Opportunities in Japan: German Deep Tech Startups Can Thrive within Japan’s Society 5.0

Japan has a rapidly growing startup scene, driven by the collaboration of corporations and startups. The inception of the economic growth policy ‘Abenomics,’ Japan’s prime minister Shinzō Abe’s suite of fiscal policies in 2013, has been a significant force behind transforming Japan into a world-leading startup and technology ecosystem.
Traditionally, Japanese corporations have been known to be slow-moving and risk-averse. However, in more recent years, they have shifted their attention and invested more capital into nimble and fast-moving startups to accelerate innovation processes. This is highlighted by the fact that 25 of Japan’s 44 companies ranked in the Forbes Top 500 are engaging with startups in one way or another, such as Toyota Motor and Panasonic.

Another key driver in this shift is the amount of corporate venture capital investments that have been flowing into the country, especially in the deep tech fields. According to Tech.Eu, this also led multinational corporations from Europe, such as Airbus and Deutsche Bahn, to fund  Japanese startups in this sector, opening up the possibilities for European and Japanese collaboration.

Germany and Japan at the Forefront of Industrial Digitization 

Germany and Japan have been central partners for industrial digitization since 2016 and have collaborated on the Platform Industrie 4.0 and the Robot Revolution and Industrial IoT Initiative to set the international standards in smart manufacturing. With several government-led projects to foster the advancement of Japan’s tech industry, there are a number of opportunities for German startups facilitated through many well-known similarities between Germany and Japan: due to the excellent engineering skills and leadership in manufacturing and craftsmanship, both countries heavily rely on the manufacturing of exports which are in demand globally. From a cultural perspective, collaboration is favored as well:  both nations are serious about their work, prompt in timekeeping, and precise in execution.

In 2019, 87 percent of companies surveyed by the AHK in Japan stated high sales potential as the main reason for their business activities there. Almost nine out of ten (89 percent) said the number one benefit of doing business in Japan is the stability and reliability of business relations.

The Rise of Deep Tech in a ‘Super-Smart’ Society

Society 5.0  addresses a number of key pillars, such as infrastructure, fintech, health tech, and logistics. It also envisions a new social contract and a sustainable socio-economic system powered by the incorporation of digital technology from Industry 4.0, such as AI, IoT, and data analytics. The goal is to embed these innovations into every corner of society in order to overcome the country’s aging population, falling birth rate, and poor rural infrastructure.

Japan’s High-Growth Industries for German Deep Tech Startups to Explore 

In its own words, Japan wants to create a “super-smart” society that will serve as a road map for the rest of the world. Here are some of the key industries under which Society 5.0 will drive innovation and offer significant opportunities for German startups.

• Health tech – The quickly aging society in Japan causes an increase in medical and social security expenses and a surge in demand for elderly care. Startups providing remote digital health, health tech, and palliative care can capitalize on this. By digitizing and connecting the health sector and sharing medical data across hospitals, effective medical treatment can be provided based on patient data. Patients will no longer need to visit hospitals frequently.
• Mobility: The fast-growing e-commerce segment has seen a shortage of drivers. Hence, distribution and logistics efficiency can be improved by introducing innovations such as a single driver cargo truck in convoy using an unmanned-following-vehicle system or drones. Driverless buses and taxis will make public transportation more readily available for those living in more rural areas.
• Infrastructure: Although Japan is very advanced, there is a deterioration of public infrastructure. Japan’s rapid economic growth period has created a shortage of skilled labor and increased the financial burden for inspection and maintenance. By employing new technologies such as IoT, AI, and drone surveillance, early detection of repairs and maintenance can be carried out, and downtime will be minimized.
• FinTech: A high proportion of Japanese money transactions are still carried out in cash and at banks. To improve financial services in Japan, startups who can introduce open application programming interfaces (API) to FinTech firms and banks will find success.

There are many opportunities to promote cashless payments and security in global business transactions.

Our Tips to Navigate Doing Business in Japan 

Japan is known to have a “high context” culture as Japanese people are relatively homogeneous, and share a long history of common values and assumptions. This means that for foreigners communicating with Japanese organizations, communications tend to be less explicit and are harder to understand.

As you embark on your expansion journey into Japan, keeping the following tips when it comes to Japanese business culture in mind is essential:

1. 1. Be Punctual and Manage Time Well
      Timeliness is very important as it shows respect for your Japanese counterpart. This doesn’t just mean being punctual for a meeting, but you should also be aware of the duration you have scheduled for your meeting and stick to the allotted time.
   2. Have an Established Product or Solution
      Japanese corporates are more willing to interact with or invest in products that have been tried and tested. Be prepared to share use cases and elaborate on how your product or solution has gained traction in your home country.
   3. Patience is a Virtue
      Decisions are often made by consensus. Be prepared for longer sales cycles compared to Europe. The speed of decision-making in Japan is a lot slower, and you should expect more stakeholders to be involved.
   4. Don’t Get Lost in Translation
      To avoid miscommunication, you should always follow up with an email on the points agreed as well as the actionable items after every meeting.
   5. Be Humble, Never Over-Promise and Under-Deliver
      Your word is your bond. Be cautiously realistic about your plans and what you are going to deliver.

While navigating in Japan’s business environment may take more time and understanding compared to other markets, the opportunities in Japan’s strong innovation ecosystem, as we have outlined, are substantial and timely for German deep tech startups to pursue.

If your startup is considering Japan in your expansion journey, find out more about how we can help you with our German Accelerator Next Step program.