How Israeli Startups Get Big in Japan

There is a window of opportunity in the coming 18–24 months for Israeli entrepreneurs to grab the attention of the Japanese market.

By Barak Salomon

Despite the pandemic, many Israeli tech startups are looking to expand into new markets. Traditionally, Israeli startups have turned towards the US, which will remain the largest market for the foreseeable future. At the same time, and following Asian economies’ better handling of Covid, there is a growing awareness amongst Israeli technology entrepreneurs of a need to diversify the US-first global growth strategy. Asia is increasingly coming to mind.

Japan, the world’s third-largest economy — and one that is now officially throwing its weight behind digital transformation — may be one of the most attractive options for Israeli startups. According to IVC, over US $1.5 billion in deals involving Japanese investors went to Israeli startups over the past decade, with 2019 being a record year.

As the flight time between Israel and Japan shortens due to new Gulf flight connections, we expect more activity on the Israel-Japan tech business bridge. Japan is hungry for innovation — a mindset and philosophy Israel lives and breathes. Japan’s ranking among innovative economies on the Bloomberg Innovation Index has been on the decline for several years. Here’s the dichotomy: Japanese consumers may embrace new technologies, but corporations and companies are slow adopters and the business community can be quite conservative.

But there is a window of opportunity in the coming 18–24 months for Israeli entrepreneurs to grab the attention of the Japanese market. The COVID-19 pandemic — despite the devastation it has waged — has leveled the playing field, forcing everyone into Zoom meetings. Israeli startups and companies looking to expand into Japan have a real shot to shine. Provided they are prepared, focused, and willing to invest the time and energy.

As Israeli entrepreneurs court Japanese collaborations, they may do well to heed the wide culture gap (they couldn’t be further apart — see the chart below) and adopt strategies that speak to a cautious society that appreciates trust, commitment, and a degree of excellence.

Here are some pointers to keep in mind:

• Choose your partners carefully: Entrepreneurs, investors, and corporations should work with trusted representatives from both sides to facilitate successful engagement. Facilitators who have spent time in both regions could help ensure nothing significant gets lost in translation and create an environment for real connections to emerge.
• Learn to appreciate the middleman: In the financial services, IT, and telecommunications sectors particularly, Japanese companies are less inclined to work directly with vendors and customers and are more likely to employ an IT integrator. This is how they do business. One of the best strategies to enter the Japanese market is to find these integrators and seek out a collaboration. It means sacrificing margins but they will put you in front of their biggest customers and may prove pivotal to your success.
• Trust is key: Building a business relationship with Japanese partners requires a meaningful investment of time, effort, consistent communication, and reliability. It is very much a long-term commitment but there are high rewards. Firm, authentic ties will earn you loyal customers who will be hard-pressed to abandon the relationship when a cheaper product, for example, comes to market. Once trust is built, your partners will go out of their way to help you.
• Time is not an abstract idea: Israelis have a very different perception of time than the Japanese do. If you tell a Japanese person that you will be sending them an email in the evening, they expect to receive your message that evening. This speaks to reliability and accuracy, traits that are revered in Japan. Israelis’ more fluid concept of deadlines and dates can be a detriment in this context.
• Don’t go in too early: The product or service doesn’t have to be bulletproof, but it needs to be established, well-rounded, and stable. The excellence and maturity of the technology you are offering is a key pillar.
• Do your homework: Israelis like to move fast and improvise, while the Japanese tend to take things slower, looking carefully at the details on the path to a deal. Be prepared. Keep in mind that everything that you are offering them, they may already have to some degree. And you are being compared to what’s already out there. If you want to be seriously considered, you have to play by their rules.
• Have an edge: Japan is a big country with a population of over 120 million people. Entrepreneurs should strive to have customized, localized documents and materials that will show careful consideration of competitors and comprehensive thought and preparation.

The good news is that this is not one-sided. The Japanese understand that they, too, need to grow, adapt, and navigate outside business cultures. Encouragingly, there are growing voices within Japan’s business community calling for corporate chiefs to make decisions faster.

But there is so much more Israeli entrepreneurs can do to ensure their chances of success in Japan. First by leveraging the uncertainty of this period to take their shot. And then by cautiously navigating a culture that is diametrically opposed to theirs. It’s no small feat but the end results could be well worth it.