By James Santagata Principal Consultant, SiliconEdge Coming across entitled, "Foreign startups in Silicon Valley still a rarity" I immediately asked myself two questions: a. Why is that? (first thought: money & visas) b. Does it even matter to be in the Valley now? I first moved to the Valley at the end of January, 1995 and although it seems like yesterday I'm still amazed to see how far both the internet and technology in general have come in terms of their capability and diffusion into our society. For instance, while many newspapers at ground zero of the dot com boom, such as the San Jose Mercury News, used to worry and fret about the so-called "digital divide", we see how misguided those worries were as even the Bloods and Crips have made great use of Facebook, Twitter and other online media and communication services. The fact is, these once nascent and intriguing technologies have now become deeply embedded in our daily existence to the very point that although we rely on them for the most mundane tasks, they have effectively become invisible to us. In fact, they only time we do notice the technology that we've come to rely on is when it fails to work or breaks such as during a blackout. Over the last 18 to 20 years (and especially in the last 7 years) the skills and knowledge need to quickly and cost effectively build and mass produce these technologies and tools have now become all but common place. Moreover the amount of computing power (and bandwidth) we have stuffed into just our smart phones is mind boggling as is the ability to buy right off the shelf parts and services of most of the things we need to create just about any product or business and to do so immediately. We are now longer concerned with the theory or possibility behind building a router or the design and development of a packet switched (rather than circuit based) networks. It's done and proven. Similarly, IPTV is no longer a dream but a reality. I could go on and on but I won't bore you. Beyond core technology, the Valley has grown and matured in the knowledge, processes, skills and resources needed to not only build a product but to launch a company and to make it successful (although, often times, the Valley still greatly struggles with market-based productization and ultimately the monetization of the product. These two sticking points, by the way, provide huge opportunities for the next generation of entrepreneurs to focus on. It's again hard to believe, but much of this was only possible in the late 1990's and again in the mid 2000's. First, we had the explosion of open source software, from Linux to MySql to Perl to PHP to Python and beyond with various applications available to all. This was coupled with the continuing march forward of technology-price improvements where the price point of servers, routers, SANs and bandwidth plummeted as the power, stability, ease of use and ubiquity rocketed upward. The knowledge of how to set these up and admin them diffused as well -- from the US and Western developed countries into developing countries and even as far as to the pimply-faced high-school kid across the street who could setup or administer your Linux server. This helped pushed the total cost of ownership (TCO) of these technologies down even further, and making them even more ubiquitous and more intertwined in our lives, whether we knew it or not. This continued after the Dot Com Boom (or Dot Com Crash depending on your point of view), however, around 2005 and 2006 something else happened. We began to see huge improvements in both the knowledge, formation and management of startups and venture capital investments. Once opaque and arcane industries, terms and activities such as the VC industry, the meaning of the terms on a term sheet (such as a liquidity preference or cramdown) as well as the funding raising process itself become transparent, almost overnight!. What was once at best, Tribal Knowledge regarding the startup process and how best to anticipate and overcome common obstacles and business threats soon became openly discussed, then codified and finally shared widely to the point that by reading perhaps 15 bloggers in a variety of thematic areas as well as perhaps 30 additional books, a fairly intelligent person running a startup or looking to launch a startup could go from Newbie to low-level Sage in a matter of 3 to 6 months. With all of these aforementioned changes as well as the codification and diffusion of knowledge it begins to beg the question, "Is being in Silicon Valley even important anymore?" I would say it was 10 years ago. The knowledge, what there was of it, was very silo-ed as well as tribal and often very anecdotal in nature. But now with all of the knowledge, mentors, books, forms, templates and so on I question that. Further, most of the "tech pain" and "tech risk" has been taken out of the equation. No longer do you need to rent some space at some sketchy colo at a former bomb shelter in San Jose or Mountain View where you need to provision your own rack and where you rack is separated from the next customer's rack by some chicken wire (anyone remember Best Internet on Winchester Blvd that sported the chicken wire colo cages?) Heck, you no longer even have to physically be there. Better yet, provisioning happens at the click of a button and almost immediately. And with cloud-based services like Amazon's AWS, scalability isn't a problem either. Only the cash to pay for it. In effect, so many of these startups are post-tech. Sure, these startups use tech, just as KFC, Walmart or UPS does, but those firms aren't tech firms either. Even vaunted Silicon Valley startups like Airbnb and Uber aren't tech firms. Netflix may be now that it's streaming media, but before that, it was a mail order rental house for DVDs. And what about Groupon? Is that a tech play? Now of this makes any of these startups "less" or "more" of a startup as it is simply a reality of where the startup world is today. So why should you be in the Valley? Well, some people will do it just for a challenge -- you won't find a more concentrated community of super-switched on, open-minded, openly-sharing people anywhere. Sure there are great communities like it everywhere, but not at the scale that the Valley offers. In some cases, it's critical to see, learn and reset yourself to what "Valley time" really means. A crushing rush forward. Sure, you can do that anywhere, in any city in the world, but you'll be looked at as "weird". And it's fantastic to benchmark yourself against other world-class competitors. In the Valley, you come to see that as normal, because all your friends and co-workers will be doing the same thing. For me, I'm glad I lived in the Valley and I still do business there. It was a very huge turning point and critical chapter in my life. However, for many reasons, not everyone can get there, at least now. Yet they worry and fret about it. My advice, is don't worry or fret, do the best you can, with what you have, where you are. If the Valley is in your future you'll be there. And beyond that, there is a downside to the Valley -- too many people acting like entrepreneurs attending events and conferences rather than building product or businesses. It's also a huge echo-chamber. Those are major downsides. Even if you aren't there, you can still read and see what's going on, without being pulled into the echo-chamber and backslapping "ataboys" that are often made with good intentions but inadvertently damage companies or entrepreneurs in the long run. Foreign startups in Silicon Valley still a rarity
Summary: Asian programmers may be a common sight in Silicon Valley, but foreign entrepreneurs are practically a rarity, says Valley-based accelerator. By Victoria Ho for Starting Up Asia December 5, 2013 -- 08:58 GMT (00:58 PST) Asian programmers may be a common sight in Silicon Valley, but foreign entrepreneurs are practically a rarity, according to Ben Levy, a partner at BootstrapLabs. "If you start digging into how many of the foreign entrepreneurs that go through them manage to stay in Silicon Valley, the number might be close to zero or in the single digit percentage," he said. Foreign startups in Silicon Valley still a rarity, according to BootstrapLabs.Levy, who is based in the Bay Area, said foreign entrepreneurs who try to set up shop in the Valley—even those who manage to go through prestigious programs with Y Combinator or 500 Startups—almost never manage to stay on. Of course, Levy was speaking from the perspective of BootstrapLabs, whose raison d'etre is to bring foreign startups to the Valley in the first place. But his point is supported by several high-profile tech CEOs who have been pushing for immigration reform in the U.S., in order to attract more tech-savvy workers to the country. In March, over 100 tech executives including Facebook CEO Mark Zuckerberg, HP CEO Meg Whitman, Intel CEO Paul Otellini and Yahoo CEO Marissa Mayer, signed a letter urging President Obama to relax immigration laws especially for highly-skilled workers into the U.S. Levy said the missing piece for many startups wanting to stay is the need to have sufficient funding while they build relationships, without having to start out from ground zero "begging for money" already. While many may have landed in Silicon Valley with some seed funding, follow-on funding can be a challenge for those new to the scene, he said. Founded in 2008, BootstrapLabs has been active in relocating startups to the Valley, including Zerply and Witsbits from Sweden, and Budapest's Prezi, for example. Recently however, it's started to plant roots in Asia, with partnerships with accelerators in South Korea and Malaysia. Earlier this week, it announced a tie-up with Seoul-based Coolidge Corner Investment (CCVC), to set up a program in Seoul for Korean startups. CCVC manages a US$22 million fund. The visa is not subjected to the same restrictions as the broader H1B visa for most foreign workers into the States, and has allowed Varun to avoid some of the waiting time and regulatory hoops after Semantics3 finished its term with Y Combinator last year.
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By James Santagata Principal Consultant, Silicon Edge In a recent blog post entitled "How to Deal with Pure Recruiting Mistakes", Mark Suster, a partner at Upfront Ventures gives his take on fixing recruiting or hiring mistakes. He has written some other posts on the subject as well in terms of hiring and firing fast. In regards to hiring and firing fast, I want to be clear and fair that his post is primarily referring to startups (whose needs may be well different than a large, more established company) and is not a "just pull anyone in and see who makes it" mentality. There is a lot of merit in moving quickly in the hiring process, in fact, many companies lose key talent because they move to slow. This slowness in hiring often comes from several factors which may include an overly subjective interview process, the inability to get all people to agree to a hire (e.g,. a group decision) or "cock-blocking" office politics. What I want to do today, is to delve a little deeper into why recruiting mistakes happen. Why are people hired who don't work out? Is it skills, attitude, cultural fit or some other factor or combination? There are many factors and they come from both sides of the table -- the candidate's side and the hiring firm's side. Each situation is different (ESID), but we can usually boil it down to several factors: 1. The candidate doesn't have the aptitude (skills). 2. The candidate doesn't have the attitude (mind set and motivation). 3. The candidate doesn't mesh / can't find his or her way in the corporate culture. That is, it moves too fast or too slow for the candidate. 4, The company improperly assessed the candidates skills sets and fit. 5. The company selected the candidate to fail (e.g,. "Rank & Yank" and this candidate is the group's Sacrificial Lamb). 6. The company applied a selection shortcut -- "Oh he worked at XYZ company, must be good..." 7. The candidate's new peers or one peer sees the new hire as threat and works to remove (have fired) him or her. Of these factors, #6 is perhaps the most critical error (along with #4) when we make hiring decisions quickly. What happens is that unless we know exactly how to interview AND are interested in a very objective, brass-tacks assessment of how the candidate really is rather than how we'd wish would be or hope the candidate is, we will get fooled and made bad decisions. Most often this happens when we rely on Social Proof, assume the Portability of Talent (namely, the inability to identify and separate the success of the candidate from the success or support provided by the system, company or brand) and engage in Trait Ascription Bias while applying the Just World Hypothesis (sometimes known as Just World Theory, Fallacy or Phenomenon. It's a cognitive bias). Two of the more insidious reasons the wrong hires occur is when the hiring authority's (or future peer group's) ego as well as internal politics are injected into the hiring and assessment process. This is a killer. Often resulting in hiring the wrong talent, while driving away and 86'ing the key talent. Here's a quickly illustration of several of these factors at play simultaneously. And just for the record, please don't read anything into the universities or companies that I have chosen to illustrate this with. They were simply chosen because of their impact in terms of having or lacking social proof and so on. Mishire Example: Hiring Manager / Hiring Authority: "Hey, this candidate is a stud/studette. He/she was the Sales Director at Google so he'd/she'd make the perfect first hire for our startup sales team." Mishire Analysis: When you're selling for Google or IBM among other well-known firms, you'll find that about 90% of the sales mojo comes from your brand, team and resources. Conversely, when you're selling from Puntster Analytics from Podunk. Iowa, it's all about your game and skills -- pure talent. Similar mishires are also clearly seen when hiring shortcuts are taken by hiring from direct competitors (or hiring industry insiders) and misattributing their past successes to the candidate rather than seeing what the system provided. Conversely, an excellent person may be turned away and they often are, because their stats aren't as good BUT their stats are the result of Jedi-level talent in the face of a poor brand or system. Yet they are rejected. There are countless other examples, but another common one is the filtering out or rejecting of highly-qualified talent because the current interviewers or team see the candidate as a clear and present danger and threat to someone's salary, position, title and/or ego on the team. How to Deal with Pure Recruiting Mistakes
Posted on November 27, 2013 by Mark Suster One of the unavoidable realities of building a startup is having to fire people. In a normal business you can often sweep bad performers under the rug and not deal with them. When you have millions or billions of dollars of revenue you can suffer a few bad performers or bad apples. You can miss a quarter’s target and not cull the inefficiencies. I’m not saying you should, but you could. But in startups this equals death. Death because just 3 extra non-performing employees in a company of 15 can either accelerate cash out date or can dramatically lower your productivity. I’ve spoken about this before and my mantra, “Hire Fast, Fire Fast.” When I first started my career I came across a term for this that has always stuck in my head and serves as a useful reminder of this mantra. We called it “PURE.” Previously. Undetected. Recruiting. Error. By James Santagata
Principal Consultant, SiliconEdge As previously discussed, we focus on both the human and the strategic elements of personal and business success. We'll dig down deep and explore and unpack the official narratives as well as the myths and memes as to why particular companies, products, people and technologies have succeeded or "failed" and we'll often end up with far different conclusions than are commonly published or discussed within the business and tech communities. We'll also draw heavily upon some of the following subject matter to help make our points: 1. Evolutionary Psychology 2. Cognitive Science 3. Influence and Persuasion 4. Military History, Tactics and Strategy 5. Economics (primarily regulatory capture by rent-seeking incumbents) 6. Linguistics & Languages 7. Foreign Cultures 8. Seduction and Dating And a whole lot more... stay tuned! By James Santagata Principal Consultant, SiliconEdge Over the years there's been much discussion in both the business press and the general press regarding the state of Japan's economy with many, including technology, economic and Japan-focused pundits, having concluded that Japan has become nothing short of a complete and utter "economic basket case". Far worse, it's said that in the very near future Japan risks becoming completely irrelevant if it doesn't immediately act according to a particular set of "politically-correct prescriptions" which we'll discuss in more detail later. We are told that the situation Japan faces is dire even though Japan still retains the world's third largest GDP and was only just recently eclipsed by China -- The same China which has ten times the population as well as a supposedly long, advanced and storied civilization according to the pundits. And yet, through all this doom and gloom, here we find little, lowly, Japan smack dab in the number three slot. I. What Exactly Do The Pundits & Japan Watchers Say Is Wrong With Japan? Specifically, technology and economic pundits as well as Japan watchers have come to the conclusion that Japan is ailed by the following: 1. Lack of innovation. 2. Lack of creativity. 3. Lack of Business-level English speakers (determined as a percentage of the adult working population). 4. Lack of inflation (we are told that Japan is in a devastating deflationary spiral). 5. Lack of diversity. 6. Lack of immigrants. 7. Lack of a globalized workforce (besides sufficient English skills it's said that the Japan workforce lacks a variety of soft & hard skills). 8. Lack of startups. 9. Lack of entrepreneurs. 10. Lack of babies / A falling fertility rate. Whether one agrees with these pundits and the press or not, the very frequency and pervasiveness of such articles, comments, and themes clearly show how far Japan has fallen from its once rapid and presumed continuous economic ascendancy in the the mid-1960's. This kicked off with the 1964 Tokyo Summer Olympics and along with the debut of the Shinkansen / Bullet train service heralded Japan's post-war "Coming Out Party" and continued through the 1980's with a great many believing that eventual world economic dominance by Japan was a given. It may be hard to imagine now, but this was a time when Japan's economic dominance bloodied even American stalwarts such as Intel and General Motors and eventually had them hanging onto the ropes screaming "no mas! no mas!". At the pinnacle of its economic power and influence, Japanese products evoked in consumers a promise of high-quality, innovativeness, and a fine attention to detail, all to be had by middle class consumers for a very reasonable price. At the same time, Japan's economic power and influence provoked sleepless nights if not abject horror in many American business managers who dreaded the prospect of facing this highly aggressive and unyielding competitive foe on the unforgiving battle field of business. And let's be very clear about this fact: American business management feared Japan businesses and industry and for a very good reason. The Japanese economy and its assortment of high-performing companies were literally on fire and stomping out American, European competitors left and right. From automobiles to semiconductors to video games to industrial test & measurement equipment to video consoles. Japanese products were often very innovative and almost always fantastic. And by no means were they all "copycat" or "fast follower" products (see: First Mover or Fast Follower? Harvard Business Review, June 14, 2012). Nope. Consider Sony Trinitron tubes, Sony Walkmans (the inspiration for Apple's iPod), Toshiba's pioneering flash memory, Maganvox's Odyssey home video console (which was released a full 3-years before Atari's best-selling Pong) and, of course, the Sony Betamax video recorder as well as JVC's VHS players and VHS standard (which would set you back $4,600 while each blank tape ran for $72 based on inflation-adjusted dollars) which was adopted and also produced by Japanese electronics powerhouse Matsushita (now Panasonic). The Japanese, coming from a small island nation roughly the size of Montana but with even less usable land and all but devoid of natural resources save for her people, were literally knocking the stuffing out of American industrial giants and America as a whole. Even more shocking was that this little resource devoid island nation was clobbering Superpower America which was overflowing with natural resources as well as having a population 2 times larger than Japan's! The economic bloodshed was bad. Real bad. How bad was it? Let's just say that it got so bad that US businesses scrambled to lobby and plead for the US Congress to get involved, not only in terms of Japanese "voluntary" trade restraints but also in the development of SEMATECH (see also: Lessons From Sematech, MIT Technology Review, July 25, 2011). This political pressure later escalated with the goal of forcing Japanese firms to open manufacturing facilities stateside. (see: Transplant Car Makers Redefine The Industry, New York Times, June 23, 1992). And yet, with the bursting of the Japanese economic bubble in the early 1990's, Japan is now often seen if not actively portrayed as a failing economy which is devoid of strength and slowly deflating over the last two decade -- the so-called "Lost Decade". At the same time, Japan is portrayed asemploying an army of graying, boring, robots and worker bee drones who themselves are devoid of even an ounce of creativity. If that weren't bad enough, we're now told that Japan's rapidly aging population along with the declining birthrate are about to take Japan underwater, once and for all. The US and Western press no longer asks "Can the US and other developed nations compete with Japan?". No. It's now, "Can Japan even compete globally?". And this rhetorical question is often posed with an air or sense of deep schadenfreude while at other times it's posed with nervous hand-wringing from Japonphiles as well as the Japanese themselves We've repeatedly been told this narrative so many times that the answer to the question "Can Japan compete globally?" is already a foregone conclusion: Of course Japan can't compete globally we reflexively answer. The adherence to this false but official narrative is so strong that everyone appear to be too busy witnessing "a failing Japan" to even contemplate a Japan that can compete. These forgone conclusions have now fully morphed into a set of very powerful myths, memes and misunderstandings. This in turn raises two other questions:
Having read numerous articles such as this coming from both the technology and economic press, it seems that very, very few articles have approached this topic with a ground-level, brass-tacks understanding of what really goes on in Japan, socially, culturally and economically. Moreover, even fewer seem to have approached this with a positive worldview (versus the normative proposition) to ascertain what's really going on and what, if anything needs to be fixed or improved let alone how to do it. And by "how", I mean a real "how" not some socially-engineered pipe dream. We've previously analyzed and destroyed a few of these memes, including that "Japan's troubles have do to with a lack of creativity and innovation on the part of Japanese" as well as the nagging question as to whether or not Japan can even compete globally. We've also touched upon and heavily damaged the "diversity is necessary for success" myth as well as the mythical "immigration is the solution to Japan's problems" narrative. II. Debunked Myths & Memes About Japan
Not withstanding the reality of where Japan is today and what ails her, these previously discussed myths and memes have become so well accepted as "fact", that many Japan, economic and technology industry "analysts" and "pundits" simply rehash or cut 'n paste these old, tired and dangerously incorrect myths, memes and misunderstandings without ever stopping to think and consider how obviously and completely wrong and broken they really are. III. What Japan Does And Doesn't Face 1. Japan does not lack of innovation. 2. Japan does not lack of creativity. Japan and the Japanese people are extremely innovative and creative as we've discussed previously. It's not that Japan and the Japanese lack these attributes but rather that what Japan does lack (i.e., strong leaders with ability to productize and monetize creativity and innovativity) is being mistaken for a supposed lack of innovativity and creativity. If you are now competing with Japan or if it's likely that you may compete with Japan one day, swallowing such a broken narrative is perhaps as dangerous as mistaking some range bum's politeness for weakness as illustrated in this Clint Eastwood classic: What Specifically Is Japan Lacking: a. The ability to productize its innovations & creativity. b. The ability to monetize its innovations & creativity which it has productized. c. Real leaders that will drive a. + b forward and into a long-term, sustainably profitable reality. 3. Japan does not lack of business-level speakers: While you can possibly never have too many fluent speakers of any language, especially when it concerns a global business, scientific and cultural language like English (this is because English language ability provides the greatest marginal utility of all second languages in almost every case) it's still a fallacy to assume that you need to have everyone of your citizens possessing English fluency. Why? It's no different than running a military operation and employing the concept of the "tip of the sword" or "tip of the spear". You may use pilots to drop ordnance from the air but not everyone in the military and not everyone even in your branch of the service or unit needs to be a trained pilot. Of course not. That would be ludicrous. They don't even all need to know about airplanes. Some, like flight mechanics, may need to know more about aircraft than others, but do you really think that the cooks, supply line drivers, doctors or chaplains do? Of course not. How silly would that be and what a waste of resources it would be as well. As an added benefit, by maintaining a relatively limited pool of strong globally-minded and fluent English-speakers while having the main population relatively "weak" in these skills, you've just created a fantastic, practically impenetrable barrier to entry to foreign competition. Yet, simultaneously by deploying your own "tip of the sword", you can approach, enter and take foreign markets as desired. Not bad. 4. Japan is not in a devastating deflationary spiral We are told that Japan needs more inflation - that inflation is your friend. But since when has inflation become a "good thing"? Certainly not for producers and especially not for consumers and savers. Further, how can it be stated that Japan is in a deflationary cycle when it's clear that Japan is simply recovering from an inflationary bubble? Things are continuing to deflate because equilibrium hasn't been reached yet, therefore setting the baseline of this analysis from the top of the bubble is as idiotic as having your pediatrician worry about your child's temperature because the baseline of their temperature reading was taken at 103F when the child was exhibiting a high-grade fever. Now imagine that the child's fever has broken and their temperature is spiraling down to 98.6F, the "normal basal temperature". Is this something to worry about or is that simply the return of the child's temperature to the basal temperature and something to celebrate? 5. Japan doesn't have a diversity problem Diversity as well as the benefits, value and costs of diversity (few rarely acknowledge let alone consider the costs of diversity) critically depend on you one defines it. If by "diversity" one simply means a quota of different races, ethnicities or the possession of a different set of reproductive organs, then no, diversity by itself has absolutely zero value. If by diversity one means possessing, sharing and exhibiting different viewpoints and abilities all within a particular or specific band whereby the various individuals can still work cohesively as a team and support each others, then most certainly diversity has measurable value if not immense value. In practice, true diversity would be having two Japanese come from completely different backgrounds, even if they are both men or both women, as compared to having one Japanese male hailing from Kyoto University and the other from Tokyo University both of whom studied the same subject matter. At the other extreme, coupling an Israeli scientist who is an expert in materials science with an illiterate Sudanese goat herder probably won't add any value either. This would especially be the case, if the two parties involved don't speak the same language or have any means to communicate in a mutually intelligible language or system. This gap and mismatch would perhaps be even more apparent if their objective was to discuss the advanced development of carbon nano-tubes. I'm well-aware and understand that this is heartbreaking if not earth shattering for the pro-diversity-at-any-cost social-engineers out there, but the fact remains, Japan is one of the most homogeneous countries in the world and uet it's a smashing success as is Korea. And Korea is arguably more homogeneous than Japan! Meanwhile, other highly diverse societies have eaten themselves for lunch such as the former Yugoslavia while an analysis of other diverse societies often suggests that a very small percent of the population is doing the heavy lifting (this is often captured and reflected in large income disparities assuming that government regulations and interventions haven't distorted the market by fouling pricing signals, blocking competition or picking winners and losers). And as repulsive as Jim Crow-era laws and apartheid is and was, during this reprehensibly time and with an extremely non-diverse workforce, the US arguably reached the pinnacle of its vaunted space program which culminated in several lunar landings. Since then the US hasn't revisited the moon nor made any substantial man-driven landings to Mars (that is put a human on Mars). This then begs the question. "Where exactly is the "diversity dividend" we've been promised? 6. Japanese doesn't lack immigrants because it doesn't need wholesale immigration What makes Japan work is its strongly-coupled and cohesive society. This doesn't rule out immigrants as immigrants can, would, could and do help Japan but it must recognize that immigrants will only help Japan or any nation when there is a policy based on the merit and value the immigrant brings or is expected to bring to the host name (as expressed by "life time value") versus the societal carrying costs over the immigrant's lifespan. Japan would be well advised to avoid what has happened to not only the US but also Europe where never ending flows of immigrants, in particular low skilled and/or non-assimilating immigrants are bringing negative externalities as a whole. Obviously, there are very productive and bright immigrants which should be welcomed, but we must ask if family chain immigration should be allowed and to what extent should anyone be welcomed without regard to their financial and societal contribution as well as financial and social impact to the host nation? For those that consider this cruel and cynical, let me ask you this:
If not, your answers are "no", then it it would seriously behoove you to consider why you harbor such a double-standard regarding national immigration since it is just a larger version of the family structure. This issue will be even more critical as we continue racing toward Peak Jobs (see: "Not Peak Oil But Peak Jobs") and certain societies are beginning to strain with overpopulation and large, unemployed or even underemployed layers of society. The solution is to understand that a small, highly-educated, cohesive and tightly-knit society is the society that is well positioned for the 21st century. Japan and Korea are obvious choices that come to mind. If you doubt this, simply consider the reaction of two very different societies and cultures to natural disasters that have befallen them. Namely, consider Japan's Tohoku earthquake and New Orlean's Hurricane Katrina where even the local police were caught on camera looting! 7. A Globalized workforce is not a panacea but can be very important (this includes business-level English skills) Although Japan does have some very capable workers, this is a critical issue that they face in some situations. However, while the English language component is important, even more so is critical thinking, overseas sales ability and psychological aggressiveness-- this is true even if these skills are taught in Japanese and the Japanese students are monolingual (Japanese only speakers). 8. Startups & entrepreneurs is critical for Japan's economy This is a problem which is mainly due to various cultural and social conventions along with a strict, domestic regulatory environment (more about this later). 9. Lack of babies / falling fertility rate is a pro or con This can be good or bad. By focusing on factory automation (FA), autonomous systems and robotics, Japan can overcome any such problem. If Japan's decides they need more flesh and blood I would suggest that rather than "import immigrants" they should do what countries like China, India, Indonesia and Mexico do so prolifically -- make their own babies the fun and natural way. There are a number of things that the Japanese government can do, policy-wise to encourage this which we'll discuss later. IV. The Real Problems & Solutions There are a number of solutions to the problems that Japan faces, but most of the solutions necessary to remedy these issues will go against what Japan's domestic incumbents and power structure want and what have installed in Japan for their own benefit. We see this in the so-called Abenomics where Prime Minister Abe's economic policies, the so-called Three Arrows are potentially disastrous for Japan. Prime Minister Abe was presented with a fantastic opportunity to remake Japan and have her again challenge the world, instead he chickened out, putting a rope around Japan's neck while making her stand on a wobbly chair amidst a chaotic, soapy floor...we all know how this will turnout. Prime Minister Abe listened to Japanese businesses who wanted the easy way out (devaluing yen) rather than having to compete globally as this would have required many of these companies to fully restructuring their businesses. In response, Abe pushed forward with a plan to drive down the yen by easing monetary policy (i.e., printing money or creating digital credits as they do today) and hoping to stoke inflation (as though that were a good thing). After those two "arrows" were in place, he had hoped to push through some critical economic reforms. This was very, very poorly played. By weakening the yen, at the very same time that Japan was experiencing record fuel imports (due to the shut down of the country's nuclear reactors), all that was accomplished was a short-term shifting of non-sustainable profits to the exporters while shifting the cost of the increased imports (vis-a-vis the weaker yen) onto consumers. Lastly, I can guarantee you that the very structural changes which Japan needs the most won't be proposed and even if they are proposed, they will either be stomped out or be so thoroughly neutered as to be ineffective. V What Would Have Been The Smart Play & What Really Ails Japan? The smart play would have been to keep the yen strong -- let it stay there -- then, simply work to encourage Japanese firms to engage in heavy non-yen foreign-based M&A. This would driven down the yen (which is what exporters want) but Japanese firms would have been holding foreign-based non-yen denominated assets and since the Japanese need to improve their global operations, much of that strong yen could have been used to purchase the critical training and know-how needed, again trading a strong yen for non-yen denominated training and knowledge. By combining this overseas asset purchase spree with the increased energy imports, the yen would have still been devalued (albeit more slowly), however, Japan would be holding foreign assets and exporters would quickly understand from the fierce discipline meted out by the market, that they needed to improve their operational effectiveness and efficiency and not simply rely on a "cheap yen". The next step would be to understand that Japan's current business environment is full of deadwood and heavy overgrowth. This deadwood and undergrowth needs to be cleared out and the way to do that is make the Japanese economy at a minimum neutral to if not lovingly-biased towards startups. Once in place, an army of these startups would begin to nip at the incumbents' heels prodding even the most obtuse or ossified of firms to retool and restructure. Eventually those firms that couldn't compete or refused to compete (and yes, there are some very stubbornly obtuse and ossified firms in Japan) would be killed, eaten and composted with their ashes and assets, talent and IP being quickly recycled and allowed to blow with the winds across the Japan business community.
It would also ensure that Japanese successes (and failures) are kept in Japan. Currently, due to the lack of a vibrant startup ecosystem, when big ossified Japanese firms stumble and fall or implode, it is the foreign firms that benefit and end up eating the Japanese firms bento box. For example, Apple benefited (iPod, iTunes) from Sony's stumbles as did Samsung from both Panasonic's and Sony's travails (actually it could be said that these firms, Panasonic and Sony, fell flat on their collective faces). Don't fool yourself into believing that this concept I'm proposing is somehow unique -- it isn't. It's a plain vanilla, common sense concept and this is actually what the US in general and Silicon Valley in particular does so well. Compete, kill, eat, compost, spread the ashes and recycle.... In US tech regions in general, and in Silicon Valley in particular, there is fierce intra-industry competition where firms are wiped out and crushed on a daily basis until a victor stands tall and dominates the industry. Only to have it happen again as this new victor is mercilessly pummeled and cut down. The names may change, but the winners are almost always American. Doubt that? Well, how about computers and the computer industry? ENIAC, UNIVAC, Wang, DEC, IBM, Eagle Computers, Kaypro, Osborne, Compaq, Tandem, Dell, HP and so on. See any patterns? Do the same for chips, for databases and so on. In fact, just about the only area in the US where you won't find this fierce intra-industry competitiveness is where the US government has intervened and distorted the market (e.g, labor, regulations, pricing, etc.). This primarily occurs when rent-seeking incumbents engage in the regulatory capture of markets. This is why the US auto industry was wrecked -- regulatory capture and regulations hobbled and harmed it, until foreign competition like the Japanese and Germans crushed the US domestics. Were it not for the US governments over regulation of the automotive industry, we would have seen many automotive startups begin to form and then compete with and eventually force the obtuse and ossified US automotive giants to change, piston by piston, engine block by engine block. crankshaft by crankshaft.. Those firms that refused to change or couldn't change would be slaughtered and then composted. And this is exactly what Japan faces as its number one problem. The endemic regulatory capture in Japan needs to be eliminated. Beyond that, entrepreneurs face serious hurdles with capital accumulation and company formation along with facing very serious (although it's getting better) social, financial and career risks. From this there are even further knock-on effects whereby mid-hires or hires from direct competitors only happen rarely in Japan and often when these types of hiring occur it's driven by the Gaishikei, the so-called foreign-capital firms (think: Microsoft, Oracle, Altera, Coach, Starbucks, McDonalds, etc.). This refusal to hire mid-career talent effectively prevents individual risk taking as well as precludes intra-industry and cross-industry cross-pollination. All of this greatly dampens an entrepreneur's appetite for risk. Interestingly enough, though, Korean and Chinese firms have begun to hire mid-hires as well as very talented "early-retired" or "moth-balled" Japanese executive and engineers. A vibrant, healthy and properly functioning labor market will exhibit strong labor mobility - for the most part Japan doesn't have labor mobility although it has made huge changes in the last 19 years and even more so in the last 4 years -- but it still has a long way to go. By making these structural changes, primarily with adjustments to various regulations and some tax reforms to favor capital accumulation and company formation, Japan could rocket upwards by unleashing her creative, innovative people and giving them the opportunity not only to productize but more importantly to monetize their efforts. This would most likely mean that many of the big Japanese brands that we know today would wither away (assuming they refuse to or can't modernize and compete) but this is no different than what we've seen happen in the US' relatively more vibrant economy. As it stands now, Japan's obtuse and ossified incumbents are more than happy to go down with the ship and they apparently have no qualms about taking the entire workforce and nation with them. |
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