For decades, Japan’s corporate giants relied on in-house R&D to drive innovation, while startups exited primarily via IPOs. But with domestic market stagnation, an aging workforce, and intensifying global competition, “Japan Inc.” is pivoting toward acquiring startups to drive growth.
Jesper Koll, a board director of the Okinawa Institute for Science and Technology, wrote in his newsletter, “The Japan Optimist,” that new CEOs, unlike their predecessors, are embracing external innovation. Drawing parallels to the US—where 90% of startup exits are acquisitions—Koll suggests Japan’s corporate leadership is adopting a more aggressive approach to growth.
Despite a global decline in deal volumes, Japan’s M&A market remains resilient. Managing Director of M&A advisory firm Crimson Phoenix, Yuuichiro Nakajima, attributes this to Japanese firms’ dual strategy: pursuing high-margin growth abroad through acquisitions and restructuring domestically to improve return on equity. This approach, he tells Global Finance, positions Japanese corporations as both buyers and sellers in an evolving global marketplace.
However, cultural and systemic challenges persist. As Matt Romaine and Mark Bivens of Shizen Capital, an angel investment firm, explained on the “Disrupting Japan” podcast, M&A has traditionally been viewed as a secondary exit strategy. Yet high-profile successes, such as PayPal’s $2.7 billion acquisition of Japanese Fintech company Paidy in 2021, are shifting perceptions. Paidy’s founders’ decision to reinvest their gains back into the ecosystem is fostering innovation and encouraging a healthier cycle of startup growth, Romaine and Bivens shared.
Kunio Katsube of the Japan Investment Corporation stresses the importance of international collaboration. Japan’s startups raise far less capital than their US counterparts, and this hinders scalability. Encouraging VCs to enter Japan can bridge this gap, he argues.
With $3 trillion in corporate cash reserves, Japanese companies face mounting pressure to deploy capital effectively amid inflation and shareholder activism. Acquiring startups offers a strategic path to rejuvenate growth, attract talent and position Japan as a leader in fields like AI and sustainability.
In January, SoftBank doubled down on its commitment to technology-driven innovation. The company joined forces with OpenAI, Oracle, and other major partners to launch Stargate, an ambitious $500 billion joint venture unveiled at the White House.
