“X-HUB TOKYO” is a platform that brings together Tokyo’s globally oriented entrepreneurs and people affiliated with innovation ecosystems around the world. On February 19, they were all present at the“X-HUB TOKYO EVENT: Local Ecosystems and Startups Taking On the U.S., Europe, and Asia,” which was held at the Marunouchi Hall in Tokyo.
The latter half of the event featured SORACOM’s president Ken Tamagawa and Raksul, Inc.’s CEO Yasukane Matsumoto engaging in a panel discussion titled “The Global Challenges Facing Japanese Startups.”The discussion was moderated by Takao Kunori, Forbes JAPAN’s Deputy Editor and Chief Editor of Forbes JAPAN Online.
SORACOM is a platform providing wireless IoT/M2M communication. Their overseas expansion is currently well on the way, with the company having set up bases of operation in the U.S. (three facilities), France, and Singapore. Raksul, on the other hand, is a cloud-based online printing and transportation service provider that strengthens its relations with foreign markets by investing in their local startups, primarily in Southeast Asia. We’ve asked the representatives of both companies to tell us more about their experiences with overseas expansion.
We kicked off the discussion by asking the panelists why they decided to expand their companies overseas.
The Reason For The Companies’ Overseas Expansion
Ever since first launching the company in 2015, I thought about creating a “Japanese” platform business and taking those services abroad. In order to do that, I worked together with overseas telecom carriers and studied regulations etc. and was finally able to expand to the U.S. in 2016. Then in 2017, we started expanding into Europe as well. Currently, we have a total of 9,000 clients, with more than 2,000 of them being outside Japan.
When considering overseas expansion, it’s very important to also secure the necessary personnel. In our case it was vital that we partnered up with telecom carriers, so before we started our expansion, we looked for experienced people to head our negotiations with foreign telecommunication companies.
We were established in 2009 and our first attempt at overseas expansion was when we set up a subsidiary company in Singapore and started investing more in Indonesia and later also in India. Once we’ve established a reputation as investors, we started getting requests to bring the same investment business model to places in Europe, Africa, Asia, South America etc. Rather than expanding our services abroad, we test local markets through investments, and then gradually rise share-holding ratio.
We build relationships with entrepreneurs from all over the world slowly and carefully, with the goal of one day turning them into business expansion opportunities. The approach is similar to M&A, only it takes longer and we do it in-house while building a relationship of trust with local management teams.
Mr. Tamagawa, you’ve started offering your services in the U.S. as a prelude to your overseas expansion, while Mr. Matsumoto’s approach was more focused on investments in Southeast Asia. You both tackled the issue of establishing a business presence abroad through different means, but once that was accomplished, what strategies did you use to grow your businesses from there?
We may talk about global expansion etc. but every foreign market and its regulations are different, especially when it comes to the IoT field right now. So, we start out with a soft expansion into a possible region without actually committing to any of them. Then, when we identify a place that’s right for us, we invest heavily into it at once.
Thanks to this approach, we were able to determine that the right customers for us were in the U.S., so that’s where we’re concentrating our expansion efforts. Many Americans come from different cultures from all over the world, so we thought that if we’re not able to succeed in that environment, then it will mean our platform just isn’t ready for the global stage. It also meant that if we could come up with a service that a lot of Americans wanted to use, then an expansion to other countries was also on the table.
We’ve considered every country in the world as a potential investment opportunity but we decided to start with Southeast Asia because it would give us the best return on our capital. In the end, we invested a total of 5.8 billion yen after securing 4 billion in series C funding. It was a huge fundraising accomplishment for a startup but it was still not enough for M&A operations. It also wasn’t that much to ensure scalability in global markets, but I wanted to challenge myself abroad.
I started out by looking closely at every country and examining what percentage of their printing businesses were online. Next, I looked at how each country’s printing industry looked in terms of market, EC, and competitive environments. For example, I learned that despite India being a huge country, there were only three major printing companies there.
Ultimately, we decided to focus our investments on “big markets with undeveloped EC environments” but which would “definitely develop the necessary EC infrastructure and grow their printing industries by 2025.”
Entering Local Ecosystems
I think that when expanding overseas, it’s important to obey the local laws, respect the local customs, and moreover to become part of the local community. How did you tackle these issues, and were you successful?
We’re a communication enterprise so we were always diligent in adhering to regulations and filling out government reports etc. It’s important to skillfully balance a full-on push for innovation with the need to obey the rules.
Also, it’s necessary to have the right kind of people with you. Once, I couldn’t sleep for a month because I was dealing with staffing problems but, in the end, we managed to hire a lot of people who shared our vision for providing a high-quality service. We actually hired someone who used to work for a global company in the region we were expanding to, and then suddenly found more great people thanks to that person’s connections. Attracting that kind of powerful, local managers is a very important step.
It’s important to get right in the middle of any country’s ecosystem. Why? Because the world looks completely different from inside and outside those ecosystems. “When in Rome, do as the Romans do. ”Whether I am in India or Hong Kong, I get right into the local ecosystem.
Once you do that, you can then use your new connections to easily find the necessary staff, thus learning a great deal about the local industry and market etc.
In order to become part of the local ecosystem, it’s important to be identified by Forbes, Endeavor or some other global media as a “promising startup” and have your stable financial situation disclosed on Crunchbase (a startup database) etc.
Finally, I’d like to talk about “what the Japanese startup ecosystem is lacking.” Mr. Matsumoto, you’ve been familiar with the startup world since founding Raksul in 2009. And you Mr. Tamagawa have been there when KDDI acquired SORACOM in 2017. Can you tell us what you learned about the Japanese startup ecosystem from your experiences?
I think that the startup ecosystem in Japan changed with the bankruptcy of Lehman Brothers. A new VC generation emerged and the U.S. suddenly became our main source of information. It was the same in India, China, or Africa. We all started paying attention to the news coming from Silicon Valley, and I think that’s how the world suddenly became a better place for startups.
But that only applies to information. There’s still not enough know-how out there about operating a global startup. Japan, for example, has just started expanding onto the global stage and, as a first-generation startup entrepreneur, I think it’s thanks to people like Mr. Tamagawa.
In Japan, there are companies that offer very small-scale IPOs and never expand abroad. Of course, that is something they decided was best for them so I’m not criticizing them. But I think that it would be better for Japan as a whole if we had more companies that dared to challenge themselves on the global stage.
We might not be able to invest in startup base stations or infrastructure but because we’re now a subsidiary of KDDI, we can use their resources to expand abroad. It’s an extremely win-win kind of relationship.
Similarly, if an M&A is what it takes to accomplish your vision, then it’s not a bad thing. Following the best practices from Silicon Valley, it’d be best if you could find a balance between wanting an IPO and wanting an M&A.
Mr. Matsumoto and Mr. Tamagawa both seemed to be enjoying their companies’ overseas expansion, saying, respectively: “You’ll suffer but it will be fun while you’re doing it,” and “It’s difficult but there are times when it makes you happy.”
X-HUB will continue to organize more support programs and events for helping Japanese startups expand overseas.