Local Initiative for Nurturing Venture Businesses and the Role of Academic Societies

Y.Shiozawa

a paper presented at the International Symposium on Ventures under the IT Revolution, on June 1st, 2001, held at the Chonnam National University, Kwangu City, Korea.

Local Initiative for Nurturing Venture Businesses and the Roles of Academic Associations

Yoshinori Shiozawa
Osaka City University

1. Regional Features of the Kansai Area

Kansai is the name of the region that includes Osaka, Kyoto, Kobe and Nara. It is not a region that is strictly defined. Sometimes it indicates six prefectures but in other cases it indicates eight or nine prefectures. Excepting Kobe, which is a relatively new port city, Nara, Osaka and Kyoto are old cities which were each once the political capital of Japan. The region is also rich of historical monuments. It cotains more than half of the total number of national treasures and cultural assets of national importance.

Economically, Kansai was once the most important region of Japan. In the Edo period (1600-1867), Osaka was the center of commercial activities. It was once called the Kitchen of the Nation. In the earlier half of the 20th century, the Kansai region became prosperous with its textile industry. The region accounted for about 40 percent of the Gross Domestic Product.

However, the World War II changed drastically the industrial structure of Japan. Decision making was concentrated in Tokyo. Every nation-wide industrial association was requested to locate its head office in Tokyo. The only exception was Japan Association of Cotton Industry, whose head office was and is still in Osaka from its foundation. Heavy industries, which provided war materials, were located outside of Kansai.

Even after Japan was finally defeated in 1945, the highly concentrated administrative structure was not changed. On the contrary, concentration proceeded in all domains. A typical example is the structure of the mass media. Now Japan has five national newspapers, namely Asahi, Yomiuri, Mainichi, Nikkei and Sankei. Among these, three originated in Osaka, i.e. Asahi, Mainichi and Sankei. These three companies still keep their registration address in Osaka, but major functions have been concentrated in the Tokyo main offices. For example, weekly journals like Ekonomisuto and Sunday Mainichi have been edited and published in the Osaka offices but the highly concentrated book distribution system enforced them to move theiroffices in Tokyo. The Japan's book distribution is serviced by two bigs, Nippan and Tohan. This duoploly structure is also the legacy of war economy. Asa legal concept, broadcasting was designed to promote regional autonomy. Each broadcasting company is independent, in capital, management, and editorial policy. In the radio era, this idea was realistic. But TV broadcasting totally changed the structure. TV broadcasting stations were given permission to operate in each prefectural region. But the production of TV programs was too costly to be supported by a single broadcast station, and stations were serialized into four major TV groups with leadership in programming and production concentrated in ket Tokyo stations. Publishing companies were now alswo concentrated in Tokyo. tokyo accounted for more than 90 percent of the number of publishing houses and more than 95 percents of the number of editors.

As a result of political, industrial and informational concentration in Tokyo, the economic importance of Kansai was greatly reduced. Kansai now counts 22 million people, the 17 percent of the whole nation's population. The region produces only 17 percent of the Gross Domestic Product. Once prosperous Kansai has been reduced an ordinary region whose economic share hardly keeps uo to the national average.

During the last 10 years, which is sometimes called "the lost 10 years of Japan," Kansai was hit harder than other regions. For example, the unemployment rate of the region is 1 percent higher than the national average. Kansai is particularly heavily hit by the economic depression of the 1990's. There are two reasons for this. First, Kansai experienced the land-price crash more abruptly than Tokyo. Second, this region features rather traditional industries and the percentage of small companies is higher than in the Tokyo and Nagoya regions. This is not a bad condition in itself but in the 1990's these traditional industries, typically composed of small enterprises, were hit harder than others because their Asian counterparts improved the quality of their products while keeping low prices. The total volume of imports increased so much that the imported goods now occupy a high percentage of every common item. Kansai, and Japan as a whole, aggressively implement structural changes in its industries.

2. Importance of Venture Business Promotion Policy in Kansai

Kansai was once a region rich in entrepreneuship. According to a report made by the Nomura Research Institute (the thinktank of the house of Nomura), Kansai inaugurated 45 items among the total 75 items that were listed as new business models of the post-war period (1945-65). If this is accurate, Kansai produced 60 percent of new business models. Some of famous innovations of Kansai include instant Ramen (noodles), sharp pencils, sports newspaper, discount stores, Arusaro (or Arbeit salon, a type of pink salons), rooftop beer gardens, marking pens, pre-fabricated houses, ticket vending machines, and others. Karaoke and computer games were also invented in Kansai, which are two major Japanese inventions that have changed the lifestyles of the people.

Major companies such as Sanyo, Murata Mfg., Kyocera, Omron, Daiei, Noritsu Koki, and others are all venture businesses arising from the post-war chaos. The trouble in Kansai is that the region has somehow lost its dynamics and energy and cannot produce new venture enterprises as it did before and after the war. There are a few exeptions such as Rohm, Optecs, Mont Bell, Culture Convenience Club, and Kapcon. These companies started late in 1980's or 1990's and are now powerful in their own fields. Except for these exceptional companies, Kansai now does not produce enough new venture enterprises. If the old established companies could increase production and the number of employees, there would be no problem in the region. In the period of high-speed growth (1950-1973), and even in the period of stable growth (1975-1990), it was these old and large companies that lead economic growth. Now this is impossible. They have to fight in fierce cempetionwith Korean and Chinese enterprises. They are forced to reduce domestic production and expand overseas production due to large wage discrepancies.

The most viable solution is the creation of new products and services. Most new products emerge as a result of research and development activities. The importance of R&D activities is constantly increasing. Having a good troop of reserachers is now crucial to the prosperity of large companies. One of the most important questions for these companies is how to build up good technology management.

As for new services, R&D plays a less important role than indeveloping new products. The introduction of a totally new services requires the establishment of new companies and distribution networks. Convenience stores, chains, outlets and other category killers, fast food shops of various kinds, Aoyama men's suit shop, and typically the Uniqlo brand of low price casual wears are all successful new services created by the introduction of new business forms. They have introduce new business models. In this way, they created a new market and a new organization. The role of venture business enterprises is clearly apparent in these areas.

New goods and new services are not exclusive of each other. New services often open markets for new products, and new products create new markets and new service forms.

These two factors are imperatives for economic recovery of the Japanese economy. The governments and economic organizations are making efforts in order to promote venture businesses. Many laws and policies have been adopted in the past few years to facilitate the creation of new enterprises, to introduce incentives, eliminate various regulations, and to make it easier to be listed in a stock market. In the domain of R&D, a new fundamental approach for the promotion of science and technology has been put in action. The Ministry of Education provided most of the national universities a venture laboratory and a liaison office for promotion of cooperation between universities and industries. Local governments are eagerly seeking to put into action various measures to promote the creation of new business enterprises.

It has been said that Japan is now at the end of its third boom of venture businesses. The first boom occurred in the early 1970's. In 1971, Kiyonari, Nakamura and Hirao published a book entitled "Venture Business: a small big company which sells brains." It is widely believed that this established the concept of "venture business" in Japan. The book has sold well, for in two and half years, it is in its 10th printing and a revised edition has been published. Unfortuanately, the first oil shock put an end to the first venture boom. The second venture boom came in the first half of the 1980's. After riding out the second oil shock relatively well, but facing the catch-ups of other Asian nations, venture business seemed to be a good solution for the Japanese economy. But the second boom did not continue for long. Some leading venture companies went bankrupt and people thought ventures were too dangerous and not suited to Japanese conditions. When I organized in 1989-90 a lecture series on venture businesses by the venture business people, one of my acquaintances in the business world questioned my judgement in taking up this declasse [editorial note: last e with accent aigue] topic as a theme of a lecture series. Most people were talking about financial technology, or "Zai-tech", and did not consider the importance of changing the industrial structure. One famous economist once declared that it was a sin not to engage in Zai-tech. When I published in 1991 a book that contained the major part of the lecture series, the venture business was not yet in a boom, and the book has not sold as wll as we expected. In this year bubble economy crashed and Japan entered a long depressed economic period.

The third boom came at the middle of the 1990's and continues to today. This was the longest venture boom ever in Japan. People talked a lot about a financial crisis, both for financial companies and for general contractors and developers. However, most people came to understand Japan's problem as not only financial. Considering on the new economic order that appeared as a result of the dynamic growth of Asian countries, it is easy to see that we have no other solutions than to shift our activities to new products and services that are original among Asian companies. Other Asian companies were quickly catching up to Japanese technology. For common products, Japan has no competitive advantage if we consider the big differences in wages between Japan and other Asian countries.

Some people say that the third boom is a real one, for it has more width and depth than experienced in the two previous booms.

3.Various efforts made in Kansai

Let us come back to the problems of the Kansai region. Every local government and economic organization is endeavoring to nurture and promote new venture enterprises.

The following is a rough sketch of kinds of efforts made by various local bodies.

Tax and business regulations are the main policy responcibilities of central government. Special incentives are given to local governments by offering subsidies for specific measures that are thought to be effective for the creation of venture enterprises. Among these are financial assistance such as low interest rate credit or assurance for small ventures that want to borrow from banks. There are also capital funds that can be invested in venture enterprises. It is my opinion that the Japanese financial assistance system has put too much weight on giving credit instead of maiking investments. This is not a good plicy either for the governments or venture entrepreneurs. The local governments have a big chance to loose its fund if they really want to assist small venture companies. The tax payers do not like to learn that etjeir governments are loosing an enormous amount of money to create new enterprises. The necessary funds should be recouped from the investment. The entrepreneurs also suffer heavily when they do not succeed, for the they must to assure privately the total debt of the company. This inappropriate condition is understandable only when we consider that most assistance institutions are modifications of small business salvation measures.

There are also many economic bodies that work to nurture venture enterprises. An association was founded to promote new businesses in Kansai region, the New Business Conference Kansai (NBK). It was founded in 1987 on the initiative of about 200 companies that has a keen interest in new businesses. The NBK now has about 400 companies and individual members. It organizes a major conference each year, inviting about 1,000 people and giving special awards for outstanding venture enterprises. I assumed the chairmanship of the selection committee of the NBK grand prix in 1989.

The NBK accepted a research grant from the Ministry of International Trade and Industry. A grand design to create a non-official NBK Venture University was made. According to the plan, a lecture series for venture assisting individuals, a series of lectures for entrepreneurs and a lecture series for capitalists were inaugurated for each year. This year the NBK is planning to organize an Investment Conference to complete the vision of the NBK Venture University.

Other traditional economic organizations have also made efforts nurture venture enterprises. Members of the Kansai Federation of Economic Bodies (or Kankeiren) established the KS Venture Forum, which is an investment capital fund. The Osaka Chamber of Commerce has established a special workshop whose mission is to open opportunities fornew venture businesses.

Recently the Kansai Productivity Center has started to work as a supporting branch of a forum called the National Forum for New Enterprises and Ventures.

Even private companies are trying to promote entretpreneurship by offering large amounts of money to employees who want to start new ventures. Large established companies like Kansai Electric Power, Osaka Gas, and Shimadzu Mfg. are offering 1 billion to 5 billion Yen for such strat-ups.

4. Toward a New Concept of Promotion Policy

When we talk about promotion and nurturing of venture businesses, sooner or later, we end up talking about policy. But the cinventional concept of a policy seems too classical. It usually means a measure taken by central or local governments. Government's policies and institutions are important. However, when we talk about ventures, there are too many important things for a government to do. These efforts should be supported by society in general.

It is my opinion that we should go forward one step further in reconsidering the concept of policy. In these two or three decades, we see a reorientation from macro-economic fine tuning to a more microscopic industrial policy. However there is a limit to what governments can do. It is necessary to open a new sphere of public policy. It takes a common effort of concerned to improve the common situation of a region or country.

This is a major conceptual change of a concept. Let me cite Karl Polany's triangle. Polany thought that every society is supported by a combination of three integrative forces: change, redistribution and reciprocity. Change is the integrating principle of the market. Redistribution is the integrating principle of all political bodies from a tribe to a nation. Modern society mainly is mainly based on two priciples: the change principle or market economy and the redistribution principle or the state. Reciprocity is something that has been forgotten for a long time, but after a half century of Keynesian policy and the protective but interventionist State, we come to realize that these two principles are not comprhensive at all. Reciprocity is the mutual relationship which creates a public domain without appealing to the State.

The state relies on imperative forces, the major two being tax raising and deployeing a police force. In some cases, as in the catching-up phase of an economy, state intervention is effective and efficient. But now, as is universally observed, state intervention is full of weaknesses and inefficiency. There are a lack of agile action, too much bureaucracy, rent-seeking of interest groups, and corrutption. We should reorient our policy concept to a second public sector of reciprocity or voluntary collaboration for common good of society and the region.

When I think of the IT revolution and the necessity to raize Kansai to the desirable level of adaptation to IT, the new concept seems much more relevant. As you know, the crucial difference of the IT revolution from other industrial revolutions is its rapidity. Some people talk about the dog year. In five years or so, the economic conditions have changed from the ground up. The Internet developed rather slowly, for the first phase of the Internetgoes back to 1970's when it was called the Arpanet. A big jump occurred when the WWW system, including home pages, was introduced. It was in 1993 that the WWW protocole was agreed. The first WWW browser MOZAIC was intoduced in the same year. In 1994, Netscape evolved from the seeds of MOZAIC. The next year Microsoft followed by launching Internet Explorer. It was only 1995 that the Internet system arrived at the level of commercial utilization. Since then, only 5 years have passed. But what a big change in the industrial and commercial landscape! From Yahoo!, Amazon.com , AOL to all other forms of e-commerce, from publicity to transaction, from a simple payment system to a more sophisticated money clearing system, the commercial possibilities changed drastically.

Unfortunately, Kansai is not the leading region in the IT revolution. It is not much behind the Tokyo region, but we cannot be satisfied by the present situation. For example, one of Japan's leading field is its portable telephone system. The "i-mode" or e-mail system installed in portable telephones is a recent successful innovation. The i-mode nertwork has several hundred official sites. People call these sites to get information or to have fun by getting cute character images. For this kind of service people pay 100 to 300 yen per month. Each person pays only a small amount, but if a sevice can get a million customers, the total income each month exceeds 100 million yen or one million U.S. dollars. Since the idea of i-mode came from the00 editor of a magazine based in Tokyo, 90 percent of official cites have been provided by companies in the Tokyo area. People pay a small amount of money without knowing that this amount goes to Tokyo. Essentially, the i-mode has built up a system that collects money from all over Japan and brings it to Tokyo. I call this system a new tribute system. If one wants to comtest this trend and construct a different system that permits money to circulate inside the region, one cannot rely on the central governments because it is a puppet of the Tokyo establishement. Local governments have been deprived of budgetary independence and cannot take measures that reflect the needs of the region.

As long as we keep to rely on the measures taken by central or local governments nothing can be done. Governmental policy making processes are too slow compared with the high speed time of the IT revolution. Economic bodies have a similar weakness to local governments. It takes at least two or three years before concrete measures are taken. Consequently, we should think of a new solution to the policy question.

5. The Kansai Association for Venture and Entrepreneur Studies and its aims

The Kansai Association for Venture and Entrepreneur Studies was established this year on February 12. originally ithad a bit more more than 200 members and now has more than 300 members. I was requested to assume the chairmanship and am now the first president of the Association. This is not the first Association to focus on ventures and entrepreneurs. There is also the Japan Academic Society for Ventures and Entrepreneurs. This society was founded in 1997 and is in principle a nation-wide society, but its activities are concentrated in Tokyo. I and other members of the Kansai Association are also members of the JASVE.

JASVE has two objectives. One is that of a normal academic society, to study ventures and entrepreneurs. Policy making and policy assessment are a part of that study. The other objective of JASVE is to participate more directly in creating new venture businesses. This was our main motivation to create the same kind of academic siciety in Kansai.

An academic society is a kind of non-profit organization whose activity is based on the voluntary contributions of its members. There are many forums and economic associations who work itoward the incubation and nurturing of new venture businesses. The advantage of an academic society is that its initiative comes from university professors. They are interested in venture enterprises. They are usually thinking on a policy level. Accordingly, they are preachers or opinion leaders. If they work together to change society to a more risk-taking spirit, they may have a certain influence by their prestige and by their nerworking in the press and other circles. The second adantage of an academic society is that it can work at low level cost. For example, to organize an annual meeting of 400 people, an economic body requires more than 3 million yen. To do the same thing an academic society can do with at about half the cost.

In Section 4, I emphasized the necessity to enlarge the concept of a policy to common efforts made by society. The Kansai Association for Venture and Entrepreneur Studies is itself an example of that new concept of policy. The Kansai Association has the same objectives as JASVE. Research in purpose, nurturing venture business is the other purpose. We don't have no huge fund, since Association's expenses are covered by membership fee, which are 10 thousand yen per year for regular members and 5 thousand yen per year for student members. Our total expenditures cannot exceed 3 million yen. Even though our total budget is very small, we believe that our activities are worth far more than 10 million yen.

The society's main activities involve the work of research groups on specific topics. So far, the Kansai Association serves eight research groups. Three other groups have been proposed.

This is a list of our affiliated research groups:

Innovations Research Group
Internationalization Research Group
Civil Business and NPO Research Group
Entrepreneurs Research Group
Students Venture Research Group
Capitalization of Cultural Asset Research Group
Policy Rehabilitation Research Group
Human Services Research Group

Other research groups such as :

Business Strategy Research Group
Marketing Activities Research Group
Teaching Materials Development Research Group

have been proposed and developed.

The fact that the Kansai Association can organize eight research groups is remarkable. JASVE itself only has 10 research groups after activities of 3 and a half years. Our efforts have just started. For details, please consult our home page: http://www.kansai-venture.org/ I am personally trying to promote this home page as a nerve center of Kansai, for Kansai is in short of a brain and nerve system. If this attempt can be partially realized, we can get a powerful tool to reorganize a regional communication channel.

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