X-HUB TOKYO, which supports the overseas expansion of startups in Tokyo, held a kick-off event on June 22nd, 2021. The event featured guest speakers who have been involved in global open innovation, introducing examples of startups’ overseas expansion strategies.

X-HUB TOKYO is a program that supports the global activities of start-up companies in Tokyo and aims to revitalize the city’s economy through exchanges with overseas companies.

The FY2021 program will focus on the creation of open innovation in the new normal era and provide opportunities to enter new global markets. In addition to the “STEP-UP PROGRAM” launched this year, the “OUTBOUND PROGRAM” is designed for startups in Tokyo aiming to expand overseas, and the “INBOUND PROGRAM” supports overseas startups to enter the Tokyo market. In addition, we will regularly hold events to communicate the latest trends and real experiences of entrepreneurs overseas.

At this event, Mr. Vincent Phillip, CEO & Managing Partner of Plug and Play Japan, and Mr. Toru Tokushige, Founder and CEO of Terra Motors Corporation and Terra Drone Corporation, gave a lecture on startup companies and how they can build their business overseas.

We shared the latest information that will not only be helpful for startups looking to expand overseas, but also for organizations that support startups, including VCs and large corporations.

Issues and Challenges in Open Innovation in the New Normal

Mr. Vincent Phillip, CEO & Managing Partner of Plug and Play Japan

First, I would like to ask Mr. Vincent Phillip, President of Plug and Play Japan, about the importance of open innovation.

As the speed of change in the world is increasing, open innovation has become an important element when considering the survival strategy of companies. One of the most notable features of open innovation in the new normal era is that the COVID-19 pandemic has facilitated access to open innovation, a trend that is becoming increasingly regional.
Innovation is a process that consists of three elements: new ideas, user acquisition, and value creation. The difficulty of innovation lies in the fact that, as mentioned in the innovator’s dilemma, it is necessary to take action, such as starting a new business, once the company has matured. Elements such as “stimulus” and “momentum” are essential for innovation, and it is necessary to take these steps at an early stage.

What challenges do you think Japanese startups will face?

There are five main challenges for entrepreneurs and Japanese startup companies in the new normal era. First, due to the large size of the country, the need for innovation is not as urgent in comparison to other countries. Secondly, in addition to few opportunities to learn about entrepreneurship, Japanese culture has a tendency to not tolerate failure. Lack of flexibility in communication is another characteristic. In addition, there is a lack of trust in startups from large corporations and other potential partners. Finally, there is a lack of success in overseas accelerator programs.
Just as successful companies such as Uber and Airbnb have been launched during past recessions, the amount of investment expected for fiscal year 2021 is increasing due to the COVID-19 pandemic. In addition, venture capital funds are being established in Japan in areas such as AI (artificial intelligence) and SaaS (software as a service), and it can be said that the foundation for new innovation is being built.

Lastly, what should startup companies pay attention to when expanding their business overseas?

The following factors should be considered when expanding business abroad. Firstly, understanding the market, localization of products, and financing, hiring and training employees, and securing partners are important for startups to succeed. In general, startups that plan to expand overseas from an early stage often start their business abroad, but an increasing number of startups are entering foreign markets at the Mid/Later stage. The reason for this is that product market fit is misaligned in the Early/Seed stage.

Four Points for becoming a Global Mega-Venture

Mr. Toru Tokushige, Founder and CEO of Terra Motors Corporation and Terra Drone Corporation

Next, we will ask Mr. Toru Tokushige, Founder and CEO of Terra Motors Corporation and Terra Drone Corporation, about the company’s efforts during the COVID-19 pandemic.

During the pandemic, we launched new businesses in addition to maintaining and expanding ties with our existing global business partners. We had been engaging in the EV (electric vehicle) business in India, and although there was a period of zero sales for two months due to lockdown, we reached the highest sales in our history 6 months later. In addition, although a large-scale fundraising for the drone business was at a standstill, the company, in the end, was able to receive bank loans and recently succeeded in raising 1.5 billion yen. Lastly, even though there was the struggle of difficulty in travel, thanks to that, we were able to launch a new digital transformation business in construction in Japan. We were able to become number 1 in the field just 1 month after releasing the software.

Please tell us about the key points for launching a new business overseas.

There are four important aspects to launching a new business abroad, which all require mental toughness, decisiveness, and entrepreneurial intuition built from past failed experiences. The 3 points are: finding the right product market fit (PMF), human resources, organizational structure and “buffer management”. The first point is to find the right PMF. Compared to domestic ventures, it is necessary to understand the characteristics of each market, as overseas ventures depend on various factors such as price, laws, differences in compliance thinking, taste, needs of customers, and unpredictable situations in regulations. Second, human resources are another point to consider. In an overseas venture, creating relations with local key personnel is very important. While, for Terra group, it is important to headhunt key employees from overseas competitors, regardless of whether the business is being held in Japan or a foreign country. In addition, educating Japanese employees into overseas management personnel is an important aspect. We, in Terra group, delegate authority at least 2 ranks higher than what they are used to, along with providing experience of failure as part of our human resources development, as we believe real managers only arise from experiencing scenes of carnage. The third point to keep in mind is organizational culture. After finding the right PMF and the venture is on the road to success, we believe it necessary to advocate the core values of the company during its scale-up phase. At Terra group, we advocate the same core values for all of our ventures, whether domestic or overseas, which is sometimes difficult in overseas ventures.
The fourth point to consider the ability to “buffer manage” the company. As many unexpected things occur in overseas ventures in comparison to domestic ventures, it is important to not only take risks but also have a plan for conservative management. Although Terra group is somewhat known for its aggressive side, we actually implement a very realistic management strategy. Although we have had many crises (like the book by Mr. Tadashi Yanai, “1 win 9 losses”) we believe it is most important not to bankrupt the company.

This event provided information on strategies for Japanese startups to expand their business abroad. X-HUB TOKYO will continue to provide useful information for startups aiming to expand overseas as well as the latest trends in open innovation through various upcoming events.