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Japan's tech startups thrive in small, custom niches

Ingenious use of IT key to success as '4th industrial revolution' gathers steam

Bocco, Yukai Engineering's "communication robot," helps parents keep in touch with their children.

TOKYO -- Critics fault Japan for having failed to produce world-impacting innovations in recent years, but numerous interesting ideas are emerging thanks to efforts by the nation's startups, as information technology transforms the face of its society.

Cerevo CEO Takuma Iwasa

These are commonly called "disrupters," and they are breaking new ground by bypassing established systems.

A case in point is a startup in Tokyo's Bunkyo Ward called Cerevo, which developed the Hint, a unique, cylindrical radio equipped with an omnidirectional speaker whose sound is clearly audible in any part of a room.

Announced at a studio at Nippon Broadcasting System in Tokyo's Yurakucho district in July 2016, the radio can also convert coded tones included in an audio signal to extract a website's URL and transmit it wirelessly to the user's smartphone so a web page linked to the radio program can be viewed onscreen -- good news to anyone who knows the frustration of missing the name of a song that has just been played, for example.

Established in 2007, Cerevo worked out the hardware specifications and created a prototype of the radio based on Nippon Broadcasting System's concept.

The company utilizes IT to produce a host of unique products, including a device that helps enable professional-level production for internet video broadcasts; a bicycle that has sensors to detect and record location, environment and bike orientation, enabling users to review their riding skills; and a smartphone-linked high-tech toy. Through its unique offerings and its clever use of technology, the company is breathing new life into the home electronics market, which is becoming mature and stagnant.

Takuma Iwasa, founder and CEO of Cerevo, said, "Producing many types of things in small quantities is the trend of the day." But the company is not content with only a small market niche. He said the company is taking on the global market. Cerevo may be able to sell, for example, just 100 units of a product in one country, but if it can sell the same quantity in, say, 100 countries, its sales will total a healthy 10,000 units. Its products are currently sold in over 50 countries.

The company's advantage is its flexibility -- it outsources production to overseas companies and introduces new products in quick succession.

Startups like Cerevo are thriving amid a global trend often referred to as the "fourth industrial revolution" or Industry 4.0. This is the fourth dramatic transformation that global industry is undergoing, after the first three such changes, including the invention of the steam engine, the emergence of electricity and the widespread use of computers. Industry 4.0 is now pressuring various industry sectors to transform themselves.

No exception

Manufacturing is no exception. In the 20th century, companies competed to produce standardized products in large quantities and at low cost. But in the 21st century, a time when consumer needs are increasingly varied, the key to success is the ability to efficiently make products that are tailored to individual consumers. This is not easy for large companies, which are basically structured to mass-produce products. This provides a niche for startups to thrive in.

Another Japanese startup of note is Shinjuku, Tokyo-based Kabuku, established in 2013. Although the company provides a service to produce three-dimensional objects of various shapes using 3-D printers, it does not have equipment of its own. Instead, it has partner factories in Japan and abroad that have such printers. When it receives an order, its artificial intelligence system decides which partner factories are best suited to make the object and quickly relays the order, resulting in swift production and delivery. The company has several hundred partner factories in over 30 countries.

Masahiko Inada, president and co-founder of Kabuku, said the company aims to be "a smart factory that can make anything at a click of a mouse." His vision is to make manufacturing more democratic, so that individuals, not just large corporations, can give shape to their ideas. Global Brain, a Japanese venture capital company, and Dentsu Digital Holdings, a wholly-owned fund management company of Japanese ad agency Dentsu, are among the companies investing in Kabuku. The startup has raised about 1 billion yen ($8.5 million) from these and other investors.

Huge new markets

AI is the central pillar of Industry 4.0, and it is transforming the face of many industries and creating huge markets. Tokyo private think tank Ernst & Young Institute estimates Japan's AI-related market will be worth 90 trillion yen by 2030.

In the AI-related segment, one company attracting attention is Preferred Networks, established in 2014 and based in Tokyo's Chiyoda Ward.

In the robotics segment, which is closely related to AI, Yukai Engineering in Tokyo's Shinjuku Ward has been attracting investor interest. Bocco, a robot that supports communication between parents and children using both voice and text, is one of the company's leading products. For example, a child returning home can listen to a voice message his mother, has sent to the robot from her smartphone. The child, in turn, can respond by speaking to the robot, which relays his words to the mother's phone.

Shunsuke Aoki, Yukai Engineering's CEO, left his job in software development and established the robot development company in 2007 after being frustrated with the realization that "No matter how hard I worked, [software alone] could never influence anything outside the PC screen."

Another notable product of the company is Coconatch, a small fun product that looks like a cute, white egg-like creature. Linked to a PC, the "social robot" reacts to incoming tweets and email messages by making sounds, rocking or glowing in different colors.

Opportunities in aging

If one's aim is to overcome the challenges facing the nation, such as the aging of the population and its ills, a startup can be a viable and rewarding option. Kyoto's Megakaryon, which produces platelets for blood transfusion from induced pluripotent stem (iPS) cells, was established with such a vision.

In Japan, blood is typically taken from younger people and used in older people, and the aging of the population threatens to cause a blood shortage, said Genjiro Miwa, CEO, president and founder of Magakaryon.

"If you can produce blood at a factory in a scheduled manner, you can ensure a stable supply without the risk of pathogen contamination," he said.

The company's business is based on the fruits of research by University of Tokyo professor Hiromitsu Nakauchi and others. Recognizing the importance of research being done by a high school friend, Miwa started the company in 2011 to put the findings to practical application. Innovation Network Corp. of Japan, a fund management company jointly formed by the Japanese government and private businesses, has invested in Megakaryon.

Megakaryon hopes to start mass-producing platelets by 2020, and will start clinical trials in Japan and the U.S. in 2017. The company is currently able to produce only a few packs of the product in two weeks, but the amount required in Japan, for uses such as surgical operations and cancer treatment, is some 800,000 packs a year. To help meet that demand, the company is now at the center of an effort encompassing industrial boundaries, working with businesses in engineering, pharmaceuticals and materials production.

Meanwhile, the financial assets of individual Japanese, worth some 1,600 trillion yen, presents another opportunity for startups, such as Money Forward, a Minato Ward, Tokyo-based fintech company with strong growth potential.

The company's mainstay is its namesake service which records individual users' bank accounts and bills and enables them to manage their accounts using smartphones and PCs. The service now has 3.5 million users.

Money Forward CEO Yosuke Tsuji, who previously worked for Sony and Tokyo securities brokerage Monex, founded the company in 2012, after he realized the country "needs a convenient financial service that can be used by anyone." He thought, "Why don't I create one myself?"

Educating individuals versed in IT is another area of growth for startups as the government is set to introduce computer programming into the nation's elementary school curriculum in fiscal 2020.

Life is Tech CEO Yusuke Mizuno, right, unveils Mozer, a new IT education program provided through the net, in Tokyo in June.

Minato Ward's Life is Tech, a startup that leads in this area, offers a computer-programming education service for junior and senior high school students. It operates, for example, camps where students can quickly learn to program smartphone apps and games.

Life is Tech founder and CEO Yusuke Mizuno established the company in 2010 after he decided the education system needed the new service. He set it up using the know-how he gained through his experience teaching high school students.

In June 2016, the company launched Mozer (pronounced like "mother"), a new program provided online in the hope of enabling anyone anywhere to learn computer programming. The program includes a wide range of courses, with subjects including website designing, game and app development, AI and virtual reality.

As tech startups thrive, investment by large corporations is growing, as they seek sources of novel ideas. A notable recent move was the June announcement by Sony President Kazuo Hirai that the company will launch its own venture capital fund.

These moves have lowered the barriers to start companies, and if Japan can transform its economy into one driven by startups and their innovative business ideas, it would certainly liven up its economy.


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