Venture and Social Capital: A Vision for Japan (Part 1 of 3)

I recently had the honor of providing a chapter for the best-selling book in Japan titled Reimagining Japan: The Quest for a Future That Works, published by McKinsey & Company. You can buy the book in many forms, including two types of electronic format. I am posting my essay as a 3-part series.


In the 1980s, it was “Japan bashing.” In the early 2000s, it was “Japan passing.” And now it has become “Japan missing.”

In the past two decades, the country’s once-vocal critics have fallen silent, largely because the world is no longer interested in Japan (with the possible exception of manga and anime). The sad truth is that Japan is becoming increasingly irrelevant, even though it is still one of the biggest and strongest economies in the world. It deserves more attention than it receives.

Japan bashing was never useful. But there is value in constructive criticism, especially if it can be offered in the form of a careful examination of the issues or characteristics that may be holding Japan back. I have spent my career in and around venture businesses, as an entrepreneur, an investor and as a judge of venture competitions worldwide. Along the way, I’ve developed some strong views about what works and what doesn’t in growing young companies. Some of the problems that I see in Japan today relate to social capital issues that are necessary precursors to the growth of a vibrant economy.

My recommendations might seem unusual, coming from someone with a technological background. But one thing I have learned from my career is that sometimes an indirect route is the best way to bring about the kind of change that is needed. Here are three paths that I believe Japan might follow in order to invent a more promising, more dynamic future.

1. Build global social capital
My experiences in managing and evaluating many business ventures—from high-tech startups to established global competitors—have convinced me that certain characteristics for success are universal. Among the most important is a sense of perspective.

The broader a person’s outlook and experience, the better the chances that he or she will grasp changes, understand opportunities and challenges, and perceive market relevance. How does one gain such perspective? One way is to read and study about different aspects of the world, and Japanese people are adept at that. From my teaching experiences at universities both in Japan and overseas, I have had a chance to observe hundreds of students. I have found Japanese students to be extremely bright and well-informed. And yet, something important is lacking. There’s a huge difference between accumulating knowledge about the world and experiencing it first-hand.

Japanese students benefit from a far narrower range of experiences than their counterparts in the U.S. or Europe. In the West, when young people go off to university, they often find themselves thrown together with people from vastly different religious, ethnic, cultural and ideological backgrounds. They are exposed to a broad variety of studies and perspectives, both in and out of the classroom. Moreover, the general education courses required at most U.S. universities are designed to broaden students’ perspectives early on so that they might make informed choices about their major field of study and, eventually, their careers.

In contrast, Japanese universities attract few foreign students and few Japanese students study abroad. This in itself is a problem. Secondly, Japanese students generally choose and then focus on their field of specialty early on. The result is that four years at a Japanese university, however prestigious or difficult to enter, does not represent the same kind of stimulating, personally broadening experience common in other developed economies. Even at Japan’s best universities, too many students lack key qualities possessed by their counterparts (and in today’s interconnected world that means their future rivals) from other countries. They have memorized large quantities of raw information without being exposed to the sort of creative problem solving that is further developed, challenged and tempered by numerous encounters with people of different backgrounds.

Japan is certainly not homogenous in the sense that everyone thinks or acts alike. But in important ways, compared to much of the rest of the world, it seems homogeneous. This has many advantages for society, but the development of broad, visionary thinking is not one of them. In my dealings not only with university students, but with Japan’s corporate executives, politicians and government officials, I find, to my frustration, that their lack of cultural interaction has created an intellectual myopia. For example, when I showed a newly released iPhone to the president of a major Japanese electronics maker, he was totally unimpressed: “Our phones have most of the same functions if not more.” The idea that a cellphone was more than the sum of its parts, that it could be a platform for a myriad of independent applications, or that his company should be developing value-added platforms that would attract people from all over the world to create software and services to run on his company’s products simply did not reach him.

Traveling almost constantly, I find great value in immersing myself in foreign cultures and ways of thinking. The goal is not to mimic any particular culture or society, but to learn from them all. The more intellectually (and culturally, philosophically and spiritually) diverse your environment, the greater the potential to grow as an individual and the more value you can bring to any company or organization. In a globalized world, this is essential social capital — and it is missing in Japan.

In the 1860s and ‘70s, the Meiji oligarchs sent some of their “best and brightest” on overseas missions to learn about the world outside Japan. The famous Iwakura Mission included both government ministers and university students, and many of the students (including several women) stayed on in foreign countries to continue their studies. The government understood that gaining first-hand experience and perspective on the world was essential to Japan’s survival.

To reclaim a global perspective, Japan’s future leaders must expand their comfort zone. The ideal time to start doing so is during their university years. The first step would be for the government to partner with other stakeholders to fund and promote scholarships for study abroad. For this to have the desired effect, private industry has to adapt too by changing traditional hiring practices, such as the strictly defined hiring season and eliminating the stigma of chuto sayo (“in between” hiring into a company). And so does society. For example, many Japanese parents would discourage their children from taking up such opportunities. When I offered two promising students four-year scholarships abroad, both declined the offer at the urging of their parents. This was an eye-opening experience.

The world outside can look frightening to those who have not been there. A more important consideration is that parents fear that anything that separates their child from the peer group creates a competitive disadvantage when it comes to promotions. And the way things work now, they are right. That needs to change. I believe that nothing will produce a higher “return on investment” for Japanese universities, companies, and government organizations than a steady flow of new, globally minded talent.

(End of part 1 of 3 – Your comments are always welcome)

Note: This article originally appeared in Reimagining Japan: The Quest for a Future That Works, McKinsey & Company, Shogakukan (Japan), Simon & Schuster (USA), July 2011. Used with permission.

Posted by whsaito

  1. William,

    I actually met one of the co-author Brian and I was happily surprised to see you were one of the contributors. Sasuga!

    I don’t have such a long history in Japan (just 4 years) but I totally agree with the narrowness of vision that most of Japanese people have. I am not blaming them because I realized the system around them, don’t push them, as you said, to go out of their comfort zone. Japan has been living with very high standards for a long time and consequently didn’t feel the urge to explore more borders.

    When I entered university in Switzerland our teachers, encouraged us straight away to do an exchange with a foreign university. Even though my parents were a bit reluctant to let me go to Chile, my motivation to go there was strong enough to convince them it was going to be good chance for my future.
    I would like to suggest Japanese corporations to sponsor Japanese university students to go to foreign universities and in exchange, ask from them a report about a topic that could be valuable for the corporations. That would be a win-win situation for all the players.


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William H. Saito