The Japan Investment Corporation’s “Current Survey on Japanese Startups’ Overseas Expansion”
The Japan Investment Corporation (JIC) has released the findings of a survey regarding the overseas expansion of Japanese startups, highlighting the increasing importance of going global, given the relatively large but shrinking domestic market and the need to compete on a global scale to achieve significant growth. For those who want to learn more, we have published a deep dive into the document.
The survey found that a significant portion of top Japanese startups have already attempted or are planning overseas expansion (58% already, 20% planned). However, successful cases where overseas revenue surpasses domestic revenue are still limited. Deeptech and manufacturing startups are identified as having a particular advantage in aiming for the global market due to technology often being the core business, reducing language/cultural barriers.
Regarding the timing of expansion, while many startups first establish a domestic presence, deeptech startups often pursue overseas markets from their early stages, adopting a "Born Global" approach.
The choice of location for overseas bases is primarily driven by market acquisition goals, with the US and Southeast Asia being popular destinations. For deeptech, the US and Europe are favored for talent and technology ecosystems. The decision is influenced by both market characteristics (size, competition, regulation) and the startup's own resources (talent, capital, networks).
Different methods of local expansion are employed, ranging from low-risk approaches like export via agencies or e-commerce to higher-risk, higher-investment strategies such as direct physical base establishment or M&A. Startups, facing resource constraints, often need to build trust locally due to lower brand recognition. Localization of products/services to fit local market norms and regulations is frequently necessary, though the approach varies (global standard, separate development, or same product with translation). Founder relocation is seen as a strong signal of commitment.
M&A is discussed as an effective tool for rapid market entry, acquiring talent, and navigating regulations. Success hinges on thorough due diligence, effective post-merger integration (PMI), appropriate incentive design for acquired teams, and having an experienced M&A team. Failures occur due to poor strategy, inadequate PMI, or lack of local understanding.
Operational challenges include talent acquisition (especially local), the wage gap with markets like the US, visa issues, and ensuring a suitable living environment for expatriates. Referral hiring and leveraging networks are crucial for talent. Communication across multinational teams requires a common language, often English, and an open, low-context culture. Founder English proficiency is seen as important.
Funding is a major hurdle. Startups pursuing global markets require substantial capital, but Japanese startups generally raise less than their US counterparts. Overseas investors are crucial for large rounds, offering capital, networks, and expertise. However, there's a mismatch between overseas VC preferences (often earlier stage, specific sectors) and Japanese startup needs (often later stage). While Japanese contract differences exist, they do not appear to be a significant barrier to overseas investment. There has been increased investment by prominent overseas VCs since 2024, but often not in deeptech or already globally expanding startups.
Finally, the JIC emphasizes the importance of strong ambition ("野心") for founders to overcome the difficulties of global competition, contrasting it with the comfort of the protected Japanese market. Role models and investor/supporter mentorship can significantly influence a founder's vision and ambition. Symbolic success stories of Japanese startups achieving global scale are anticipated to inspire further challengers.