Sunday, February 23, 2020

Trading Places

Venture capital and Japan’s path toward a new economy


By Joseph Huang | The China-United States trade war, which began in July of last year, has led to many foreseen and unforeseen consequences for the global economy. One example of the former is how the 10% U.S. tariff on all imported Chinese goods is creating opportunities for neighboring Asian countries.


According to the World Bank’s 2018 ‘Doing Business Report,’ Japan currently ranks 34th out of 190 nations when it comes to “ease of doing business.” Alongside Prime Minister Shinzo Abe’s growth strategy, the Japanese government has been lowering the effective corporate tax rate, and establishing research centers and special financial zones in an effort to become the world’s most business-friendly country.


Organizations have long been drawn to this large and unique economy. Japan offers appealing opportunities for investors: cost competitiveness, trend-setting innovation, a stable political framework, an exceptionally gifted and committed workforce, and easy access to the Asia-Pacific region.


The country’s aging population also creates opportunities for products and services geared toward the elderly demographic, such as healthtech, pharmaceuticals, and entertainment. Such characteristics, combined with a sophisticated consumer base with substantive purchasing power, make Japan more appealing than ever for foreign investment.


Technological innovation has always stood front and center for the country’s steadily developing economy, as Japan boasts the largest number of patents in the world. In 2018, the Japanese startup ecosystem raised a total of US$982 million in venture funding. The country’s leading tech companies LINE and GREE raised over $1 billion on their own.


In a world dominated by WhatsApp and Facebook Messenger in the West and WeChat in the East, LINE’s user penetration in Taiwan and Thailand–where the platform is most popular outside Japan–is thriving. Japan’s close relationship with the two countries is becoming more apparent with the China-U.S. trade war, as historical trade relations are further strengthened. Thailand and Taiwan remain priority destinations for Japanese manufacturing and tourism. This trend has also become reciprocal, as approximately one million Thai and four million Taiwanese tourists visited Japan in 2018 (Japan Tourism Statistics).


Whether it’s from the public or private sector, Japan is gradually opening up to more foreign business activity and capital. The market still presents some barriers to entry, but investors are becoming less reliant on domestic advice and expertise.


Considering the country’s population of 126 million and openness to ecommerce and new technologies, I was surprised to find investments with such low multiples compared to its Asian peers, especially those found in China. While most investors look to China, it would be wise for them to diversify their alternative investment portfolios with a Japan component.


About the Author


Joseph is a Partner at Infinity Ventures (IVP), where he focuses on Series A and venture-building investments in ecommerce, fintech, logistics, artificial intelligence, digital content, and media. Prior to IVP, he was an Investment Partner at Abico VC and co-founded Gamesamba, an anime game publisher.

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