Businesses and Entrepreneurs in Japan and Italy

In the past few years, a new generation of Japanese entrepreneurs has emerged; boosting hopes that venture businesses are poised to become a new catalyst for the enfeebled Japanese economy.

Japan's small business sector already accounts for more jobs than the big corporations, such as Sony and Toyota, but a large proportion of smaller companies are subcontractors whose fortunes are totally dependent on big companies. Only now is Japan starting to develop a business environment conducive to entrepreneurial growth.

Of the three main ingredients needed to foster venture business - risk money, a structural frame-work and an entrepreneur friendly culture - the country has attracted the first, is improving the second, but needs to move forward on the third.

"The reason why there is a business chance for us is because the social structure is changing as a result of the internet", says Hiroshi Mikhani, 34-year-old founder of Rakuten Ichiba, Japan's most popular shopping mall. "Old skills are becoming less important than internet expertise and money is flowing to new businesses rather than the mature industries", he says. Internet entrepreneurs are also leaving the relative sanctuary of larger companies to set up on their own, something which is still rare in Japan. Meanwhile the Japanese authorities have been scrambling to make the country's legal and structural framework more venture business-friendly.

In the past Japan's reliance on indirect financing through banks also discouraged the development of risk capital. "The head of a big bank may know what it's like to have difficulties in raising 100bn Yen but he doesn't know what it's like to try to raise 500.00 Yen", points out Masao Horiba, founder and chairman of Horiba, a leading manufacturer of measuring instruments.

But while the money flows in and structural change increases, the critical question is whether Japanese culture can change sufficiently to support more entrepreneurs. "Japan's venture capital sector is like a brand new race track. The track and stands have been built, the gamblers have arrived - but there aren't any horses". Says Mr. Horiba.

Meanwhile, Italy has a highly successful scheme to help young people start their businesses; entrepreneurship seems part of the culture working for yourself commonplace. There is an assumption that if people fail - and 46 percent do so within 5 years - they will learn from their mistakes and start again.

Few Italians start a business with bank support they save their start-up capital sometimes for years, and borrow from parents, other family members and friends. Italy has almost no merchant banks and the fragmented banking sector is tightly regulated because of past banking failures. Banks have therefore become risk-averse and reluctant to lend.

Of scores of entrepreneurs interviewed for the OECD evaluation, only two had successfully borrowed money from the bank under the government loan guarantee scheme, thus avoiding up to three years of saving to accumulate capital. The rest had started from their own or privately-borrowed resources and then used growing turnover to expand. This was found to aid survival, nurturing financially conservative entrepreneurs, who did not ever extend and calculated risks carefully.

Source : Financial Times, October 14^th 2008