City-Tech.Tokyo:
Japan Business Expert Ulrike Schaede on Building Sustainability Through City-Tech

Ulrike Schaede, a professor of Japanese business at the University of California, San Diego, is a keynote speaker at City-Tech.Tokyo. She shared her thoughts on how companies in Tokyo and elsewhere can help build more innovative communities.

— Why did you specialize in Japanese business?

As a college student in Germany, I was curious about the Japanese language, architecture and society, and I earned a master's, and later a PhD, in Japan Studies and Economics. This was during the Bubble economy, and Japan was an interesting place to study. I became keenly interested in business, and wrote my PhD thesis on how stocks were traded in the Bubble economy era. More recently, I have studied Japanese business strategies, in particular and how Japanese companies have repositioned in response to the rise of China.

As a social scientist, I'm interested in the different ways in which cities and countries are organized, and what we can learn from these differences in terms of efficiency consequences and society. Right now, Prime Minister Kishida is pushing the theme of a "New Form of Capitalism," which may actually be an old theme. My interest is how Japanese capitalism is different and what we can learn about the costs and benefits of Japan's form of social, business, and economic organization.

— How do you define "city-tech"?

When I see that term, I think of the smart city in its entirety, and then ask how we can use the technology frontier to improve our daily lives, processes, business and culture. In this sense, "city-tech" may be broader than the "smart city" concept, which is focused on the smart grid and smart cars and that sort of thing. City-tech, in my view, is about how we can make the smart city fulfill the purposes of the people who live in it.

One example is how we can use new technologies to make it easier for people with handicaps or disabilities to participate in daily life. Countries may be too big to do this on the ground level, but cities have agency over a lot of decisions related to public transit, communication, employment, culture, and diversity and inclusion.

— How can startups help with the challenges facing global cities? 

One person's challenge is another person's opportunity. Startup companies find a gap and fill it, find a problem and fix it, or find a bad solution and make a better one. This constant search for gaps and improvements is really what's driving Silicon Valley. It's not just products but services dealing with the challenges of daily life. Uber is a great example of fixing a problem with San Francisco taxi companies, and then it became a much bigger thing.

Companies of any size can help identify challenges and turn them into opportunities for something new and better. There is a large amount of research on innovation, and the necessity of developing innovation streams in large firms, or open innovation through interaction with startups. What's important here is to realize that large and small firms have different assets and advantages. Large firms have everything small ones need so badly: money, talent, R&D and other assets.

But while startups don't have these, they can be fast and they can take risks. They are unencumbered by the many processes and politics that define large organizations. The question, then, is: how can we create synergies between the assets of large companies and the abilities of small ones? Can the small firms speed up the large ones? I think that's the opportunity—how to create synergies between them.

—Japan has relatively few unicorns. What's your assessment of the startup ecosystem in Japan, its challenges and potential?

I've never been a fan of the unicorn concept. It's an American thing. Other countries including Japan just don't have valuations like that. I think it would be great if Japan and Tokyo could find their own success measures, maybe with a new metric.

The biggest challenge in Japan may be that there are not enough exit options for those who finance startups. For Japanese startups, the dominant exit option is an initial public offering (IPO) on Tokyo Stock Exchange Growth Market, and it's estimated that only about 20% of startups exit through mergers and acquisitions. In the U.S., it's almost the flip side of that: the most frequent exit is to sell the company off and start a new one, and perhaps 20% of successful startups go public. There are many serial entrepreneurs in the Valley who start company after company, increasing the economic metabolism of the region.

In Japan, small companies still face difficulties in selling their technology. Part of it, I hear, is that they can't or won't trust that large companies will actually do something with it. But the dominance of IPOs as exits is a challenge, because it reduces the returns on investment and therefore investors are less willing to put a lot of money into startups. I think it would be helpful for Tokyo's innovation ecosystem if there could be more of a market for ideas that includes large companies teaming up with small ones to bring small company ideas and technologies to market. The time for this to happen is now.

— What are Tokyo's strengths in this area and in implementing city-tech solutions?

I just think Tokyo is the best city in the world. The metropolitan area of Tokyo is 38 million people—that's the entire population of California in the space of Los Angeles. This is a great city-tech challenge: how can we organize this many people and still have a fulfilled life? If Tokyo can advance to the next stage of city-tech, that will take away all the excuses that other large cities might have in terms of why they are not moving forward. This trailblazer aspect is a big opportunity.

To increase the metabolism of the ecosystem, Tokyo can make it easy to come here. I think that's already happening. It's not difficult to come here and start a business. Some say the Japanese language makes it difficult, and that's true. But not everybody in the startup has to speak Japanese. The CEO has to, but not the CTO and others. The people who do the technology can talk through their code or technologies, etc.

— What are your expectations for City-Tech.Tokyo?

One thing that I hope will come out of this event is more positivity about innovation, in Tokyo and Japan, as well as globally. What Tokyo can do to help this is to showcase its successes. For instance, is there a high probability of success in starting a company in Tokyo? The city can highlight a large number of successful companies.

Generally speaking, the strength of Japan's innovation ecosystem is underestimated. It would be great if Tokyo can become a more relevant part of the global innovation conversation, not just as a thing we have to nourish but as a true player in the larger Japanese innovation paradigm.

Ulrike Schaede

Ulrike Schaede is a professor of Japanese business and the director of the Japan Forum for Innovation and Technology at the University of California, San Diego. Her research focus is Japanese business strategy and political economy. Her publications include the 2020 book The Business Reinvention of Japan: How to Make Sense of the New Japan and Why It Matters.