Is food the future of entrepreneurial Japan?

Young Japanese entrepreneurs have found a foothold in the world of food and e-commerce in one of the toughest nations for startups. Will more follow? 

In 2008, Tokyo-based entrepreneur Takako Endo partnered with a struggling rice cracker factory in the Niigata prefecture of northern Japan. Her plan: reinterpret traditional Japanese rice crackers with contemporary flavors and packaging, then resell them online to a younger, hipper crowd.

“I wanted people to enjoy our product at a party, as something you could serve with cheese,” she says.

Five years later, the resulting company, Twhy Twhy, has set up permanent shops in Japan and expanded its online business into other parts of Asia. In 2013, Ms. Endo was named one of the winners of Nikkei’s Woman of the Year, an award that recognizes the achievements of Japanese women in business. Her success is impressive, but it’s also rare: Endo spent years struggling in Japan’s stifling startup environment to grow her business. In last year’s Global Entrepreneurship Monitor, a survey ranking the entrepreneurial activity of 24 developed nations, Japan tied for dead last.

Now, Japan’s leaders are determined to fix that. Improving Japan’s entrepreneurial spirit is a main tenet of Prime Minister Shinzo Abe’s ambitious set of economic reforms, known as “Abenomics.” Proposed changes include loosening the strict business lending standards of banks and allocating about $200 million in government funds to encourage and aid women who want to start businesses.

The plan faces obstacles both economic and cultural. Venture capital is scarce in Japan, and bank loans often hinge on personal guarantees that don’t generally exist with a new company.

“It’s a huge contradiction, because in order to borrow money from the bank, you have to have a stable business” says Endo,  who started Twhy Twhy with about $2,000 of her own savings and was only approved for a loan for setting up a store in a subway station on Tokyo’s venerable JR Line. “It’s a chicken or the egg thing.”

Furthermore, an aversion to failure largely steers Japan’s workers into large, established companies. Endo worked at a bank and a luxury real estate firm in the years before she struck out on her own.

Then there’s the bureaucracy. Endo haunted the local city government’s office in her Tokyo district in Twhy Twhy's early days, navigating a complicated permit process and asking so many questions that she was soon on a first name basis with the head of the legal department.

Japan’s startup culture used to be strong, spawning huge corporations like Sony and Panasonic out of tiny businesses, points out Yuji Genda, a sociology professor at the University of Tokyo who has written extensively on job market issues facing Japanese young people. It’s hard to pinpoint one cause for the decline, he argues, but the self-employed sector of the workforce started to decrease rapidly in the 1980s, and the 1998 stock market crash made the general financial environment more cautious. “I would like to see an increase in people who would be their own bosses and enter into the world of social entrepreneurship, but I think the fear of failure still exists,” he says.

What’s more, there might be cultural issue that government can’t fix, he says. “When starting a business it is key that you capitalize on what we call weak ties,” a loose network of acquaintances with different backgrounds and experiences that can lend perspective and diversity to a nascent company. “However, traditionally, Japanese business has always focused on the strong ties, meaning people with the same backgrounds, education, and information.

“These people in your strong tie network give you stability, but when starting a business you need inspiration,” he adds. “You need tips and hints from people. Unless society shifts from a society that only capitalizes on strong ties to one that also uses weak ties, we cannot have new businesses flourish.”

But if Twhy Twhy and other Japanese entrepreneurial ventures are any indication, the intersection of food and e-commerce could be fertile ground for aspiring business owners.

“There are a lot of food problems in Japan,” says Kohey Takashima, founder of an online delivery service for organic and natural food called Oisix. “ For example, the supply chain in our food industry in Japan is so long, and the producer and the consumer are very far apart.  So it’s difficult to get information [on your food]. By using the Internet we can connect the producer and consumer directly.”

Founded in 2000, Oisix now clears about $126 million in annual sales. In 2008, the startup won a Porter Prize, which recognizes outstanding Japanese businesses, and this past March, it went public.

Japan’s $1.4 billion organic and natural food market is still relatively small. The Japanese buy only 5 percent of the organic food that Americans do even though they’re equal to 40 percent of the US population. But about half of Japan’s organic fruits and vegetables are sold online, suggesting that the country is much more open to the virtual grocery shopping experience than Americans, who buy only 3.3 percent of all their food online.

In addition to the growth possibilities, online companies have much lower startup costs than other businesses do. Plus, like online gaming, another attractive avenue for Japanese entrepreneurs, food commerce doesn’t depend on science and research developments often dominated by the nation’s major technology firms.

Larger companies have started to catch on to the organics trend. Last year DoCoMo, a telecommunications giant, acquired Radishbo-ya Co., one of Oisix’s larger competitors. Supermarket chain Lawson recently entered into a shareholding partnership with Daichi wo Mamoru Ka, another similar company.

For their part, Mr. Takashima and Endo are looking to expand their businesses overseas. Endo soon hopes to open a permanent Twhy Twhy shop in Kuala Lumpur, Malaysia, and has been exporting limited amounts to France and Australia. Oisox has its sights set on expanding throughout Asia and into the United States.

“I know that in the US organic food is huge in the real market,” Takashima says. “However, not so in the online market. So I think there is a real opportunity for us there.” 

Reporting for this story was made possible through a fellowship with the Foreign Press Center of Japan (FPCJ).