After a year of unprecedented worldwide turmoil, Japan is positioned for strong economic growth on track with a global recovery.
February 26, 2021
Last year should have been a banner year for Japan, with the Tokyo Olympic Games set to follow the country’s successful hosting of Asia’s first Rugby World Cup and the enthronement of its new emperor in 2019. While the pandemic did force the postponement of the prestigious sporting competition amid a slumping global economy, Japan is poised to make up for lost time in 2021.
Japan’s GDP returned to growth in the third quarter last year as foreign demand for Japanese goods fueled a trade surplus. This rebound, which represents the fastest pace of growth in more than 50 years, is expected to continue; in October, the IMF predicted Japan’s economy will expand by 2.3% this year.
Overcoming adversity to achieve success is nothing new for Japanese industry, and leading companies such as Canon, Kikkoman Corporation and Mobile Internet Capital (MIC) have once again displayed their ability to adapt and innovate during periods of volatility.
Canon Chairman and CEO Fujio Mitarai, who has led the company since 1995, is helping the company weather short-term uncertainty by focusing on strategies for positive transformation and long-term growth. While the pandemic posed challenges for Canon’s businesses—technicians have had to quarantine for weeks when travelling overseas, for example—Mitarai has kept the firm’s historic evolution into a strategically diversified imaging solutions provider on course.
While growing its traditional camera and printer businesses, Mitarai has also significantly expanded Canon’s medical and industrial equipment arms. The company is also innovating in sectors such as diagnostic imaging equipment and nanoimprint lithography, and plans to invest heavily in OLED display manufacturing equipment for smartphones and TVs.
Yuzaburo Mogi, Honorary CEO and Chairman of the Board of Kikkoman, is another corporate leader adept at adapting to changing conditions. Since he made the then-revolutionary decision to build a factory for the soy sauce maker in the U.S. in the 1970s, he has embraced innovative thinking to ensure Kikkoman’s continuing success.
Resolute in his belief that the most resilient firms are those that learn from experience to become stronger and smarter, Mogi sees the current environment as a time for strong leadership to leverage the company’s collective wisdom to achieve the best results.
As Japan’s first technology-focused venture capital firm, MIC has built its impressive reputation on looking to the future, and the company is helping drive the transformation of society by investing more than US$240 million in promising startups. Kan Ebisawa, President and CEO of MIC, is confident that technology will not only foster economic growth, but also provide a bridge between Japan and the rest of the globe.
As the world attempts to adapt to the new normal, companies—and leaders—such as these are well placed to face challenges head on and drive Japan’s future success.
Canon: Visionary Resilience
Despite the significant impact of the COVID-19 pandemic, Canon is continuing to reinvent itself into a diversified solutions provider under the leadership of Chairman and CEO Fujio Mitarai.
The year 2020 was very challenging for businesses around the world, and global manufacturers were no exception. The COVID-19 pandemic disrupted life in public spheres—from retail outlets to offices and factories—as well as supply chains and distribution. Canon, however, has been engaged in a historic transformation into a strategically diversified imaging solutions provider that is well-positioned to weather the crisis.
A steady, experienced hand can guide businesses in uncertain times. Chairman and CEO Fujio Mitarai has led Canon since 1995, navigating it through other challenges such as the Global Financial Crisis of 2007-2008. Canon’s business portfolio has adapted to enormous changes over the past few decades, not least of which has been the shrinking of the traditional camera market with the advancement of smartphones. However, Mitarai’s vision has led the company through five consecutive five-year phases of the medium-to-long term Excellent Global Corporation Plan, with Phase V completed in 2020. Canon is now more efficient, nimble and responsive to markets, making it as close to future-proof as possible.
Weathering the Storm
“Since we are truly a global company—with 25% of sales in Europe, 29% in the U.S., 22% in Asia and Oceania, and 24% in Japan—we are greatly affected by global developments, and this pandemic has been no exception,” says Mitarai. “The global economy was already quite divided even before it began, with antiglobalization movements such as Brexit and “America First” policies. When the coronavirus spread, the whole world hit the pause button.”
With the pandemic affecting so many countries, the second quarter of 2020 saw record drops in economic output. But this was followed by the lifting of lockdowns and large-scale economic stimulus packages, leading to recoveries in employment and spending in the United States. The pandemic also had unexpected effects: Canon technicians had to quarantine for weeks when traveling overseas to install steppers—essential equipment for semiconductor production. Meanwhile, with offices locked down, companies were not using office multifunction devices, printers and consumables such as toner. But the flipside is that with so many people working from home, Canon has seen favorable sales of personal printers. Meanwhile, as global businesses resumed normal operations in the third quarter of 2020, Canon’s own business recovered.
Unlocking Vast New Markets
Despite the economic disruption, Canon has continued its long-term transformation. Mitarai follows three principles when entering a new business: it must be sustainable, it must have a vast market, and it must have affinity with Canon’s existing businesses and technologies. For example, Canon has applied optical technology cultivated by its camera business to other industries. The company entered the network camera business and expanded its presence by acquiring Sweden’s Axis Communications, a leading company in the field, in 2015. The firm’s expertise in network cameras resonates with Canon’s extensive experience in professional and consumer cameras. Once limited mainly to these areas, cameras are now a key part of industrial businesses, with applications ranging from network cameras in smart cities to computer vision for collaborative robots. Canon has continued to innovate with developments such as the world’s first 1-megapixel single photon avalanche diode (SPAD) image sensor, which will enable cameras in vehicles and robots to capture high-resolution imagery in three dimensions. By leveraging the lens, image sensor and image processor technologies developed through its camera business, Canon is expanding further into the vast market of the optical industry.
Other examples of change include Canon’s entry into commercial and industrial printing with the acquisition of Dutch printing company Océ, now Canon Production Printing, in 2010. Not only did this build on Canon’s existing home and office printer lineup, it gave the company access to the enormous market of industrial printing, including labels and packaging. Similarly, in 2016, Toshiba Medical Systems Corporation was welcomed into the Canon Group. Since renamed Canon Medical Systems Corporation, the company is a leading provider of diagnostic imaging systems such as X-ray, magnetic resonance imagery (MRI) and computed tomography (CT). Canon has been striving to make its diagnostic imaging equipment even better—one such example is the Aquilion Exceed LB CT system, which uses artificial intelligence technologies to improve the clarity of images. In the field of healthcare IT, AI can help address discrepancies in how radiologists interpret images, facilitating quick and accurate diagnosis.
In addition to these new businesses, Canon has transformed itself by continuing to build upon its traditional strengths. For instance, Canon has been a leading semiconductor lithography equipment maker for 50 years, producing reliable machines with a 99% operating rate. While it was believed that circuit miniaturization had reached its technological limit, Canon has developed nanoimprint lithography, which is considered the most advanced technology for the miniaturization of circuit patterns on semiconductor chips. With nanoimprint, circuit patterns can be produced with higher resolution and more uniform results than conventional optical lithographic approaches. In addition, nanoimprint semiconductor production equipment does not require the use of a light source or high-aperture lens elements, thus making possible simple configurations and compact designs that enable users to install a cluster of systems for increased productivity. Meanwhile, Canon plans to intensively invest in and develop OLED display manufacturing equipment for smartphones and TVs.
Powering Future Innovation
As Canon turns to the future after completing Phase V of its Excellent Global Corporation Plan, Mitarai is determined to continue going all out to transform the company’s camera and printer businesses while also expanding its medical and industrial equipment businesses. His goal is to have these businesses account for at least 50% of Canon’s total business by 2025.
“I truly believe every company has to grow by meeting the demands of society in which it operates,” says Mitarai. “The worth and capabilities of a company depend on factors such as the market, economic policy and innovation. In terms of innovation, we’ve seen great advancements in digital transformation, and we’re continuously searching for and making large investments in new technologies. But this process is really about transforming ourselves. We must continue to change, because only by transforming ourselves can we evolve and move forward.”
A native of Kyushu, Japan, Mitarai decided not to follow his father and brothers into medical school, but instead joined Canon, where his uncle served as the first president. Five years later, he was posted to Canon’s U.S. headquarters, where he stayed for 23 years, eventually becoming President of Canon U.S.A. Back in Japan, he was later appointed President of Canon Inc. before becoming Chairman and CEO.
Kikkoman’s Chairman Yuzaburo Mogi reflects on how the food giant is adapting to pandemic realities to emerge stronger and more resilient.
The year 2020 will long be remembered for the havoc that Covid-19 wreaked on the global economy. Restaurants were among the hardest hit, either closing or shifting to takeout only. Even today, the food service business in general is facing serious trouble. Yet certain strong brands seem to have fared better than others. A good case in point is global food giant Kikkoman Corporation.
“Of course, the pandemic seriously affected restaurant sales, which especially impacted our wholesale business,” says Chairman of the Board and Honorary CEO Yuzaburo Mogi. “As people shifted to eating at home, consumers naturally turned to brands that they know and trust. Thanks to support from individual customers worldwide, our sales figures remained relatively solid.”
The always-affable Mogi seems to have taken the coronavirus crisis in stride, but in fact he is quite concerned about its long-term implications: “The pandemic has put us in a unique position. No one really knows what the future will look like. Employees don’t know what to expect, so they look to management for guidance. This is a time for strong leadership. Senior management shouldn’t make unilateral decisions, but should leverage the wisdom of the company as a whole. In Japan, we trust in bottom-up management. That means leaders listen to ideas from every department, consult with their senior strategy staff, and then determine the best way forward.”
That sounds reasonable, but errors in judgment are inevitable. What if top management makes a serious mistake?
Mogi’s response is simple and direct: “It happens. In that case, you sit down with your strategy team, look at the situation objectively, and adjust your plan quickly.”
He goes on to discuss a number of changes that the “corona shock” has brought to Japanese companies.
“How should we train our staff now?” he asks rhetorically. “Before Covid-19, everyone learned about their job, and about business in general, through informal, one-on-one talks with a mentoring superior. Now, there is much less direct communication. People are meeting virtually, not going out drinking with their mentors. So now we have to formalize something that was never formal, and create a new structure to handle ‘informal’ training. I’m not sure the new approach will be as effective.”
Companies everywhere are struggling to anticipate the post-pandemic “new normal.” What does Mogi think will happen when the crisis is over?
“One thing I can say for certain is that things will not go back to the way they were before. For example, each company handled telework differently, so their responses in the post-pandemic era will also vary from company to company. When the pandemic ends, we will not give up telework, but we will need to seriously consider how many of our staff should be in our offices and how many should be working remotely.
“What is the ideal ratio? I don’t know, but I do know that telework is here to stay.”
What else will change?
“The new normal will look a lot like pre-corona days, but with important differences. One of the biggest is the way that we think about risk,” he says.
After more than 300 years in business, Kikkoman has dealt with almost every external risk a company can face, so what is he getting at? Mogi replies that resilient firms learn from experience and become stronger and smarter.
“Covid one day may be gone, but something like it could appear again. Every few years some new virus might sweep across the globe. While that was always a possibility before, now it is a reality. All business entails risk, so strong, resilient companies will learn to adapt and deal with it. The new normal will be different from the past, but business will go on.”
Igniting Global Innovation
Mobile Internet Capital, Japan’s first tech VC, is on the hunt for high-growth startups.
Through all the challenges of 2020, investors have turned to technology stocks as one of the few growth areas during the coronavirus pandemic. Companies that enable work from home in particular have benefited from changes in work and lifestyles. As countries around the world look to reopen economies in the post-coronavirus era, investors specializing in technology will be best placed to benefit from the recovery. With over 20 years of experience in technology innovation, Mobile Internet Capital (MIC) is Japan’s oldest venture capital firm dedicated to technology, and is leading the transformation of society with over US$240 million invested in promising startups.
Finding the Next Generation of Disruptors
Tokyo-based MIC has a team of seven fund managers focused on finding Japan’s next big disruptors. It’s a leading player in the expanding industry of startup funding in Japan: In 2019, about 1,400 Japanese startups raised US$4.09 billion, up from US$800 million raised by 968 new businesses in 2010, according to research firm Initial, which highlighted software as a service (SaaS) as a major trend last year.
The movement comes as major Japanese financial institutions, blue-chip companies, universities and governments have accelerated their funding of startups. This has led to calls for more high-valuation companies—there are only four Japanese unicorns, or privately held startups valued at more than US$1 billion, according to CB Insights. Some observers have said relative to its GDP and status as the world’s third-largest economy, Japan should have at least 50 to 60 unicorns. MIC is leading the charge to find these innovators.
“We invest in a broad range of areas in the tech sector, including communications, fintech, blockchain, healthcare and other IT-related technologies,” says Kan Ebisawa, President and CEO of MIC. “Part of our DNA is a belief that technology can foster growth in the economy, and that’s why we have maintained a consistent focus on these areas.”
One of MIC’s most recent high-profile initial public offerings is HEROZ, an AI-solutions business cofounded by a prodigy in shogi, or Japanese chess. Having grabbed headlines for developing an AI engine that defeated a human shogi champion, HEROZ debuted on the Tokyo Stock Exchange’s Mothers market for startups in 2018 and saw its share price increase a record 11-fold between its IPO and the start of regular trading. Cofounded by Takahiro Hayashi, a former world amateur shogi champion, the company offers HEROZ Kishin, an AI solution that helps users unlock the value in their data. HEROZ is seen as a trailblazer in Japan’s thriving AI industry.
Another of MIC’s recent successes made its debut on Mothers in September. Founded in 2004, rakumo is an award-winning provider of cloud-based software for Google Workspace tools that has helped businesses streamline their operations while eliminating inefficiencies. Among other merits, it allows users to benefit from paperless meetings, easy-to-use company bulletin boards, and accelerated information sharing. It ’s a desperately needed solution as Japan grapples with a shrinking workforce and aging population.
“Rakumo is a global company, with offices in Tokyo and Vietnam, offering low-cost SaaS solutions for office automation,” says MIC Chief Investment Officer Arata Motoki. “They make it very easy for Japanese companies to use Google Workspace with customized, automated tools.”
MIC is also fostering innovation outside Japan. One of its recent investments is ICHX Tech, a Singaporean fintech company. Its iSTOX is a blockchain-based security token offering (STO) platform that combines the advantages of initial coin offerings with traditional securities. ISTOX is billed as the first regulated platform that operates from a major global financial center to offer issuance, settlement, custody and secondary trading of digitized securities. The system lets users easily invest in private companies around the world by harnessing the power of blockchain technology. For instance, users can buy units in hedge funds and discretionary funds as well as a fund that invests in logistics hubs in the U.K. and Poland.
“There has been a lot of interest in initial coin offerings in recent years, but lack of government regulation has been an obstacle to significant growth,” says Ebisawa. “ISTOX is the first government-regulated STO platform in Asia with real-world investments, achieved in cooperation with the Monetary Authority of Singapore. This has the potential to be a massive market. We believe the STO industry will bring about a whole new world of investment opportunities in the next 10 to 20 years, with decentralized trading and none of the high costs and inefficiencies of traditional investing.”
A Solid Track Record
Betting on STO technology as a transformative force reflects MIC’s fundamental philosophy of nurturing disruptive agents of change. MIC’s name harkens back to the dawn of the internet on mobile networks. The firm was established in 1999 by Ikuo Nishioka, a leading business figure and maverick entrepreneur. Nishioka famously retired from his position of chairman of Intel Japan at the age of 56—almost unthinkable in Japan. A passionate technology evangelist, he previously spent 23 years at Sharp and wrote a book whose Japanese title translates as “Business Managers Who Don’t Care About IT Should Quit Now.” He set up MIC with ¥6.5 billion (US$59.3 million) in funding from a consortium including NTT Docomo, Japan’s largest mobile carrier, Internet Research Institute, a systems integrator, and IBJ Securities, now part of major Japanese brokerage Mizuho Securities. The three companies are still shareholders in MIC.
Even though 1999 was a long time ago in technology terms, Nishioka realized that information and communications technology (ICT) would usher in enormous transformation throughout society. At the time, Japan was transitioning from narrowband to broadband communications, and ADSL connections had just been made available for individuals. That was also the year that NTT Docomo inaugurated its pioneering i-mode service, which allowed users to surf the internet, shop and complete financial transactions on their mobile phones.
While much has changed over the past two decades, including the advent of smartphones, cloud social media, cloud computing, deep learning and Internet of Things, MIC’s goals remain the same since its establishment: to invest in startups with promising core values, not just companies that are part of current trends, and to invest in businesses that will have a positive impact on society.
In early 2000, MIC launched its ¥6.5 billion (US$59.3 million) Mobile Internet 1 Fund, which invested in tech startups such as online bookseller eBOOK Japan and navigation services company NAVITIME JAPAN. The latter has grown to become the leading provider of travel guidance in Japan, not only for public transit but also driving, cycling and walking, and has launched a wide range of services in North America, Europe, China and Southeast Asia. MIC followed its initial success with its ¥4.6 billion (US$39.1 million) Asia Technology Fund in 2006. It provided funds to startups such as rakumo, HEROZ and SiTime, a Silicon Valley-based electronics manufacturer that has produced over 1.5 billion timing devices for 200 applications used in mobile devices, vehicles and even earthquake-detection systems.
The year 2011 saw the launch of the ¥6 billion (US$76.6 million) MIC Innovation III Fund. It provided capital to companies such as Showcase, a Tokyo-based web marketing and SaaS business, and Techpoint, a fabless developer of high-definition camera chips. While Techpoint has headquarters and design division in Silicon Valley and manufacturing in Taiwan, it went public on the Tokyo Stock Exchange. The company is led by Japanese serial entrepreneur Hiro Kozato, whose track record includes founding Techwell, a provider of in-vehicle displays and security surveillance that was sold to semiconductor maker Intersil for US$455 million in 2010.
In 2016, MIC’s ¥7.6 billion (US$63.1 million) Innovation IV Fund offered funding support for companies including Xirapha Karte System, also known as Kirin Karte System, and CLIPLA, both Japanese providers of solutions for cloud-based medical record systems. Another of MIC’s healthcare-related investments is Modulus Discovery. Founded in 2016, Modulus is a preclinical-stage drug discovery company with offices in Tokyo and Boston. Concentrating on oncology, chronic inflammation and immune disorders, and rare genetic conditions, Modulus describes its mission as “pursuing its proprietary portfolio of small-molecule discovery programs and collaborations through integration of its unique core biology insights, cutting-edge discovery platform, and scalable networked operations.”
Says Ebisawa, “Modulus is harnessing the power of supercomputer modeling for drug discovery. This approach can also be used to find new materials.”
In 2019, MIC invested in another group of promising new businesses with its ¥10.5 billion (US$105 million) MIC Innovation V Fund. The company’s current investments include startups covering a wide range of innovative growth industries that are already changing society. QBIT Robotics, for instance, is a Tokyo startup founded in 2018 that is intent on developing automation solutions that include robot bartenders and other applications.
“We expect service robots will be used in everyday life, including situations like bars and cafes,” says Miao Chunting, a MIC Senior Investment Manager. “We anticipate the cost of robots will decline over the next five years, but they will need a platform to allow them to carry out useful applications. QBIT Robotics provides that platform, making many applications available to users.”
Another MIC investment, Agatha is a Tokyo startup that provides automated processes for creating, managing and tracking documents used in clinical trials. MIC has also funded Azit, known as Crew, a Tokyo business set up in 2013 that is helping open up the field of mobility as a service (MaaS).
Over its 21-year history, MIC has invested in dozens of businesses in and outside Japan, and has helped 19 startups go public. To accomplish this, it relies on a group of experienced technology professionals.
The Right Team
The MIC team is made up of talented fund managers who are dedicated to selecting and working with the most promising startups embarking on their journey toward growth and scalability.
An engineering graduate of Japan’s prestigious Waseda University, Ebisawa first worked at Sony as an optical disc engineer. He later worked on Sony’s technology strategy in areas such as material devices, IT and software, before launching Sony’s highly successful PlayStation Network business, an experience that allowed him to accumulate expertise in integrating hardware and networks as well as in the creation of new businesses. Joining MIC in 2018, Ebisawa has helped shape the growth trajectory of numerous startups, giving him over 40 years of insight into what businesses need to succeed in a rapidly changing market.
Leading the team with Ebisawa is Motoki, who earned a master’s degree in engineering from Keio University as well as an M.B.A from Waseda University before working as an intellectual property consultant at NGB, a Tokyo legal services firm. Partner Yosuke Yamanaka, a graduate of the University of Tokyo, previously worked at NTT East, where he specialized in healthcare innovation.
“When we look at technology companies, not only is the concept important but whether it can be realized and scaled up is a key factor,” says Ebisawa. “More than two-thirds of our investment managers come from technology and science backgrounds in university, making us a tech-savvy team.”
Ebisawa cites Senior Investment Manager Miao as an example of MIC’s international and knowledgeable staff. Born in China, Miao graduated from Tokyo Institute of Technology. Before joining MIC, he specialized in financial industry related system consultation at Nomura Research Institute. He fully leveraged his fintech knowledge in the investment in ICHX Tech.
“For me, MIC is an opportunity to effect positive change in Japan as well as China and other countries in Asia by providing investment capital to the most promising disruptors,” says Miao.
Choosing the Best Opportunities
The MIC team employs a strict vetting process for investment targets. Out of the more than 1,000 investment proposals that it receives every year, only about 10 make the cut. Before a decision to invest is made, MIC fund managers pore over detailed documentation, running up to 70 or 100 pages, related to each prospective startup. Then they perform laborious numerical simulations to estimate the startup’s future performance. This time-consuming step is key to determining whether a candidate has what it takes to be a successful business.
If the candidate performs well in hypothetical situations, MIC will invest. After that point, MIC engages in a collaborative relationship with the startup to ensure its best chances of success. The final step is the exit strategy, which in the case of Japanese startups, may include an IPO on the Mothers section of the Tokyo bourse. Even if an investment pitch is unsuccessful, MIC fund managers use the opportunity to increase their knowledge for future opportunities.
“For example, when we focus on the field of AI, we broaden our horizons about the entire industry and its environment,” says Motoki. “We follow up on this even if we don’t decide to invest now or in the next three years. We wait for the right time. Taking the time to wait for investment opportunities is part of the process.”
Connecting Japan to the World
MIC sees the rest of Asia as a very attractive market for startup investments, especially high-tech countries like Singapore and large markets such as India and China. The company is now focused on increasing its exposure to startups outside Japan— part of its mission to bring about positive social change and contribute to economic growth at home and abroad. MIC’s fund managers say reaching out to entrepreneurs outside Japan has a positive domestic impact as Japanese entrepreneurs get exposed to new ideas, technologies and innovations.
“The Japanese venture ecosystem was a mostly closed industry, but in the last five years, and especially the past three years, it has seen significant expansion even though it remains behind those of the U.S. and China,” says Ebisawa. “Our mission is to make this ecosystem grow by encouraging young entrepreneurs, opening them up to trends outside Japan, and providing efficient flows of investment capital.”
“We want to connect the Asian market with Japan in order to bring about a massive positive social impact in the future,” Ebisawa adds. “We believe in the next 10 to 20 years technology will be the main factor that will improve quality of life in Japan as well as Asia as a whole. Our aim is to be a bridge between Japan and the world.”