Japan is a leading center for innovation, boasting an attractive business environment within one of the world’s largest economies. International companies are drawn to this market because of its advanced R&D capabilities, mature system of laws, and developed consumer base.

Although expectations around a company’s Environmental, Social, and Corporate Governance (ESG) impact have recently gained global importance, this ethos has endured in Japan’s corporate culture for hundreds of years. The “shuchu kiyaku” (code of ethics), a 17th-century document from Japan’s Tokugawa period, has since encouraged corporations to think beyond profits, which many Japanese conglomerates strive to uphold today.

Japan is currently forging ahead with innovative research and development to solve its environmental problems and realize a green society. We chatted with industry experts Ryo Koba, Deputy Director General of JETRO Düsseldorf, and Takashi Nishida, Senior Manager at ITOCHU Europe, to learn about Japan’s sustainability ecosystem and the corporate collaboration opportunities for German startups in this space.

Where do you foresee the growth of Japan’s sustainability ecosystem?

Koba-san: Japan has recently set a long-term goal of becoming a carbon neutral society by 2050 and has formulated a “Green Growth” Strategy to create a positive cycle of economic growth and environmental protection together with the business community.

The Japanese government has also identified 14 areas with high growth potential that will help achieve its 2050 goal:

(Source: Japan’s Ministry of Economy, Trade and Industry (METI))

Of these, I see at least three key areas of opportunity for German startups to explore:

Advanced Digital Control Technologies: With the increased use and demand for digital technologies in Japan’s energy sector, energy-saving services such as AI-powered visualization of energy consumption, data analysis, and operational improvement support will grow this market to $74 million (¥8.1 billion) by 2025.

Renewable Energy: According to the International Energy Agency (IEA), Japan’s offshore wind power potential is the third-largest worldwide and will increase significantly in the future. As a maritime nation, Japan’s offshore wind power generation capacity is expected to reach 1.5 GW by 2030, making it the world’s seventh-largest wind power producer.

Hydrogen Energy: Japan possesses advanced technologies related to hydrogen energy and has the highest patent applications in the field of hydrogen fuel cells globally. Against this backdrop, it also has the second-largest market share of fuel cell vehicles worldwide and is expected to maintain its market share in the coming years.

Such market trends also indicate the enormous growth potential of Japan’s sustainability sector in the coming years.

Is this sector open to foreign innovation?

Koba-san: The Japanese government supports various initiatives that bring overseas sustainability solutions to their shores.

Japan’s Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) recently launched the J-Bridge business program to encourage cross-border open innovation by matching foreign startups with Japanese corporations.

Numerous online exhibitions and conferences are also being held for foreign companies to understand and network with Japanese companies in the sustainability ecosystem, showcasing the importance of tech innovation and disruption in this sector. It is the right time for German startups in this sector to explore expansion opportunities in Japan.

Nishida-san: Japanese corporations now understand the importance and need for open innovation and are actively looking for suitable sustainability solutions, whether local or foreign.

For example, Europe’s advanced sustainable infrastructure and renewable energy technology, such as offshore wind farms, is highly sought after in Japan; hence local corporations are open to work with European companies to import their experience, technology, and knowledge.

As part of the business development team at ITOCHU, a Japanese multinational company, I actively identify and evaluate solutions that would help advance our eight business lines, and connect suitable European startups with my regional colleagues for collaboration, investment, and M&A opportunities in Japan and Europe.

What type of sustainability innovation is ITOCHU interested in?

Nishida-san: With “Sampo-yoshi” as our business spirit, sustainability plays a crucial role in ITOCHU’s strategy. In Japanese, “Sampo-yoshi” means three-way good, i.e., business activities that are beneficial to buyers, sellers, and society at large.

We have sustainable activities across our upstream and downstream operations, supporting innovation in new energy and infrastructure, sustainable supply chain, and e-mobility. EV fleet management service/solution, infrastructure/platform, battery, and circular economy are some of the focus areas we’re keen on collaborating with foreign startups.

How do you assess a foreign startup’s suitability for ITOCHU?

Nishida-san: As a strategic investor, we look for synergies between foreign startups and ITOCHU’s existing business lines. If a solution fits well with the business strategy, we collaborate with the startup to adopt its technology for our solutions in Japan.

A good example is our partnership with Moixa, a UK CleanTech startup that helps optimize our energy storage systems. Energy storage is important in Japan’s households due to increased roof top solar power generation and more frequent power outages from natural disasters, and Japanese consumers have trusted and used ITOCHU’s systems since 2013. Adding Moixa’s AI-based energy management platform to our existing hardware helped provide more sophisticated control mechanisms in emergency situations and automatically reconfigured systems to the latest regulatory conditions. This system upgrade has been highly appreciated by our customers in Japan.

What are the challenges a German startup should be prepared for when considering Japan?

Nishida-san: Without a strong differentiator such as a unique value proposition or competitive advantage, foreign startups will find it hard to gain market acceptance. If similar solutions already exist locally, Japanese companies would prefer collaborating with them because of the ease of communication.

Entering the Japanese market without ecosystem support is also challenging. Having the right local partner is crucial from various aspects, including market experience, regulatory understanding, customer knowledge, and communication.

It is important for startups to do their homework and understand local competition with the help of country and industry experts before tackling the market.

What’s your advice to German startups who would like to collaborate with Japanese companies like ITOCHU?

Nishida-san: Diligence, punctuality, and trust rank highly in Japan, so adhering to these principles is vital for good business collaboration. Similarly, humility and open communication are essential in building trust with Japanese corporations.

Having an actual use case, however big or small, is also essential to showcase how the solution can be applied in Japan. Including previous and ongoing use cases/projects from Europe in presentations to Japanese corporations is recommended.

If you’d like to get started on your expansion journey into Japan to explore this exciting opportunity, check out our Market Discovery program or speak to Matthias, our company scout!