.
In the life sciences sector, the Japanese government is providing explicit support to foreign companies and startups within the industry. In fact, Japan has been a successful incubator for a number of healthcare startups. Hundreds of life science startups have emerged from the University of Tokyo, and an increasing number of companies in the sector are bringing solutions to clinical trials.
Kyoto University – with Professor Shinya Yamanaka’s Nobel Prize work in cellular research – is also a leading hub for regenerative medicine studies. Yet Japan’s research strength reaches beyond just its universities. The Kansai region – which includes the Osaka, Kobe, and Kyoto metro areas – is the heart of Japan’s biotech industry. Kansai is home to more than 300 life sciences companies, top medical institutions, and institutes for advanced healthcare research.
Investment from the private sector is also robust for the life sciences in Japan. Beyond Next Ventures launched a US$50 million fund primarily focused on healthcare startups. Another investment firm, Mizuho Financial Group, opened a US$47 million investment fund for life science startups.
3. Advanced Manufacturing & Robotics
Japan has long dominated both advanced manufacturing and robotics. In 2022, they’re set to continue.
Being a manufacturing superpower for so many years built Japan into the world’s third-largest economy by GDP. In Fiscal Year 2019-2020, manufacturing accounted for about 20% of Japan’s total GDP. This manufacturing prowess is spread across sub-sectors as diverse as automobiles, industrial robots, semiconductors, and machine tools.
Given Japan’s position at the forefront of robotics, this market is expected to keep growing for some time. The Japanese government has launched their “Connected Industries” strategy to promote and support smart factories. They’ve also created incentives to return production bases to Japan. As part of this strategy, startups can take advantage of tax support for introducing systems, sensors, robots, and other manufacturing productivity equipment.
Startups in Tokyo are also supplying robots and satellites to the growing global space industry – a sector that is on track to generate more than US$1 trillion in revenue by 2040.
The Japanese financial technology (fintech) sector is set to grow 51% annually to US$11 billion through the end of 2022, according to FinCity.Tokyo.
The government has invested heavily in promoting Tokyo as a fintech hub. Japan’s digital payments market is advancing fast, with the government aiming to have 40% of transactions be cashless by 2025. In 2020, the amount of money transacted via cashless systems exceeded US$36 billion – nearly four times the previous year’s figure.
The introduction of JPY Coin – a stablecoin released in January 2021 – illustrates the Bank of Japan’s ongoing efforts to create a digital yen. Such developments are likely to further popularize digital payments and Japan’s cryptocurrency ecosystem, offering new opportunities for fintech innovation. Japan’s low interest rates also encourage investment into cryptocurrency.
Startups are taking advantage of these favorable market conditions in Japan. Mobile banking startup Kyash raised a total of $68.9 million over four rounds. Another automated investment advice company Money Design raised US$107.2 million in funding over 9 rounds.
Startups looking to explore Asia in 2022 will find Japan to be full of opportunities. In fact, the government has declared that innovative startup ecosystems are of strategic importance to Japan’s future.
Whether you hail from one of these trending innovation industries or your business model is a bit more traditional, the Japanese market has a lot to offer German startups and SMEs. As one of Asia’s largest and most affluent markets, Japan is a safe and friendly environment for global businesses.
If you’re considering an expansion of your startup or SME into the Japanese market and want to learn more, check out our programs tailored for Japan.