Japan-EU: Untapped Innovation Opportunities

As the world’s economies recover from their time of imposed hibernation due to COVID-19 pandemic, business leaders and entrepreneurs across the globe are being pushed to search for innovations to push forward in the global market that is expected to fall by 5%. Japanese businesses can explore greater missed opportunities in Europe, as Japan and the European Union (EU) have also completed their Economic Partnership Agreement (EPA), the biggest trade deal in the world.

The EU-Japan EPA marked its first anniversary of the entry into effect on 1 February 2020. During the first ten months after the adoption of the deal, Japanese exports to Europe went up by 6.3%. EU exports to Japan also grew by 6.6% compared to the same period the year before, outperforming the growth over the last three years.

Although the 2019 EU-Japan trade agreement indicated a shared appetite for trade, investment, and collaboration, this desire must now be capitalized on as both territories scale up their economic restoration efforts in the wake of the pandemic.

Japan Needs More Tech Innovations

Much like Japanese manufacturers used to look overseas to high-growth markets in boosting Japan’s export-oriented growth, there is a strong potential to use some of these large and underutilized surplus funds to purchase stocks of some of the fastest-growing technology start-ups beyond the country.

Moreover, Japan’s aging population is not only a welfare problem. Severe labor shortages could lay ahead for a country where social mobility is minimal. The long-standing emphasis on life-long jobs is also causing a brain drain on some of Japan’s finest tech talents.

All of this presents a clear opportunity for Japanese companies both to invest in emerging EU-based start-ups and to use smaller European markets as testbeds for their own innovations. Japanese companies can tap into digitally native and highly literate local European populations for pioneering new initiatives. Europe offers both a direct and indirect path to growth, as well as a more accommodating culture for innovation.

Collaboration Opportunities with European Start-Ups

Given the rapid development shown in the start-up industry, Japanese companies and investors have not given much attention to European start-ups as the country has historically looked to the US and Israel for innovation and entrepreneurship.

The European tech startup ecosystem is more used to collaborating with its global counterparts. For instance, South African-based Naspers, one of the world’s biggest technology investors, has shifted most of its company to Amsterdam to become Europe’s largest Internet user group. The Indian giants, Tata Group and Wipro, have also spent extensively in R&D throughout Europe in recent years.

In addition, there are various examples of emerging European innovations, especially in the fintech sector, which could easily be developed in collaboration with Japanese banking and insurance giants. These European start-ups are therefore seen as desirable and less vulnerable to high valuations.

Compared to Japan’s home market, which is highly regulated and dominated by ‘bread and butter’ corporations, Europe is home to one-third of the world’s largest start-up cities and approximately 6 million tech developers. The region has 17 of the world’s top 20 most socially mobile countries and about twice as many students in Science, Technology, Engineering, and Mathematics (STEM) as the US.