FT SPECIAL REPORT

Japan Technology & Innovationwww.ft.com/reports | @ftreportsMonday December 8 2014

Inside

Tight budgets squeezescope of researchAcademic discovery isbeing limited bycommercial prioritiesPage 2

Successors lack insightto nurture innovatorsTop executives tend tofocus too much on costsPage 2

RoboticsAs companies look torobots for sales thegovernment hasmade the sector a keypillar of growthPage 3

W hen Panasonic an-nounced last Septem-ber it would sell amajority stake in itshealthcare business to

KKR, the US private equity group,investorsbarelyblinked.

Healthcare had been a subsidiary ofthe Osaka-based group for more than40 years but was always on the fringes,accounting for less than 5 per cent ofoperatingprofits inthepreviousyear.

Yet according to Atul Goyal, a Singa-pore-based analyst at Jefferies, the$1.7bn divestment was a watershedmoment – confirming that some ofJapan’s technology titans were seriousabout boosting returns to shareholdersviarestructuring.

Healthcare was a profitable unit in ahigh-growth area, selling blood-sugarmonitoring equipment for diabetics.But under Kazuhiro Tsuga, presidentsince June 2012, Panasonic has beenfocusing its management efforts andcapital resources on four main busi-nesses, including auto products andhousing equipment, most of them sell-ing to other companies rather thandirectly toconsumers.

So the healthcare division – nice as itwas–wasbetteroffunderanewowner.

Panasonic isamongthebestexamplesof a Japanese tech company “forced intotaking tough measures because of struc-tural weakness”, says Mr Goyal, notingthat the group’s return on equity – a neg-

ative 8 per cent, on average, in the fiveyears before Mr Tsuga – is expected totop 10 per cent in the year to March.Selling a long-cherished business suchas healthcare “was a strong, bold state-

ment – a sign that executives really careaboutthefuture”.

Many more Japanese companiesactive in the tech sector have becomemore assertive in reshuffling portfolios,

or at least thinking twice about offeringso many gadgets to consumers appar-ently more interested in the latest offer-ings fromSamsungorApple.

At Hitachi, for example, chief execu-

Titans slim down and fight backSome companies arefinally trying to improvereturns to shareholders,writesBenMcLannahan

tive Hiroaki Nakanishi has won plauditsfor his efforts to spin off consumer-related operations in mobile phones,computer parts and flat-panel TVs toconcentrate on more profitable powerplants, rail lines and water treatmentfacilities.

At Sony, a new chief financial officer,Kenichiro Yoshida, is looking to do like-wise, apparently given free rein by chiefexecutiveKazuoHirai tochallengebusi-ness areas and customs previously con-sideredsacrosanct.

One example is the dividend. Sonyhad preserved payouts over the past fiveyears, even while it was churning outcumulative net losses of almost Y700bn($6bn), so that income-focused inves-tors could continue to buy the stock. Butin September it stopped paying the divi-dend altogether, for the first time sincethecompanywentpublic in1958.

Analysts have taken heart that radicalmeasures could be in store for the flail-ing TV and smartphone arms. JJ Park, aSeoul-based analyst at JPMorgan, says:“Management appears finally to be fac-ingthestructural issues,giventheyhavesaidtheywilldownsizethebusinesses.”

It is possible to overstate the scale ofthe transformations under way. Amonginvestors, Japan is often still seen as thespiritual home of the flabby conglomer-ate, with executives more concernedwith preserving market share than lift-ingreturns for investors.

Five years ago, The Onion, a satiricalnews organisation, spoofed Yamaha byimagining its chief executive saying: “Atthe Yamaha Corporation, we’re focusedon one thing and one thing alone – qual-ity sound chips, ceiling brackets, editingsoftware, race-kart engines, sportsboard, flugelhorns, ATVs, sequencers

Continuedonpage4

Tough measures: Panasonic TVs still draw admirers, but the company is being forced to restructure — Bloomberg/Kiyoshi Ota

Display technology has seen all mannerof innovations, but the rectangulardesign of digital devices – be they smart-phones, televisions or computers – hasheldswayfordecades.

Now, that de facto standard is set tochange.

Sharp, the Japanese electronics groupthat makes screens for Apple’s iPhones,is preparing a display for mass produc-tion in 2017 that it says can be shapedinto various forms. Circular TVs orfunky phones with curvy screens couldbethefuture faceofelectronics.

On a more practical level, Sharpdeveloped its “free-form display” forpotential use in cars. By breaking out ofthe clunky, rectangular shape andsharply slimming the bezels around thescreens, the displays can fit neatly intothenarrowfrontpassengerarea.

Sharp’s innovation speaks to abroader transition occurring in Japan’sconsumerelectronics industry.

Companies including Panasonic,Sony, and Hitachi are trying to capturegrowth in the automotive industry amidshrinking demand for TVs, personalcomputers, and cameras. Japan’s elec-tronics groups are also grappling withslowinggrowthinsmartphones.

The global vehicle industry itself isundergoing a tectonic shift, as stricterenvironmental standards call for greenvehicles powered by batteries or hydro-gen. More electronics components suchas sensors and cameras are installed invehicles as demand grows for safer,more comfortable cars with tech-nologies toassistdrivers.

These trends have, in turn,blurred the lines between theelectronicsandautosectors.

“I can clearly sense theborderless age approach-ing,” says Shoji Inagaki,Toyota’s general managerin charge of developing vehi-clecontrol systems.

For Sharp, the focus on automo-

tive business comes as the companyrecovers slowly from bruising losses ofnearly $8bn in the fiscal years 2011 and2012, caused by a collapse in demandforbigdisplays.

In recent years, the company hasshifted to the smaller and medium-sized displays used in smartphones andtablets and hopes to increase sales fordisplaysusedinvehicles.

But the Japanese manufacturer says itis trying to avoid making the same mis-takes with car screens as it did with TVdisplays.

Yasuhisa Itoh, Sharp’s general man-agerresponsible fordevelopingthe free-form display, says: “We focused toomuch in the past on enhancing displayperformance. But it’s come to a pointwhere customers don’t realise the valueinthat.”

Critics have often said Japanese TVmanufacturers lost touch with consum-ers as they became obsessed withimproving picture quality, while Asianrivals offered cheaper sets with displayperformance that may have been lowerbutwasenoughtokeepviewershappy.

“So we decided to shift the axis of ourcompetition to [display] design,” MrItohsaid.

Sharp, which has been supplying dis-plays for cars and aircraft for two dec-ades, is betting that more displays willbe installed in vehicles together withcameras and sensors to enhance safetyfeatures.

Currently, Japanese electronics mak-ers such as Hitachi, Panasonic andFujitsu generate from 7 to 16 per cent oftheir sales from automotive-relatedproducts, according to Morgan StanleyMUFGSecurities.

The brokerage said in a recent report:“In the automotive industry, orders aresteady and cycles are long, while in theelectronics industry orders fluctuate

widely. That makes automotive busi-nessattractive forelectronics firms.”

Panasonic,whichsuppliesbatteries toUS electric-car maker Tesla, is aiming todouble sales in its auto division to Y2tn($17bn)– about 20 per cent of total sales–bythefiscalyeartoMarch2019.

In addition to car batteries, its autobusiness includes displays, automotiveinfotainment systems, cameras, sensorsandradars.

In October, it agreed to buy a 49 percent stake in Ficosa, a family-ownedSpanish car-parts manufacture withhopes of developing self-driving tech-nology inthefuture.

Sony has so far trailed behind inexpanding its auto-related business, butit aims to increase the sale of image sen-sors used in cars. Despite a massiverestructuring involving PCs, TVs andsmartphones, image sensors is one ofthefewgrowthareas forSony.

Kazuo Hirai, Sony’s chief executivesays: “We’re going to invest in imagesensors and take on the challenge ofexpandingtheiruse innewareassuchascars and wearable devices in addition tosmartphones.”

Still, analysts say Japanese companiesface fierce competition, because theautomotive shift is a global phenome-non with leading technology companiesincluding Google, Apple, IBM and Intelalleyeingthesector’sgrowthpotential.

Venture firms are also increasingtheir clout, highlighted by the rise ofMobileye, an Israeli start-up that makescamera-based software for self-drivingvehicles.

BNP Paribas analyst Masahiro Waka-sugi says Japanese companies couldbenefit from the growing focus on car safety – highlighted by the rise in recallsby automakers worldwide. “Japaneseelectronics makers have an advantageintermsofensuringquality,”hesays.

Electronics groups such as Hitachiand Panasonic have benefited fromdecades-long ties with Japanese auto-makers in a conservative industrywhere the supplier system has

depended on a close community ofparts makers. But even that struc-ture is changing with carmakersnow competing to get hold of cut-

ting-edge electronics technologiesbeingdevelopedacross theworld.

“There are so many high-tech partscoming in, so we can’t win the competi-tion unless we look at both existing sup-pliers and new players,” says Toyota’sMrInagaki.

Sharp displays may be theshape of things to comeTrends

Growth is likely to comefrom the auto sector asconsumer electronicsslows, says Kana Inagaki

Flexible futures: Sharp’s screencurves to fit round dashboards

The FT and Nikkei, theJapanese business media group,started to co-operate in 2013 togive their respective readersgreater insight by combiningthe best of the FT’s “outside”view of Japan with Nikkei’s deepunderstanding from the inside.This report features threearticles from Nikkei writers.http://asia.nikkei.com/

FT/NikkeiCo-operation

2 ★ FINANCIAL TIMES Monday 8 December 2014

Japan Technology & Innovation

When it comes to everyday banking,Japan is a paradox. The country hassome of the most advanced infrastruc-ture in the world but remains a cash-basedsociety.

Many Japanese choose to pay utilitybills with hard currency at conveniencestores. Restaurants and small busi-nesses often only accept cash. And it isnot uncommon to see foreigners vent-ing their frustration when they discoverthat they cannot use most cashmachines, but are restricted to thoseoperated by the post office or interna-tionalbanks.

Despite this apparent reluctance toembrace new banking practices, theJapanesewereearlyadoptersofcontact-less payments and the “tap-and-pay”techniquewithasmartcard.

Now a new form of that technology isbeginning to emerge. Banks and tele-coms companies have been predictingthat a global cellphone payments revo-lution is just around the corner, with themobile phone replacing both the walletandthesmartcard.

However, the revolution is provingrather slow to get going. While the sys-tem of using pre-paid smart cards thatcan be tapped against readers has takenoff inmanycountries,usingahandset todo the same has yet to catch up. This ismainly because of the complexityinvolvedinsuchanundertaking.

It not only demands co-operationbetween the telecoms companiesproviding the service and the manufac-turers making the phone handsets, italso requires input from the financialcompanies involved and technologyexperts to ensure that the transactionsaresafeandefficient.

“Part of the problem is that too manypeople are looking for their piece of thepie,” adds David Gibson, an analyst atMacquarie inTokyo.

Things were more straightforward

for the smart card payment systems.FeliCa, one such service developed bySony, became a key part of the Japa-nese payments landscape more than adecade ago.

FeliCa began life in 1988, and wasdeveloped for use on public transportservices. Prototype “swipe cards”appeared the following year, and by1990 their use as a replacement formof train ticketing was becoming wide-spread.

With the Japanese market for mobilephones growing, Sony decided to look atputting FeliCa technology inside hand-sets. It found a valuable partner in NTTDoCoMo, the country’s biggest telecomscompany, with a 60 per cent marketshare. And NTT was looking for newmobileservices tooffercustomers.

Not only were the Japanese enthusias-tic early adopters of mobile phones,NTT was also the first provider in theworld to launch a comprehensive inter-netserviceonthedevices in1999.

At the turn of the millennium,NTT DoCoMo and FeliCa formed a jointventure named FeliCa Networks to

implement mobile payments services inJapan. Other telco providers and hand-set makers were soon included in theagreement, paying to implement FeliCatechnology themselves so they were notleftbehind.

Today, there are about 60m FeliCa-enabled phones in Japan, providingaccess to some 100 services, accordingtoSonyresearch.

The question now is how far ApplePay will disrupt the Japanese pay-ments system. In October, Appleunveiled its new mobile paymentsservice and “digital wallet”, Apple Pay.This allows customers to use theiriPhones to pay for certain products,instead of using cash or bank cards.

Mr Gibson says that at the end of thefirst quarter, 8.1 per cent of all users ofiOS (the Apple operating system) werein Japan, making it the third-

biggest market for Apple after the USandChina.

He believes Apple’s mobile phonepayments service will eventually berolled out in Japan, but the big questionis whether it can compete with FeliCa intermsofspeed.

“Ifyou’regoingthroughShinjuku,oneof the busiest train stations in the worldandyouhavetowait forasecond, it’snotgoingtoworkatall,”hesays.

One criticism often levelled at Japa-nese business is that manufacturersfocus on adapting innovative ideas forthe domestic market, and place lessweightonsellingtheir ideasabroad.

However, Sony highlights the success-ful, early, export of FeliCa technology toHong Kong, where it won a tender toprovide the plastic Octopus smart cardsinthe1990s,originally for theterritory’srail system.

Octopus cards are now used acrossHong Kong’s public transport networksand as prepayment smart cards for avariety of other purchases, from fast-food restaurants to photo booths andparkingmetres.

Industry insiders note that it wouldhave been virtually impossible todevelop a mobile phone payments serv-ice fromscratchanywherebut Japan.

“There are so many players and therewas no standard technology available inthe market in 2000,” says MasayukiTakezawa, deputy general manager ofFeliCaatSony.

Indeed, factors unique to Japan – itstech-savvy customer base and histori-cally strong relationship between tele-coms providers and handset makers,which resulted in the creation of FeliCaNetworks – were the ingredients thathavemadethesystemwork.

It is not clear, however, whether suchfactors will enable Japan to win in thecomingmobilephonerevolution.

Early adopters ringthe changes withpayment revolutionMobile banking

Phones will replace walletswith the next iteration ofcontactless payments, reportsJennifer Thompson

Smartphones: tapping a new market

In New York, a silver-haired business-man was getting into the car that hadbeen sent to fetch him. He had with hima sheaf of reports so thick that he couldbarely carry it. As the car bounced alongthe busy streets, he rapidly sortedthrough the documents, selecting someand handing the rest to his assistant. Bythe time he reached his destination, hehadfinishedperusingthematerial.

This man was Akio Morita, the latefounder of Sony, who turned the com-pany into a global powerhouse. Aformer Sony executive who witnessedMorita’s working habits firsthandrevealedthesecretofhisefficiency:

“Mr Morita did not read all of thereports. He read only the headings,which included the title, and chosereports based on who had submittedthem.

“This was because he always knewwho was doing which jobs and whocouldbetrusted,”hesays.

One of Morita’s talents was knowingall about his company’s top innovatorsandtheworktheyweredoing.

Sony has long since lost its reputationfor innovation. These days, it is moreassociated with restructuring than withinventing must-have products. Morita’sknack for quick decision making offers

a clue about what has been lost andabout how the one-time epitome of Jap-anese innovationcouldregain itsedge.

“Sony was able to make interestingproducts and successively embark onnew businesses in Mr Morita’s daybecause the company had leaders whoknew talented people in the organisa-tion and could put them to the best use,”theformerexecutiverecalls.

This is not an easy task for Sony’scurrent leaders. The reason: as thecompany’s organisation becomes morecomplex, innovators become harder tospot. This is a concern not only for topexecutives at Sony, but for those inmany Japanese companies.

Nomura Research Institute con-ducted a survey of companies askingwhichtalentsmakesomeonean innova-tor. Many top executives listed imagina-tion and a knack for focusing on goals asnecessarytraits. Innovatorsthemselves,however,gavequitedifferentanswers.

In the survey, people including thosewho devised i-mode, NTT DoCoMo’spioneering mobile internet service,emphasised traits such as the power ofobservation, curiosity and willingnesstoendure trialanderrorprocesses.

“For top executives who have neverstarted a business, it may be difficult tounderstand the minds of innovators,”

says Hikojiro Isozaki, a consultant atNomuraResearchInstitute.

“Through such experience, managersimprove their business sense and knowwhen to say, ‘We must stick with it, eventhough we’re in the red,’ or, ‘This is thetime to give up.’ If top executives are not

strongly aware of such things, theycannot findandnurture innovators.”

At influential companies such asSony, once seen as a symbol of postwarJapan’s rebirth, few founders remainin top executive positions. Their suc-cessors now have to compete withcompanies in South Korea and China,such as Samsung and Xiaomi, as wellas with rivals in western countries.Today’s top executives, who think onlyin the short term, tend to focus oncost-competitiveness. Doing so, how-ever, has mostly resulted in shrinkingbusiness.

After the global financial crisis in2008, Hitachi reported a record consoli-dated net loss for a Japanese manufac-turer. The company later concentratedits management resources on its socialinfrastructure business, including theenvironment, energy and transport.Since then, earnings have recoveredsharply.

During that time, Hitachi not onlyselected and focused on certain busi-nesses, but also implemented corporatereform to “collect optimum humanresources, make optimum teams andallocate people to optimum positions”,according to Hidenobu Nakahata, vice-president at Hitachi, who heads thecompany’shumanresourcesstrategy.

As a first step, the company created apersonnel database covering all itsemployeesaroundtheworld,enabling itto evaluate workers based on commonglobal standards. It also eliminated theseniority-based promotion system, anentrenched characteristic of Japanese-styleemployment.

Many Japanese companies have beencriticised for failing to manage talentedemployees and technologies effectively.This suggests there is plenty of potentialto be uncovered. To achieve that,insightful leaders are more essentialthanever.

Successors lack the necessary insightto nurture talent and innovation

Management

Top executives tend to focuson cost competitivenessrather than innovation andbusinesses shrink as a result,says Masanori Murui

Today there are about60mFeliCa-enabledmobiles in the country

T his year’s Nobel Prize inphysics was particularlysweet for Japanese industryand academia. The award,which went to three scien-

tists who developed blue light-emittingdiodes, came at a time of growing con-cern about the future of the discipline inthecountry.

The question is, how can Japan ensurethat its researchers continue to makesignificantbreakthroughs?

The development of blue LEDs is atextbook case of university researchleading to commercialisation of prod-ucts. Amid Japan’s prolonged economicstagnation, this sort of co-operation hasbeen crucial for companies wary ofinvesting in risky endeavours with noguaranteeofsuccess.

The government is supportive ofacademia-industry collaborations. Thisyear, the government’s Council for Sci-

ence, Technology and Innovationlaunched a programme called ImPACT,which stands for Impulsing ParadigmChange through Disruptive Technolo-gies. The council has selected 12research themes – including rescuerobots and organic materials that arestronger than steel – and has assembledresearchers from academic institutionsandthecorporatesector.

The government will also establishthe Japan Agency for Medical Researchand Development next April to supportbreakthroughs in pharmaceuticals andmedical equipment. Research budgetsrelated to the life sciences, currentlyhandled by multiple governmentoffices,willbeconsolidated.

Japan has few ventures of the samecalibre as US start-ups, which fre-quentlydiscoverdrugprototypesbeforepassing them to big pharmaceuticalcompanies. The new agency may helpfill this gap by developing drugs usingleads fromuniversity laboratories.

This year’s Nobel Prize shows not onlywhat co-operation between academiaandindustrycanachieve,buthowtimeshave changed. After Isamu Akasaki and

Hiroshi Amano came up with the basictechnologyforblueLEDsatNagoyaUni-versity in the mid-1980s, they launcheda joint research project with ToyodaGosei, an auto parts maker. The JapanScience and Technology Agency sup-ported the project, which aimed to putthe innovationtopracticaluse.

Separately, Shuji Nakamura devised amass-production method for a high-brightness blue LED at Nichia ChemicalIndustries.

When Japan’s economy was booming,scientists could drum up funds for allsorts of research seen as having com-mercial potential, on top of what theyreceived from universities or otherinstitutions.

But as corporate and governmentpurse strings have tightened, fundinghasbecomefar lessavailable.

Today, the Japanese governmentemphasises research that promises sig-nificant benefits to industry and society.This principle tends to guide publicbudget allocations for national universi-ties. While considerable amounts ofmoney are devoted to endeavoursexpected to bear such fruit, there is not

much left over for research regarded asless crucial. This naturally directs scien-tists into a few select fields where theyare likelytoproducepractical results.

Given budgetary constraints, it isunderstandable that the governmentfocuses its investments only on strategicareas. There are, however, side effects ofthisstrategy.

“More researchers now waver whenthey feel they lack a concrete purpose,”says Yuichiro Anzai, head of the JapanSociety for thePromotionofScienceandaformerpresidentofKeioUniversity.

There is, he adds, a worrying ten-dency to change the direction ofresearch for the express purpose ofobtainingmorestate funding.

Prof Akasaki and his fellow Nobel lau-reates developed blue LEDs by stickingto their guns. If researchers lose theirsense of mission or feel compelled tochange course midstream, they will beless likelytoproducetrue innovations.

The emphasis on strategic areas –selected by the government – could sub-tly erode the foundations of Japanesescience. The number of researchers isalready on the decline. Japan is also

falling behind in terms of its volume ofpublishedscientificpapers.

Some scholars warn against taking asingle-track view of science – the ideathat basic research is followed byapplied research, which in turn is fol-lowed by commercialisation. AkiyoshiWada, professor emeritus at the Univer-sity of Tokyo, makes a distinctionbetween “pure research aimed at eluci-dating the essence of nature and society,and applied research that leads to solu-tionstospecificproblems”.

Research aimed at comprehendingnature can produce practical innova-tions, just as seeking solutions to spe-cific problems may lead to a broaderunderstanding of the world. The crux ofJapan’s challenge is to find ways to revi-talisebasicresearch.

The government council has starteddiscussing a new five-year plan for sci-ence and technology, to take effect in2016.

People such as Prof Wada will be hop-ing the council can balance academiaand industry and devise an unconven-tional policy that will allow both toflourish.

Tighter budgetsconstrain scopeof academicresearch

Life sciences The view that all researchmust becommercialised limits discovery, says Junichi Taki

Determined:Isamu Akasaki(left) and HiroshiAmano — KazPhotography/Getty

Emphasison strategicareas coulderode thefoundationsof Japanesescience

ContributorsBen McLannahanTokyo correspondentKana InagakiTokyo correspondentJunichi TakiNikkei senior staff writerJennifer ThompsonfastFT Reporter Hong KongMasanori MuruiNikkei senior staff writer

Keiichi MurayamaNikkei senior staff writerDemetri SevastopuloSouth China correspondentLindsay WhippAssistant news editor

Emma BoydeCommissioning editor

Steven BirdDesigner

Andy MearsPicture editor

For advertising details, contact:Michiko Hayashi, + 81 3 3581 2097 andmichiko.hayashi@ft.com.

Akio Morita, thefounder of Sony,knew his workers’potential and couldput it to the bestpossible use

Monday 8 December 2014 ★ FINANCIAL TIMES 3

Japan Technology & Innovation

W hen Google last yearbought a tiny start-upfounded by two Japa-nese robotics engineers,it served as a rude

awakeningtothethreat Japanfaces.New technology companies, includ-

ing Apple and Amazon, show a risinginterest inowningrobotics technology.

“You don’t have to worry about themoney.Youonlyhavetofocusonchang-ing the world,” said Andy Rubin, head ofGoogle’s robotics division at the time ofthe purchase. But Google’s investmentwas crucial to the start-up’s survival andbreathed new life into Schaft and itstwo-leggedrobotproject.

Schaft was founded by professors ofthe prestigious robotics lab at the Uni-versity of Tokyo, who spent a gruellingyear searching for investors in JapanbeforeGoogleextendedalifeline.

The company’s clunky humanoidrobot, designed to operate in disasterareas, was mocked and written off bythe government as well as several Japa-nese tech and venture capital compa-nies, according to Takashi Kato, theformerchief financialofficerofSchaft.

“The fundraising was an utter failure,but thatallowedustomakeupourmindand go to the US,” recalls Mr Kato, theentrepreneurial investor who helpednegotiate thedealwithGoogle.

Though few in Japan saw commercialpotential in Schaft, its robot won anadvanced robotics competition spon-sored by Darpa, the US defence technol-ogyagency, in late2013.

It was a demonstration by Schaft –along with Honda’s Asimo – that Presi-dent Barack Obama came to see duringhis visit to Japan in April. In the US,research into disaster-relief robots isoften richly funded by the military. Itwas US-made reconnaissance robots

deployedduringtheFukushimanuclearaccident in 2011 that prompted Schaftto develop its own robot that can with-standdisasterconditions.

In addition to military interest – withrecent advances in artificial intelligenceand drone technologies – Silicon Valleycompanies are starting to see profitablecivilianuses forrobots.

So is Japan. Following the Schaft saleto Google, Prime Minister Shinzo Abepledged to make robots a key pillar ofhis growth strategy. His goal is to triplethe domestic market for robots toY2.4tn($20bn)by2020.Theworldwidemarket for industrial roboticssystemsisabout $29bn currently, according to theInternationalFederationofRobotics.

Taking their cue from government,Japanese technology giants, includingPanasonic, Toshiba and Sharp, are hon-ing their robotics skills. The companiesare working on robotic suits, a human-oid with fingers nimble enough to dosign language, and cleaning robots thatcantalk inseveral languages.

Japanese companies are also bankingon robotics to play a role in sales amidthe decline in traditional consumerelectronics such as televisions and per-sonal computers. They have high hopesof the healthcare and motor manufac-turesectors.

“But it’s hard for innovation in robot-ics to occur at big companies,” saysYukio Honda, professor of robotics attheOsakaInstituteofTechnology.

Experts say that new technologiesoften entail safety risks that coulddamage a company’s brand. To avoid

this, they are prepared tospend years or even dec-ades on development before

amassmarket launch.And even after a series of tests,

those risks are often bigger thantherevenuegainsexpectedfromtheproducts, says Mr Honda, who leftPanasonic in2012.Panasonic’s robotic bed that turns

into a wheelchair, for example, clearedaninternational safetystandardforcare

robots earlier this year, reducing liabil-ity risks for the company. But the prod-uct does not necessarily use cutting-edge robotics technology and it requiresthe manual assistance of a helper tomovethepatientontothebed.

Some technological compromiseswere made to meet safety and cost con-cerns,officials say.

“So much is unknown about new carerobots, including the risks,” says HideoKawakami, who headed Panasonic’sroboticbedproject.

Panasonic is not alone in betting onthe future of nursing care robots asJapan grapples with an ageing society. InOctober, Toshiba unveiled its prototypeofahuman-likerobotthatcansmileandblink, dressed in a pink blouse and awhiteskirt.

By 2020, the company hopes thismachine will be able serve as a compan-ion for the elderly and people withdementia.

Robotics are part of Toshiba’s plan toincrease its healthcare sales to $8.5bna year by March 2018, from $3.4bncurrently. But the company has beenengaged in robot development since atleast the 1980s without the release of asuccessful mass-market product sofar, beyond industrial use.

“Japanese companies often win intechnology but lose in business,” saysMrHonda.

Still, there are some encouragingsigns of innovation being unveiled bybig companies and university labsthrough spin-offs. At least three start-ups have been established by formermembers of the Sony team that workedontheAiboroboticdog.

Mr Abe has said he wants to trans-form Japan into a “powerhouse brim-ming with the entrepreneurial spirit”.But the financing challenges that Schaftfaced also underscore the culturalstigma still attached to people leavingestablished firms to set up their owncompanies.

Mr Kato says: “Smart and tech-savvypeople will flee to Silicon Valley if theycontinue to face hurdles in the Japanesemarket. A person frowned upon inJapan could suddenly be treated like agodintheUS.”

The ghost in themachine gets smarterRobotics Outsideinvestors seek tomonetise opportunities,in rescue, healthcareand reconnaissance,reportsKana Inagaki

Here to help: (left to right) prototypehumanoids created by Asratec,Toshiba, Alderaban and Schaft aredesigned for use in construction,domestic work and (below right)disaster relief

For every 100 Japanese businesses, fivegobankrupteachyearandfivenewonesopen their doors. That is about half thecomparable figures in the US and theUK. In short, Japan has a slow businessmetabolism.

True, that metabolism sped up a bit inthe 2013 financial year, when invest-ment in venture businesses rose 80 percent year-on-year to reach Y182bn($1.55bn at today’s exchange rate). Butthat is still only about 6 per cent of theamount invested instart-ups intheUS.

Not surprisingly, spurring entrepre-neurial activity has become an impor-tant element of Abenomics (the namegiven to a government stimulus packageintroduced by prime minister ShinzoAbe).Also important is fosteringtie-upsbetweenstart-upsandlarge,establishedcorporations.

Two IT ventures that exemplify thepotential success of this strategy areLine, the Tokyo-based operator of a calland messaging app, and Dwango, whichthrough its subsidiary Niwango oper-ates the Niconico (“Smiley Smiley”)video-sharingwebsite.

Both Line and Niconico areimmensely popular, and the companiesthat run them are expanding abroad inways that highlight Japan’s strengthswhen competing on the global stage inIT: cuteness or, to use the Japanese termthat is gaining recognition worldwide,kawaii.

Many countries are helping drive theglobal IT revolution, including the US,China, South Korea, Israel and India.But Japan’s contribution is unique. Itsofferings are soft and fuzzy, meldingtechnology with animation, games andotherelementsof“Cool Japan”.

Take Line: the number of peopleusing the Line app has grown to 560msince the service launched in 2011. Its

usershavespreadbeyondJapantootherparts of Asia and the west, includingThailand, Indonesia, India, the US,SpainandMexico.

When the company held a press con-ference at the Tokyo Disney Resort in October to present its business ven-tures, costumed characters danced to aspecial songcreatedfor theevent.

The characters in question – Brownthe Bear and Cony the Rabbit – arefamiliar to anyone who uses the Lineapp on their smartphones to exchangemessages. The characters appear onmany of the “stamps”, or virtual stick-

ers, that users can purchase to place intheirmessages.

At the October conference AkiraMorikawa, Line’s chief executive,sought to explain the popularity of thestamps, which have become a cash-cowfor the company. “Communicationshave shifted. It is not just about theexchange of information any more, butalso emotions,” he said. “The stamps areauniversal language.”

Leveraging its smartphone app, Linehas partnered with an array of compa-nies in several sectors. It has teamed upwith Mizuho Bank and Sumitomo Mit-sui Bank for a payment system, withSony Music Entertainment and Avex

Digital for a subscription-based musicstreaming service, and with publishersKodansha and Shogakukan for distrib-utingonlinecomicsandothercontent.

The main feature of the Niconicovideo-sharing site is that it allows view-ers to post comments on the video as itplays. Combining streamed video andsocial media is meant to foster a feelingofcommunityamongusers.

For Nobuo Kawakami, Dwango chair-man, the starting-point is his desire tobuild the antithesis of Google. If Googleis all about algorithms and data analy-sis, Mr Kawakami prefers to see theworld as filled with subcultures andopen to inconsistencies, a view perhapsinformed by his stint as an apprentice atStudioGhibli, acultanimationhouse.

Niconico now has 43m subscribers,including 2.3m paid-for accounts, anda growing fan base. Its main store inTokyo, where it showcases entertain-ment fusing the online and real worlds,features a studio for live broadcastsand a café. Niconico also scheduled aparticipatory event for users in Singa-pore in early December, and planssimilar get-togethers to spread“Niconico culture” abroad.

In October, Niconico’s owner,Dwango, merged with Kadokawa, apublishing house that has been in busi-ness since 1945. Kadokawa had previ-ously had success with the KagerouProject, which produced novels and ani-mation based on music posted onNiconico. The merged company will trytoreproducethatwinningformula.

The merger is symbolic of a trend inJapan in which start-ups and large cor-porations co-operate in pursuit of inno-vative ideas.

In September, the Ministry of Econ-omy, Trade and Industry supported thebusiness equivalent of a speed-datingevent in Tokyo: 447 start-ups and 97big companies participated in the so-called Tokyo Innovation Leaders Sum-mit. Many large companies – includingsome of those that attended – areincreasingly worried about their abilitytocreatenewvalueontheirown.

For some, co-operation with start-upsis a potential solution. According toJapanVentureResearch, in the firstninemonths of this year, nine of the top 30biggest-spending venture capital com-panieswerecorporateVCfirms.

Japan’s business metabolism maynot yet be quite as fast as that of the US,but beneath the surface somethingmaybestirring.

Animated bears and bunniesscore a hit with big business

Start-ups

A chat-app sensation and avideo-sharing site show thatcute conquers all – especiallywhen backed by venturecapital, says Keiichi Murayama

Akira Morikawa: it’s about emotions

Japan’s contribution isunique: soft and fuzzy,melding technologywithanimation and games

The primeminister haspledged tomake robots akey ‘pillar of growth’

4 ★ FINANCIAL TIMES Monday 8 December 2014

Japan Technology & Innovation

. . . ” the listwenton.But analysts say there are significant

reasons why this new wave of restruc-turingcould last.

They refer to pressure from theadministration of Shinzo Abe, primeminister, for companies to raise share-holder returns. Corporate governancewas put at the core of the government’slatest growth strategy this year, withpolicy makers pushing three overlap-ping initiatives.

The first, a new equity benchmark –the JPX-Nikkei 400 – was launched inJanuary to steer funds towards compa-nies with above-average returns onequity and a good record of treatingshareholders fairly.

The second, a new stewardship codefor institutional investors which cameinto effect in April, was designed toencourage historically standoffish insti-tutions to challenge investee companiesonthornymatterssuchas lowdividendsandalackof independentdirectors.

More than half of 160 sign-ups so farsay they have accepted all seven princi-ples of the code, notes Yoshihiro Tan-aka, an executive director at AsukaAsset Management in Tokyo, indicatingthat theyare“sendingastrongmessage”toexecutives.

The third initiative – Japan’s first evercorporate governance code, for compa-nies themselves to sign up to – should beready by the summer of 2015. The codeshould serve as “an ignition key”towards “a change in corporate culture”,saysMrTanaka.

A further catalyst for action is theweaker yen. In the two years from mid-November 2012, the Topix electricappliances index has more than dou-bled, adding Y24.7tn ($209bn) in mar-ket capitalisation, according to Bloom-berg data. That is testimony to thepower of the currency to boost the prof-its of Japan’s companies, as dollar-denominated exports and earningsoverseasareconvertedtoyen.

Overthe firsthalfof thecurrent finan-cial year to March 2015, only the con-

struction sector – boosted by public-works spending and projects related tothe 2020 summer Olympics – deliveredbetter increases in recurring profit thanthe electrical equipment sector, accord-ingtoMizuhoSecurities.

The tumbling yen is no panacea, ofcourse. Many have discovered thatmore competitive prices, at least on adollar basis, do not instantly translate tobettersalesvolumes.

Some of the notable laggards of theAbenomics-fuelled market since late2012 include JVC Kenwood, PioneerCorp and Sharp. Hitachi Maxell andJapan Display – formed from cast-offsfrom Sony, Toshiba and Hitachi – bothmade lukewarm initial public offeringsthis year, and have since struggled tocomeclosetotheiropeningprices.

Nintendo, the Kyoto-based maker ofvideo games and consoles, is anothersubpar performer. It said in late Octoberthat a weaker yen added Y15.5bn to itsfirst-halfprofit–equivalenttoalmost80per cent of the annual net income it isforecasting.

But its latest quarter was stillwretched intermsofrevenues,with fall-ing sales in all software categories and ineveryhardwarecategorybartheWii-U.

For inspiration, the laggards couldlook to Panasonic, whose shares havetripled in the two years since Mr Tsugatookthehelm.

Last month R&I, one of the top Japa-nese rating agencies, upgraded the com-pany to a single-A from single-A minus,noting “shrinking deficits in flaggingbusinesses”, solid free cash flow genera-tionandanimprovingequityratio.

And in recent public statements, MrTsuga said he was considering acquisi-tions to improve the group’s position inthe auto parts and white goods market –actions that would have been unthinka-blea fewyearsago.

Continued frompage1

Titans fightback andboost returnsto investors

Y24.7tnTopix electricappliances indexgrowth overtwo years

Y15.5bnAmount added toNintendo’s first-half profit byweaker yen

Some recent inventions serve as areminder that Japan’s appetite for theextraordinaryremainsundimmed.

The phenomenon of hikikomori –young people who stay in their roomsfor months, or even years, and live theirlives predominantly online – hasprompted reams of research thatfocuses on the problem, but it has alsoinspiredonefashiondesigner.

Recognising the tendency in himself,KeisukeNagamidevelopedthethemeofa portable room for his clothes, aimingto take the snug, cocoon-like existenceofbeingholedupinan– inevitablysmall– urban Japanese apartment out on tothestreets.

Mr Nagami’s Kotatsu Parka takes hisportable room concept to a whole newlevel. The kotatsudates back to the 14thcentury and is a low table with a heatingsource beneath it and a quilted cloth sit-ting between the table top and its legframe, extending over the laps of thoseseatedarounditonthefloor.

In Mr Nagami’s take on the traditionalconcept, four specially designed parkajackets, which can be zipped together toforma sortofwearablekotatsualthoughit is made from a stretchy, yet water-proof, material, rather than the quiltedfabric that is usually employed over thekotatsu.

Mr Nagami’s Hatra brand developedthe Kotatsu Parka through a collabora-tion with textile maker Kaytay Texinno,bag designer Yusuke Kagari and stylist-curator Mikiri Hassin. The garment-cum-table warmer can be purchased forY255,000($2,150).

Meanwhile, a completely differentJapanese consumer product, which issupposed to exercise facial muscles,

causedastironline thisyearwhenitwasendorsed by Cristiano Ronaldo. Thetop-ranked professional footballerappeared in Japanese-only advertise-ments for theFacialFitnessPao.

“Finally, I can train my facial mus-cles,” he claims in the print version,though he manages to avoid beingfilmed actually using the strange-look-ingproduct inthecommercial.

MTG, the Japanese beauty-productmaker behind Facial Fitness Pao, claimsthe device builds up facial musclesaround the mouth that are essential forkeepingayouthfulsmile.

The product has a mouthpiece andtwo flexible bars with weighted endsthat protrude either side, and swing ver-tically as the user bobs his or her headup and down. The company recom-mendsa30-secondexercise twiceaday.

Although the product looks amusingand has attracted humorous commentsas well as doubts about its efficacy, saleshavebeenstrong.accordingtoMTG.

Four months after its launch the com-

pany says that it has sold 300,000 FacialFitnessPaos,morethanithadexpected.

MTG says it developed the Pao usingresearch on facial muscles presented byTokyo University, one of Japan’s mostrespected educational and researchinstitutions.

MTG says that the lines around themouth are the most susceptible to theageing process and that the average per-son only uses about 30 per cent of their,roughly,40facialmuscles.

Popular innovations are often labour-saving devices and, with that in mind,Lotte, the Japanese-Korean conglomer-ate, is developing a product that couldhelpuserschangethetuneontheirplay-listwithoutusingtheirhands.

Lotte’s project is the Rhythmi-Kamu(a combination of the English wordrhythm and kamu, the Japanese forbite). Still at prototype stage, the Rhyth-mi-Kamu uses a sensor device inventedby Hiroshima City University professorKazuhiro Taniguchi, which reads facialmusclemovements.

The sensor, when inserted into Lotte’sspecially designed earphones, alsotracks biting and chewing habits andsends the information to a smartphoneapp that will analyse and visualise thepatterns ithasrecorded.

The device will not only help peoplebetter understand the health benefits tobe gained from chewing, says Lotte, butalso, with some careful and precise bit-ing, enable them to control what theyare listeningtoontheirplaylist.

The sensor is already being used in apublic-private partnership projectmonitoring the daily lives of elderly par-ticipants inHiroshima.

With Japan being one of the fastest-ageing societies in the world, there is anincreasing focus on how technology cancontributetoolderpeople’shealth.

Lotte hopes that data gathered by theRhythmi-Kamu will prove useful forresearch in fields including medicine,sports,beautyandeducation.

Additional reportingbyNobukoJuji

Portable rooms and face exercisers look set to win fansConsumer goods

Recent inventions show theenduring appeal of quirkybut ingenious products,writes Lindsay Whipp

Yusuke Mitsumoto had a good idea: awebsite for small businesses to createtheir own online stores instantly, with-out the hassle of hiring design experts ortryingtogetuptospeedthemselves.

But what he did not have was muchmoneytopursue it. Sowhenthe27year-old quit his job in advertising in late2008, he spent months appealing to bigJapanese venture capital (VC) firmssuch as Jafco and captive funds attachedto big companies – only to be turneddowneverytime.

He also trooped around banks, whichsaid they were not interested in taking apunt on a business with no assets or rev-enues – and certainly not in the depthsof theglobal financialcrisis.

In the end he gathered enough cash togo it alone, developing a self-financingbusiness that grew into Bracket, a 30-employee company based in the trendyTokyodistrictofShibuya.

Last summer he sold up in a stock-for-stock deal to an ecommerce groupcalledStartToday, listedonthe first sec-tionof theTokyoStockExchange.

Starting out was “really hard”, recallsMr Mitsumoto, who is now 33. “The VCswere all really conservative. Andalthough I was willing to provide per-sonal guarantees to the banks, there wasnotrust towardsnewcompanies.”

Hisexperience isnotunusual.Entrepreneurs often say they struggle

to get up and running in Japan, whereequity investors tend to be cautious anddebt investors like to see collateral andpersonal guarantees from the borrower.Even if a fund supplies equity capital, valuations of businesses are typicallymuchlowerthaninSiliconValley.

That results in big gaps in funding.Last year a survey by a state-backedbank found that entrepreneurs had anaverage of Y2.3m ($20,000) in savings

when starting out – well short of theY6.2mtheysaidtheyneeded.

The government knows things needtochange.

One of the ruling Liberal DemocraticParty’s “seven pillars” for shaking upthe world’s third-largest economy is tomakelifeeasier forrisk-takers.

Among the top measures are simpli-fying tax procedures for angel investors,“rationalising” the system of personalloan guarantees, and changing laws toallow crowdfunding. From April nextyear, ventures should be able raise up toY500,000 from each investor, up to atotal of Y100m. At the same time, thegovernment recognises that Japan lacksventure capitalists qualified to providehands-on support – a problem that“training” and “inviting foreignexperts” could help resolve, accordingtoapolicyplanpublishedinJune.

The quality of homegrown VC execu-tives can be “abysmal,” says RussellCummer, chief executive of ExchangeCorporation, a Tokyo-based financialservices group that has raised cash fromfunds including CyberAgent Ventures of

Japan and Hong Kong’s Arbor Ventures.“Some have lots of money but no ideahow to invest, in what can be veryhuman-capital intensivebusinesses.”

Industry insiders say the situation is

improving, thanks in large part to acluster of experienced firms such asCyberAgent, SBI Holdings and DigitalGarage, and characters such asTakafumi Horie, a disgraced tycoonnow reinventing himself as a start-upguru. Business “accelerators” have alsosprung up around Tokyo and other bigcities, typically offering Y5m of seedmoneyandsomelogistical support.

On the debt side, too, there isprogress. The latest six-monthly reportby the central bank on Japan’s financialsystem, published in October, shows asteady rise in loans to start-ups. The BoJsays that the easing of credit standardscan be explained by banks’ aversion toaccumulating expensive governmentbonds in lieu of loans, and a “growingawareness” of the importance of findingfuturesourcesofrevenue.

“I think the current situation is much,much better,” says Mr Mitsumoto, not-ing recent rapid growth in web- andmobile-based businesses, in particular.“When I started, there were really veryfew people who knew about Twitter orFacebook.”

Start-up scene begins to gain traction after slow startVenture capital

One of the ‘seven pillars’ forshaking up the economy isto make life easier for risktakers, says Ben McLannahan

W hen Eikei Suzuki tooktime off work followingthe birth of his firstchild, it made nationalnews in Japan. In join-

ing the 2 per cent of Japanese men whotake paternity leave, the young politi-cianbecameonlythesecondprefecturalgovernortotakethatroute.

Prime Minister Shinzo Abe wantsmore men to follow the example of MrSuzuki – who belongs to the cadre ofelite Tokyo University graduates whohave historically sacrificed time withtheir families for their careers – as partof his policy to promote women in thelabourforce.

Mr Abe has made “womenomics” acore part of his “Abenomics” policies, inthe hope that bringing more womeninto the workforce will raise Japan’sgrowth potential. His supporters say heis giving women the kind of public sup-port thathas longbeenmissing in Japan,while critics say his measures to makewomen “shine” are simply vague poli-cieswithoutanyteeth.

Kathy Matsui, the Goldman Sachsstrategist who coined the term “women-omics”, gives Mr Abe “B-plus” for hisefforts. She says it is important that hehas set targets – such as aiming to havewomen occupy 30 per cent of seniormanagerial roles by 2020 – even if theyare“veryambitious”.

She adds that, since Mr Abe came topower, 750,000 women have joined the

labour force, boosting the female partic-ipation rate by 3 percentage points to 64per cent, which is “some evidence ofprogress”.

Keiko Takegawa, head of the genderequalitybureauinJapan’scabinetoffice,says the government is striving to bringthe 3.15m women who want to work butare not employed into the workforce.Citing figures from the IMF, she saysJapan could increase its per capita grossdomestic product by 8 per cent byboosting its female labour force partici-pation rate to the same levels as seen innorthernEurope.

The government has introducednumerous measures, ranging fromefforts to expand childcare places tourging companies to place at least onewoman on each board. In doing so,it hopes to increase the proportion ofJapanese women who rise to becomekacho, “section chief”, or to fill moreseniorpositions.

Machiko Osawa, head of the ResearchInstitute for Women and Careers atJapan Women’s University, says womenhold only 11 per cent of managerial posi-tions in Japan, compared with 43 percent in the US and 39 per cent in the caseofFrenchwomen.

That difference was highlighted whenChristophe Weber, a Frenchman,became the first foreign president ofTakeda Pharmaceutical this year. Hesaid: “This is the first time that I don’thave a woman in my team.” He has

spent most of his career at GlaxoSmith-Kline,where fiveoutof14currentboardmembers are women. “Gender equalityis a topic across the world, but Japan isnot at the front of the pack. It’s more attheend.”

One reason for the lack of women insenior roles is a male-dominated corpo-rate culture that is much slower inaccepting women than other devel-oped countries are. Ms Osawa saysthat half the Japanese women who quittheir jobs said they did so because of a“dead-end feeling”.

But for others, the problem is a lack ofchildcare. On that front, Ms Takegawasays progress has been good. The gov-ernment hopes to eliminate long wait-ing lists by 2018 by adding 400,000nursery school places. She says Japanhas added 190,000 places towards aninterimgoalof200,000byApril2015.

This year, childcare benefits wereraised from 50 per cent of your last wageto 67 per cent, and for both mothers andfathers for six months. The governmentwants to change the tax code, whicheffectively penalises women who returntoworkafterchildbirth.

It has also created a scheme calledNadeshiko Meigarawhich rewards com-panies that provide a more welcomingworkplace for women. But the length ofthe road ahead is illustrated by the factthat only 26 listed companies, includingNissanandHitachi,madethegrade.

While Mr Abe wants corporate Japan

to make changes, the government itselfhasa longwaytogo.

Only11percentofnationalpoliticiansare women, and only 3 per cent of seniorcivil servants are women. “This is thearea where we ourselves have the big-gest headache,” says Ms Takegawa witha laugh.

She says part of the problem is thatparliament holds so many sessions forpoliticians to grill the government thatbureaucrats must work late into thenight topreparetheanswers.

While some welcome the push, othersare less impressed. Noriko Hama, aneconomist who dubbed Mr Abe’s signa-ture policy “Ahonomics” – in a play onthe Japanese word aho which means“fool” – says the policies lack detail andfocusonelitewomen.

She says a more vulnerable group issingle mothers trying to make endsmeet on low-paid jobs in “black compa-nies”.

Sahoko Kaji, an economist at KeioUniversity, says the government hasintroduced few concrete measures. Shethinks things will change in the work-placeonlyafterabigcultural shift.

“There is only so much that Mr Abecando,”saysMsKaji.

“For women to advance, there has tobe a significant change in perceptionamongtheoldergeneration.”

Additional reportingbyKanaInagakiandNobukoJuji

Hope is thatmore women inthe workforcewill raise growth

Equality The targets for female participation areworthy but ambitious, reportsDemetri Sevastopulo

A long way to go:where are all thesalarywomen?—Bloomberg/TomohiroOhsumi

‘For womento advance,there has tobe achange inperceptionamong theoldergeneration’

Loans for start-ups andnew projects

Source: Bank of Japan

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Shinkin banks &credit co-operatives