SEMINARS

Training and education in international affairs:
Japan, Palestine and the Middle East (1999)

Trends in Japanes High Technology Ventures

The Japanese venture movement is characterized by the following:

1.     Technology innovation

2.     Restructuring of large company

3.     Industrial promotion of local government

4.     Financial institution investment in small venture firms

5.     Central government’s shift in polices (from big to small)

6.     Change of employee’s attitude to company (not permanent employment)

7.     Influence of American business ventures

In order to encourage the software industry, one needs incubators like the 20 or 30 new venture companies in Israel for which the Israeli Gov­ernment pays all the expenses, including the salaries of the employees for two years. Of course, capital is also needed, but finding it is not always impossible. I have met one Palestin­ian, for example, who gathered almost US$1 billion from 1,000 wealthy Palestinians, all of whom invested US$1 million each.

In the Palestinian case, one should think about outside entrepreneurs, as the Palestinian Author­ity does not have the money to subsidize the capital. The government is important and in Ja­pan, like in Israel, the local government helps a lot.

Almost one quarter of my company’s capital came from venture capital, which is quite abun­dant in Japan. First a new idea is developed and then one goes through the different phases, all of which are important. The business plan cannot be formulated by oneself. Note that any venture that is missing one of the phases will not suc­ceed. You also, of course, need the know-how.

Sometimes, the companies are family-oriented, which is often the case in Palestine. A very good model is Taiwan, which used to be a Japanese colony but whose people are Chinese. Taiwanese businesses are family-oriented and include every single family member, which is fine as long as the business makes money; if it fails, everything will be lost.

What is a hi-tech venture?

There are three main areas of hi-tech in Japan:

·       Changing core technology

·       New products or new services that create new markets

·       Mainly ’software’, ‘mechatronics’ and ‘bio-technology’

Small businesses are a very big business in Ja­pan. Almost 77.6 percent of the people work in small companies and produce 51percent of the GDP. In the United States, some 53 percent of the people work in small companies and produce 51 percent of the GDP.

It can probably be said that hi-tech companies have taken the lead when it comes to jobs. Research involving Sony Omron, Honda and Kyosera has shown that hi-tech ventures create ‘new jobs’.

Last year, the owner of a Japanese software company made more than US$100 million net profit. Nevertheless, making money in Japan is very tough, more so than in the United States. Japan must develop a tax system that meets the needs. Currently, people pay up to a maximum of 65 percent tax.

Participant: If you invest here in Palestine now you get 15 years without paying taxes.
Mr. Adachi: Yes, in Japan investors usually pay low taxes.

Participant: If you invest outside Japan, are you subject to double taxation?

Mr. Adachi: For my American company, I pay taxes to the American Government and for the investment in Japan, I pay the tax to the Japa­nese Government. Fortunately, the United States is very innovative in this field and there is no double taxation.

The original concept is the most important one when it comes to developing a product. What kind of market exists? What kind of technology is available? How will the product be sold? These are the things that should be included in the origi­nal concept. If you do not have a market here, think about other Arab countries. You have a big market: from Indonesia to Morocco, it is yours.

If we compare the American and the Japanese policies, the American Government does much more for the American companies than the Japa­nese Government does for the Japanese compa­nies. However, the Japanese Government re­cently changed its policy and one of the biggest alterations is that whereas until recently, it had concentrated on helping large companies only, nowadays, it is trying to help small ones.

The Japanese employer-employee attitude is unique. For example, even my company hires university freshmen. In Japan, there are not so many computer graduates, and in the old days, I often hired engineers who were not computer specialists – marine engineers for example – and trained them. My company still trains every­body, computer specialists being so few and far between. All Japanese companies concentrate on training all their em­ployees, which is probably something only found in Japan.

Whereas American companies pay their employ­ees according to their skills, Japanese companies pay their employees according to their achieve­ments and salaries are divided into three parts as follows:

For example, in my company the youngest di­rector has the same management salary as any senior one, and the two salaries only differ in regard to the seniority and special skills salaries.

Many people retire at the age of 55 and in some cases go on to join a new company, even though their new salary does not reflect their ‘achieve­ments’, only their experience 

you are fired at 55, then you have to rely on your company pension to see you through that ten-year period, which can cause some serious prob­lems. However, things are changing, espe­cially for the younger generation of employees, most of whom can now choose between two systems: one is the original salary system, the other, a system whereby one can get a percent­age of his/her retirement money from the begin­ning in addition to the regular salary. The younger gen­eration of Japanese thinks very much like the Americans and consequently, at a certain age many young Japanese decide to start their own company.

In the past, the government had venture capital but today, almost all the financial companies have their own venture capital fund and there are more than 200 or 300 venture capital companies, all of which are willing to invest in small com­panies. These days, if you are capable enough, you can easily get money. Because of the reces­sion and people being fired, many small ventures started up, and in some cases, these were later bought up by some of the larger companies. If you are suc­cessful, you have two choices: you can be totally independent or you can sell your company and if you work hard, you can make a lot of money, whatever it is that you decide to do.

Participant: In Palestine, nowadays, we try to en­courage foreign investment and Japan is one of the countries in which we are interested. What would you suggest we do in order to reach Japa­nese businessmen?

Mr. Adachi: I personally visited many places here during the last week. I met with people from the Software Association and we decided to com­municate in order to learn more about each other. I also asked them to join SITO, the South­east Asia Information Technology Organi­zation, which is made up of 800 companies in Japan, Taiwan, Hong Kong, Singapore, Indone­sia, Thai­land, Malaysia, South Korea and India. We can help ‘match’ the Palestinian companies with other companies; some people need tech­nology, others a new market, others materials, etc. If Israel wanted to join us, I do not think that Malaysia and Indonesia would agree, but if you wanted to join us, it would be a different matter.