A Country’s Hidden Gems Set to Create Value Nationally and Around the World

October 2022

Japan is in part known for having the world’s third-largest economy, one that is underpinned by global corporations, robust SMEs, modern infrastructure and advanced technology. That being the case, what is generally known abroad about Japan’s economy is centered on large cities and large companies, while the value created in other parts of the country—especially its regions—is less well known. And yet, such value is not enjoyed in Japan alone but around the world, as we will see below and in future articles.

As noted in the prologue of this series, this article falls under one of the themes under our consideration—that is, articles summarizing business opportunities not only in metropolitan areas but also in other parts of Japan. Here, we will share key insights into three main areas: 1) developments within the regional ecosystem; 2) developments in academic research; and, 3) social challenges and related business opportunities in Japan.

All these areas contain some of Japan’s hidden gems, including startup ecosystems, high level research institutes and next-generation smart cities. Such hubs of innovation are rich in opportunities for collaboration, creativity and the production of new value. Importantly, foreign-affiliated entities—companies, institutes, institutions and skilled individuals with collaborative mindsets—can take advantage of these lesser-known resources to create value.

Indeed, stakeholders from abroad not only can realize and expand their own business and innovation goals by collaborating with Japanese entities, but also pursue business opportunities by tackling many of Japan’s socio-economic challenges: especially those prevalent in the regions, such as depopulation, aging societies, and climate change-related concerns.

First, let’s consider Japan’s development of its regional ecosystem to promote innovation. Japan was an early mover in leveraging the various strengths of regional resources, which include technologically advanced SMEs and advanced academic institutions and industries—the latter covering sectors like agriculture and tourism, the foundation of regional economies and societies.

One effort aims to attract business concepts, entrepreneurial talent, and capital through the establishment of startup ecosystems, as well as to promote innovation and accelerate the development of the investment environment in various regions. This move is helping to drive innovation in the country as a whole.

Startup ecosystems are ideal platforms for bringing together innovators to develop new technologies and solutions, as well as to establish next-generation companies across the country. Such hubs can become the springboard for launching new opportunities for cross-border, collaborative partnerships between Japanese and international entities—in areas like open innovation, where companies open their innovation strategies to entities outside their own portfolio of companies.

Japan is evolving with such ecosystems. Kawasaki King Skyfront, for example, is located in Kawasaki, a city in Kanagawa Prefecture, which lies near Tokyo. Kawasaki King Skyfront is an R&D center with a focus on life science and environmental fields—and the realization of open innovation projects. Osaka Innovation Hub (OIH), meanwhile, is an ecosystem backed by Osaka City, the capital of Osaka Prefecture. OIH hosts international startups, media and investors, in addition to running incubation and acceleration programs for ventures in a wide range of industries—from healthcare to life science to manufacturing.

Startup Bootcamp Scale Osaka (SBC), moreover, is also located in Osaka. Via its accelerator, SBC helps early-stage tech companies grow their business. Soundpays, for instance, is a company from Canada that was a member of SBC’s accelerator program. During the program, the startup—whose product uses ultrasonic sound waves to deliver information from advertising to a user’s smartphone—entered proof-of-concept (PoC) partnerships with Japanese corporations, in particular The Yomiuri Shimbun, a major media company, and Hankyu Corporation, a large railway operator. Since the PoC’s development in early 2020, the companies began plans for large-scale deployment of the technology.

Next, we will consider developments within academic research, which includes universities, research and development (R&D) centers and academic institutes—many of which are located outside major cities. Here, too, efforts are being made to promote innovation, whether that’s via university spin-offs by researchers themselves, or through open innovation collaboration between researchers, corporations and startups.

CELLINK, for example, is a Swedish 3D bioprinting company. They opened operations in Japan, establishing a representative office at the Kyoto University Venture Incubation Center (KUViC). A life sciences company, CELLINK’s products—which include 3D printers and biomaterials—can be applied in fields such as regenerative medicine, drug discovery, cell biology and dentistry. CELLINK Corporation, the Japanese subsidiary, was established in 2020 in Kansai, a region renowned for high-level life sciences research facilities and corporations.

Tohoku University, meanwhile, has established the Clinical Research, Innovation and Education Center (CRIETO)—a life science hub with a goal of bringing ideas created in the lab to the market. Hosted by Tohoku University Hospital, CRIETO engages in international collaborations with leading universities, research institutes and companies—including foreign-affiliated ones—as part of its innovation strategy.

In 2018, for instance, Tohoku University signed a partnership agreement with Phillips Japan, a subsidiary of Dutch multinational Phillips, to conduct joint research in the field of healthcare. Two years later, in 2021, the university and the Dutch firm extended the collaboration, entering a 7-year strategic research contract to explore remote training of anesthesiologists and to deploy artificial intelligence to analyze chronic heart disease. Indeed, Phillips has a co-creation space at Tohoku University’s CRIETO hub.

The University of Tsukuba, meanwhile, has created an initiative called the Tsukuba International Center for Digital Biotechnology. The center has a goal of promoting international exchange and the creation of advanced solutions in collaborative medicine and food products, among other projects. Supported by the Japan Science and Technology Agency, the center seeks to tackle challenges identified in the sustainable development goals (SDGs) of the United Nations, and in Japan’s national strategy for innovation, including a goal to provide health and wellbeing for all and to create the foundations for industrial and technological innovation.

It’s worth emphasizing that Tsukuba City, where Tsukuba University is located, lies around 65 km northeast of Tokyo, and is known for its high-level universities and research centers, including the National Institute of Advanced Industrial Science and Technology (AIST). In mid 2022, for example, AIST announced a joint R&D agreement with the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest semiconductor foundry. Under the agreement, TSMC’s Japan subsidiary, based in the Tsukuba Center of AIST, will conduct research into next-generation semiconductors.

Finally, let’s consider social issues and business opportunities in Japan. In this area, issues range from challenges around mobility for seniors and others, population decline due to low birth rate, aging populations, and severe disasters caused by natural phenomena or climate change—all of which present firms, institutions and skilled individuals worldwide with ample opportunities for collaboration and innovation with Japanese partners.

The Advanced Mobility Demonstration Project in Kitakyushu City, Fukuoka, is an example of an initiative that aims to tackle challenges around mobility at the local level. Under Kitakyushu City’s SDGs Innovation Trial Project, Singapore-based SWAT Mobility Pte. Ltd., a startup in the transit industry, was selected to analyze boarding and alighting data from municipal buses and propose optimized revisions to scheduling challenges; the latter is caused by issues like depopulation in regional areas. SWAT Mobility’s solutions are an example of transit services that can benefit not only local bus operators and customers but transit users anywhere.

But mobility is just one challenge facing local communities. That’s why in 2018, the Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) set in motion the Regional Business Conference (RBC) initiative. The RBC leverages industrial clusters and other strengths of Japan’s regions, invites foreign businesses, arranges business matching with local companies, etc. Projects are publicly solicited from municipalities that are active in attracting foreign companies. Since the Covid-19 pandemic, "JETRO Business Connect" was launched in 2021 to provide foreign businesses and local governments with online matching opportunities. It has covered a wide range of fields that impact the local economy, including healthcare/life sciences, disaster prevention tech, travel tech, AI/IoT, etc.

Suffice it to say here that, in future articles, we’d like to convey the attractiveness of business in the regions through detailed examples of solutions by international companies that are being deployed to solve some of Japan’s most-pressing socio-economic challenges.