By Graham Burton
Ordinarily, it takes twenty years for a company to go from start- up to flotation in Japan, compared to around four or five years for the average company floating on the US’s hi-tech dominated Nasdaq market. But Masayoshi Son, the maverick founder and CEO of internet holding company Softbank Corp, successfully took Yahoo Japan from foundation to flotation in just 22 months.
Son’s record-breaking flotation was an exception in the normally sedate Japanese businessworld. Yet even he could not overturn the rules that force companies to first float on the volatile and illiquid over-the-counter (OTC) market, before they can ever think of graduating to the more highly respected Tokyo Stock Exchange (TSE). That can take some time. For example, twenty- year-old Softbank was only admitted to the TSE in January 1998, while Oracle Japan continues to languish on the OTC market.
Given that, it was no surprise to find the entrepreneurial Son behind the proposal announced in July to set up Nasdaq Japan. A joint venture between Nasdaq and Son’s Softbank, the idea is to provide a more welcoming stock market environment for young Asian technology companies and, in particular, internet ones. To reassure potential investors, US Nasdaq rules will be followed to the letter: listed companies will be required to file detailed quarterly reports, appoint outside auditors and agree to comprehensive investor risk disclosure. In addition, Nasdaq Japan will provide the means for local investors to trade in Nasdaq’s 5,000 quoted stocks. And not only will it provide Nasdaq corporate information in Japanese, but it will also enable Nasdaq trades to be executed using yen, as well as US dollars.
The timing of Nasdaq Japan could not have been better. After a decade of economic stagnation, Japanese business people are more willing than ever to embrace Western notions of start-up capitalist ideas that a decade ago would have been treated with disdain. Furthermore, the success in recent years of US technology giants, such as America Online Inc, Cisco Systems Inc, Dell Computer Corp, Microsoft Corp and Oracle, contrasts sharply with the faltering performances of Japan’s sprawling, often- lumbering conglomerates – Fujitsu Ltd, NEC Corp, Hitachi Ltd, Toshiba Corp, Mitsubishi Electric Co – that dominate the technology scene in that country.
Indeed, most entrepreneurs or start-ups are drawn into these conglomerates largely because emerging companies find the prospect of going it alone too daunting: with no stock market geared to growth companies, there is little incentive for venture capitalists to invest. As a result, the number of flotations in Japan is low compared to most countries in Western Europe, let alone the US. In a good year, 20 hi-tech companies might make it public in Japan, says Brian Riordan, director for Japan at merger and acquisition specialist Broadview.
With little VC money available, many start-ups are funded and almost entirely owned by one of the conglomerates. Furthermore, without an affiliation to one of these giants, it can be difficult for a start-up, particularly in electronics or computer hardware, to find customers willing to take a chance on its products. But the prospects for Japan’s growing number of entrepreneurs and start-up companies have brightened during the last two years of economic turmoil. Internet start-ups, in particular, are sprouting up. That is being helped by the fact that internet penetration, at an estimated 17 million users, is reaching critical mass and the Japanese telecommunications ministry is pushing for the introduction of flat-rate pricing in a bid to drive up internet adoption.
However, perhaps most influential of all have been the waves of job losses that have swept through many of Japan’s biggest corporations in recent years. This has not only released entrepreneurial talent, but also the management talent that may not have taken risks in the past. As a result, attitudes towards ‘jobs-for-life’ have started to shift. People don’t look at a good job at NEC like they once did, says Riordan.
But Japanese entrepreneurs are still typically faced with the prospect of providing the initial funds for start-ups out of their own pockets, and loans are only available if guaranteed by personal collateral. Although venture capital funds such as Techno-Venture and the Nippon Enterprise Development Corp are prepared to invest in high risk technology start-ups, they rarely do. Japanese venture capitalists are not risk-takers, says Jun Hosoya, assistant manager in the portfolio division of NEDC.
With the launch of Nasdaq Japan planned for the second half of 2000, Son is hoping to change all that. Already, the feedback is good. In the light of the announcement, THine’s Iizuka is bringing forward his company’s plans for an IPO. But it remains to be seen which other elements of Japan’s business culture warm to the idea.
A longer version of this article originally appeared in Computer Business Review
