Norio Yanagihara

A professor of international business strategy, he's fostering -- and giving grades to -- tech ventures in Kyoto.

Kyoto has quietly become the birthplace of many of Japan's most successful high-tech firms. How and why did this happen?
Because it was a repository of culture, Kyoto never saw the birth of any major corporations. When the Meiji Restoration [in 1868] shifted Japan's capital from Kyoto to Tokyo, it dealt a crushing blow to Kyoto's economy. The crisis forced the residents of Kyoto to innovate, and drove them to be number one. Kyoto would become the site of the country's first power plant, first streetcar, and first movie studio, among other things. The depressed economy forced local business to rise to the challenge.

What happened after World War Two?
Kyoto's main industry was textiles. During the war, textile makers were prohibited from making kimonos, a luxury item, and switched to manufacturing silk parachutes instead. But in 1945 all the silk thread that had been stockpiled during wartime was ready to use for consumer apparel. Dire postwar shortages made it easy to sell loads of kimonos at high margins, making a lot of manufacturers rich.

Kyoto was [also] the only large city in Japan to escape destruction during World War Two. While other cities were left with virtually no housing after the war, Kyoto's homes were intact. And while other cities were heavily reliant on electric power, Kyoto's many small businesses still ran largely on handpower. So as Japan's huge factories struggled to swing back into production, only in Kyoto were plants able to resume production the day after the war ended!

As Japan's only thriving city, Kyoto became a mecca for people of ambition, those either returning from the military or repatriating from Japan's former overseas colonies. Kyoto had plenty of places to live and lots of little factories to find work in. Because these were small factories, newcomers were able to acquire solid, time-tested-over-generations techniques quickly.

But when we think about tradition and old ways, that doesn't mesh at all with a city that's supposed to be forward-looking and innovative.
Don't confuse dento [tradition] with densho [legend, folklore tradition]. Densho is not subject to interpretation. It must be replicated precisely as taught, like flower-arranging or tea ceremony. But tradition adapts to the era. Kyoto didn't just hand down customs, it altered them to fit the needs of the age. Surprisingly, old techniques found a use within the cutting-edge sector. Kyoto's philosophy is grounded in producing high-quality products with added value. Quantity is de-emphasized; on the contrary, we prefer protecting market share and taking good care of existing clients.

[After the war] the young outsiders wanted to set up their own businesses. Having no money, they turned to the heirs of traditional industries -- ceramics and textiles -- who had neither the interest nor the desire to start their own ventures but were perfectly willing to lend venture capital, no strings attached, to startups. These were Japan's version of "angels."

In the Edo period (1600-1868) Ishida Baigan opened a school for entrepreneurs in Kyoto. Businessmen were assembled at night at temples or private homes and taught the principles of commerce. The defining concept of this sekimonshingaku study was that the customer is god.

But isn't it Osaka -- not Kyoto -- that has long cultivated a reputation as having a nose for business?
Osaka has focused on how to maximize profits, but Kyoto's philosophy is geared more toward getting repeat business via excellent service. Ishida Baigan's notion was very similar to European capitalism, to the Protestant work ethic.

If Kyoto has such a proud history of fostering new businesses, why haven't we heard more about it?
Kyoto companies don't do PR. There are lots of shops that don't even have signs! The old thinking is that if you do your best, people will notice you regardless. So people in the industry know Kyocera and Omron; maybe Nintendo's famous, but most of our companies aren't household names.

What will Kyoto be like in a few years?
Most likely, new products will be emanating from here once again, especially in biotechnology, aerospace engineering, plasma technology used in TVs, and multimedia. For instance, automatic translation devices that pour out instant translation either via subtitles or voiceover when you watch a TV program -- in Japanese, or French, German, whatever.

You're fond of drawing comparisons between your city and Boston or Silicon Valley. Where are the similarities?
As you know, ventures were fostered in the Boston area because of the proximity of Harvard, MIT, Boston University, and other colleges. There were lots of angels connected to the universities who provided technical support and marketing advice. That's similar to Kyoto, which is also a college town. Boston created many great businesses in the 1960s; Silicon Valley in the late 1970s and 1980s. The Silicon Valley boom corresponds to the "second generation" of Kyoto companies.

Nearly all the sons of Kyoto's great high-tech companies studied in the US. They came back with newfangled ideas. Take the president of Murata Machinery, who studied in America. Murata originally manufactured textile machinery, but the firm realized textile production was moving offshore to less developed countries. So they switched to producing cellphones, fax machines, and measuring devices. They originally made scales like those used at the butcher's. But anyone can make those, so they switched to sophisticated devices that measure air, for instance.

Now it's time for the third generation of businessmen to be born. We're working on a triangular link between academics, businessmen, and government -- "san-kan-gaku." This building we're sitting in right now -- Campus Plaza Kyoto -- is one result. Forty-nine local universities put up the 12 billion yen construction financing, and the city built it. Students and other budding startup owners can network here, and we provide seminars in venture business.

Whose idea was this, to nurture a third wave of startups?
The city itself is intent on helping launch students into sound new ventures, and recruited professors like me. The official effort began six months ago.

What kinds of ideas have you turned into companies so far?
We haven't gotten anything concrete yet, but we plan to hatch many, many companies. Kyoto has lots of "cooperative banks," and we've gotten them interested in participating in the financing. Japan's major banks, known as "city banks," are based exclusively in Tokyo and Osaka. Cooperative banks sprang up to service Kyoto's small companies. So from the financing side as well, Kyoto is extremely unusual and interesting.

How many students are involved?
There were 100 students at my recent seminar, including not only university students but also adults employed with large companies [who were] interested in going into business for themselves. We covered the basics of forming a company, legal and accounting issues.

So we haven't gotten to where Boston is, yet. We're just at the point where we've got professors listed in our database by specialty. From now on we'll be able to start calling on them for advice to entrepreneurs. Until now, Japanese professors have been stuck in their ivory towers. They disliked giving advice to companies. The important thing is now that we have a consortium, professors will have a framework for aggressively providing advice on finance, technology, strategy, marketing, and other support. We've finally got a consensus on doing that.

Are professors compensated for this kind of consulting?
I receive a small stipend for my speeches, but most of what I do is strictly voluntary.

Please explain how Kyoto Research Park fits into this strategy.
KRP is a wholly-owned subsidiary of Osaka Gas (a private utility). Kyoto city and Kyoto prefecture purchased part of KRP as an incubator for small and medium-sized companies. These startups receive free rent the first year, reduced rent the second year, and by the end of the third, they must leave.

Tell me about your screening system for entrepreneurs.
This consists of a mayor-appointed committee of six successful entrepreneurs, people who understand the ingredients of success, the fine points of marketing and finance; plus a Kyoto University professor and myself. We oversee a network of 3,000 professors in various specialties, who are qualified to judge the technical merits of an applicant's process or technology. Those who pass this initial technical screening then are invited to make a 20-minute presentation before our committee. We ask questions, and then assign a letter grade, A through D. The results are published in the newspaper. An "A-class" rating is taken so seriously, it's enough to win financing from local banks. Out of 100 applicants at our quarterly screenings over the last three years, we've given top ratings to 24 firms. Every one of them is still in business.

What kinds of ventures have you helped launch via this Moody's-style rating service for entrepreneurs?
One company found a way to recycle waste cooking oil into diesel fuel, used to power the city's fleet. Another uses crabshell as a bio-fiber in surgery; it disintegrates inside the body. There is another firm developing applications for factory automation motors, a firm making automatic baths for invalids, and one making a special plasma TV screen that doesn't require a color filter and is therefore low-cost.

So Kyoto is headed for a rebirth?
It won't happen right away, but the buds are starting to appear. We're trying to look at old businesses and apply modern marketing and technical expertise to foster businesses that don't exist in Europe or the US. We're cultivating completely new technology as well as marrying old products with modern marketing. So come back in two years, and check us out!