OpinionAll eyes on Tokyo: The time is ripe for Israeli companies to take over Japan
All eyes on Tokyo: The time is ripe for Israeli companies to take over Japan
Once viewed as a distant market with entry barriers, Japan is now more alluring than ever for Israeli startups. Noa Asher, CEO of NTT Israel Innovation Lab, urges a shift in focus towards the East
The ongoing tech industry crisis, economic turbulence, geopolitical shifts, and challenges in Western markets due to Israel's political situation necessitate that local startups reconsider their strategies and target new markets. Japan, once viewed as a distant market with steep entry barriers, is now more alluring than ever for these startups.
For years, Israeli startups have primarily targeted the United States and Europe when expanding into foreign markets. This approach is based on geographical proximity (to Europe), cultural connections, and the sheer size of these markets in terms of both population and finances. While this strategy is not inherently flawed, the rapidly changing economic, political, and geopolitical landscape calls for serious considerations of risk diversification.
This year, as direct flights to Tokyo finally commence, it seems that the stars are aligning – both for Israelis and the Japanese. Israeli technology companies that choose to operate in Japan will discover a “blue ocean,” vast and full of opportunities, which is just as lucrative, and perhaps even more so than the “red ocean” of the western hemisphere, saturated with competitors.
Unlike the longstanding connections with the United States and Europe, Israel and Japan have only begun to earnestly strengthen their economic and technological ties within the past decade, and the potential is immense. These connections, which initially involved exploration and learning, have matured into growing collaborations over the past two years, with Japanese interest in Israeli innovation on the rise.
In an effort to overcome the economic stagnation Japan has experienced in recent decades, major corporations and large businesses have adopted the Open Innovation approach as a catalyst for growth and to reinvigorate Japan's once world-leading innovation culture. As a result, collaboration with Israeli companies is seen by the Japanese as a necessity, rather than a mere branding or image enhancement effort, as experienced by some Israeli entrepreneurs in other Far East countries. Japan perceives Israel as a close partner of the United States – a significant source of innovation (for American companies as well) – and is thus eager to forge closer ties and foster more collaborations.
For Israeli entrepreneurs, Japan represents a boundless source of business opportunities, as large corporations open their doors to Israeli innovation. While Japanese companies may not be as familiar to Israelis as their Western counterparts, they employ hundreds of thousands of workers worldwide and generate billions of dollars in revenue each. Japan is not only a massive market in its own right but also a gateway to the world, particularly to countries with which Western markets have weaker connections. In recent years, many Israeli startups have been scaling up, and the complementary strengths of Israel and Japan come into play here: Israelis excel at the zero-to-one approach (ideation and rapid development), while the Japanese are adept at the one-to-N approach (scaling, marketing, and manufacturing).
In several sectors where Israeli companies are regarded as leaders, Japan offers numerous opportunities. For instance, Japan's aging population and increasing life expectancy are an opportunity for Israeli digital health companies to operate in Japan and help reduce healthcare costs. Japan's recent announcement of doubling its defense budget (2% of its GDP) signals growing security needs, which can expand cooperation between Israeli companies specializing in security, cyber warfare, and homeland security and their Japanese counterparts. Moreover, the aging Japanese farmer population and the need for productivity-enhancing technologies have created demand for innovative agricultural solutions, with similar demand emerging in other areas such as mobility, smart cities, green energy, and more.
The Abraham Accords have dispelled any lingering reluctance to collaborate with Israeli companies fearing an Arab boycott. Since the signing of these agreements, Japanese companies have come to understand that doing business with Israel is acceptable, and concerns about an Arab boycott are no longer relevant.
After many years, the technological relationship between Israel and Japan is finally reaching maturity, and all parties involved stand to benefit. Israeli startups, it's time to reorient yourselves – towards Japan.
Noa Asher is the CEO of NTT Israel Innovation Lab