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Tuesday, May 15, 2001

Japan's ancient capital looks for new-tech entrepreneurs

Staff writer

KYOTO -- Size doesn't matter -- it's how good you are.

This, in a nutshell, is the Kyoto model of business, which puts emphasis on efficiency and profits rather than market share. And, in emerging information technology fields, the model is winning many converts who are coming to Japan's old capital with new technological ideas.

Kyoto Research Park is home to numerous high-tech firms.

Kobe, Osaka and Kyoto, the three major cities in the Kansai region, are in fierce competition to draw new investment, especially from companies in the high-tech sector.

Yet, while local governments and many in the foreign business community feel the future of IT lies in either Osaka, because of its size, or Kobe, because of its tradition as an international port, recent developments suggest Kyoto may be leading the pack.

Long known for its cultural charms, Kyoto is also home to internationally known companies like Nintendo Co., Kyocera Corp. and Rohm Co.

Attracted by Kyoto's history, location and lower startup costs, a number of smaller, specialized technical and service firms have been launched in recent years by both foreign and Japanese entrepreneurs eager to escape high rent and stifling bureaucracy in Tokyo and Osaka.

"It's clear there is a buzz about Kyoto among those in the national and international high-tech industries," said Osamu Tsuji, president of Samco Corp., a small firm that Tsuji set up in Kyoto more than 20 years ago that develops new applications for thin-film and surface technology. "With its cultural traditions, great living environment and low costs compared with Tokyo and Osaka, Kyoto is able to attract highly educated workers."

Part of the reason Kyoto is drawing more interest from the high-tech sector is because of Kyoto Research Park. Wholly funded by Osaka Gas Co., the park serves as an incubator for startups and provides a wide range of support to entrepreneurs with good ideas but limited funds.

It houses some 140 firms, from Mag-Mag, an e-zine that was one of Yahoo Japan's Web Sites of the Year, to Toei Kyoto Studio Co., which produces computer graphics for the film industry, the Internet and multimedia.

Government-funded research parks that aim to attract high-tech investment are ubiquitous throughout Japan. But what sets Kyoto Research Park apart from many other similar projects is the built-in system for evaluating, and possibly funding, potential startups.

"About eight months ago, we initiated a business accelerator program that is specifically designed to find new ideas and turn them into products," said William Maher, an American consultant at KRP.

If entrepreneurs have an idea that needs funding and support they can take it to KRP, which will work with them to develop a presentation for the park's advisory board.

Unlike large bureaucracies, where a new idea might languish for years as it meanders through layers and layers of management, the KRP advisory board consists of five people: an accountant, a lawyer, a consultant and two relevant professors picked in accordance with the kind of idea. The small size allows for instant feedback and fairly quick decisions.

"If the project is approved by the board, the entrepreneur receives a full slate of support services from KRP to help ensure the project is a success," Maher said. This includes introductions to five venture capital firms that might wish to fund the project.

Unlike similar, failing business park projects run by local governments, such as Rinku Town in Osaka Prefecture or Kobe's Port Island Phase II, Kyoto Research Park is growing.

KRP's Building No. 6 will open at the end of June. Designed to accommodate new media and Internet companies, the building boasts 8,000 sq. meters of floor space and will contain an advanced infrastructure to handle the needs of Internet companies.

It is this emphasis on "smallness" and flexibility that is attracting a new generation of entrepreneurs to Kyoto. And, according to Samco's Tsuji, this is the perfect model for a new Japan Inc.

"In the postwar period, Kyoto companies did not receive central government support to build themselves into giant conglomerates like Tokyo and Osaka companies, which concerned themselves only with size and sales and ignored efficiency and profit," he said.

"As a result, Kyoto companies managed to escape from becoming bulky and bureaucratic," Tsuji said. "When the economy is good, Tokyo-style companies do well. But when the economy turns down, they experience big losses."

Now, after 10 years of economic stagnation, Kansai politicians and business officials whose experience is in heavy industry, and who were wary of the Internet when it first took off in Japan, are now rushing to turn Osaka and Kobe into the next Silicon Valley.

But Tsuji and many other Kyoto businesspeople have doubts about whether such efforts will succeed.

"Internet technologies and startups require a high degree of originality," Tsuji said. "Osaka companies are very good at copying the ideas of others, but they lack originality, and can only follow, not lead."

Kyoto businesses, he and others hope, will prove to be a different breed.

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