Transformation Insights from Southeast Asia’s "Digital Pioneer": A Call for Leadership Commitment | Soichi Tajima, Genesia Ventures

As digital technology breaks down industry barriers, major companies that have long driven the Japanese economy must transform to create new business opportunities and economic value. In this series, we explore what it takes for major companies to transform from a venture capital (VC) partner’s perspective. In this second installment, we interview Soichi Tajima, Representative Director/General Partner of Genesia Ventures. Tajima, who also serves as Vice Chairman of the Japan Venture Capital Association (JVCA) and Chairman of the Large Company Collaboration Committee, shares his views on the transformation of major companies.

Difference between mission and status quo. Challenges facing major Japanese companies

─ From your point of view, what do you think are the challenges facing major Japanese companies?

In talking with CVC (Corporate Venture Capital) staff at various major companies, I have the impression that many of them are unable to envision how they should transform their businesses. They struggle to see the gap between their goals and their current situation. This inevitably leads to a blurring of the way forward.

For example, consider the three key elements needed to transform a major company: mergers and acquisitions, in-house product development, and collaboration with startups. Since the goal is not in sight, the result is that the company does not know where to M&A, what kind of product to develop, or what kind of startup to collaborate with. This inability to see the difference between the ideal and the reality is a challenge for many large companies.

Conversely, companies with a clear vision and a solid understanding of the gap between that vision and reality are more precise in their tactics and external messaging. As a result, they become the preferred partners for startups. For startups, it is easier to be proactive in realizing business synergies by partnering with a company, rather than simply being an investor. In this sense, a significant difference is emerging between major companies that can create this positive cycle and those that cannot.

Another issue is that surprisingly few management teams adopt a proactive stance, declaring, 'We are going to transform the company. Management should not just evaluate proposals from the field but also take the initiative to actively promote them.

CyberAgent, where I worked in the past, is now a major company, but the management team is taking the initiative to create new businesses. They believe that management’s mission is to maximize corporate value, which includes not only nurturing existing businesses but also creating new ones. Such a culture raises the perspective of the entire organization, including middle management, and has a positive effect on the company. If If management only evaluates, no one will take on new challenges. As a result, I think this leads to a sense of stagnation in the organization.

─ In terms of establishing CVC, the government is also developing initiatives such as the "Open Innovation Promotion Tax Credit.

The initiative itself is a good one, but in some places it seems that CVCs are being set up with the idea that "we have to set up CVCs because of the Open Innovation Promotion Tax Credit." When setting up a CVC, the first step is to say, "Let's work with startups as a means to change our own business. Let's aim for it. For that purpose, it is better to have an investment function in a separate organization. Therefore, let's launch a CVC." While the means should be derived by working backward from the goal, it often seems that the means have become the end in themselves.

In such cases, the start-up side realizes that it may not be able to make more interesting efforts with this company than investment. After all, when a startup partners with a major company, they are concerned that they will be "colored" by that company, and if they cannot expect a return greater than the color they are given, they will not want to work with them. This is why it is important for the management team of a large company to first clarify the direction they should aim for.

How committed is the management team of a major company to change? Also, can they seriously face the challenge of properly setting forth their vision and spreading it throughout the organization? The open innovation tax system is only a tool to accelerate change, so it is most important that the management team clarify and commit to the vision it is aiming for before thinking about how to use the tax system.

Digitalization Demands 'Optimizing Business to Meet User Needs.'

─ Genesia Ventures is also investing in Southeast Asia. What do you feel are the differences in terms of digitalization compared to Japan?

First of all, the environment is very different. Japan already has a declining birthrate and an aging population, and the working population is rapidly shrinking, but Southeast Asia is now in a state similar to Japan's period of rapid economic growth. And this momentum will continue for the next 30 to 40 years. This is the first major difference between Japan and Southeast Asia.

Another difference is that Japanese business is shifting from analog to digital, while Southeast Asian business is starting from scratch on a digital basis. In Japan, many industries have matured on an analog basis, and now the need for DX (digital transformation) is being called for, but in Southeast Asia, business is not as firmly established as in Japan, so businesses are being born from scratch based on digital technology. Japan, once considered a developed nation, is now seen as 'digitally backward,' while Southeast Asia, once considered an emerging market, is becoming a 'digital pioneer. A major paradigm shift has occurred over the past 10 years. I personally feel a strong sense of urgency about this.

─ What do you think Japan should learn from Southeast Asia?

What’s happening in Southeast Asia is straightforward. They are simply facing the needs of their users and optimizing their businesses to meet those needs.

Japan should learn from this attitude. However, in the case of Japan, there is a huge amount of assets that have been accumulated to date that have become sunk costs (i.e., costs that have already been borne and cannot be recovered) and cannot be discarded. More to the point, they are faced with the need to optimize their business for both the silver market and the youth market, which have different IT literacy levels. It appears that we are truly in an innovation dilemma.

I wonder if they can make the decision to give up on their existing assets and take on new challenges because "users are demanding it. I believe that the companies that can continue to thoroughly and genuinely address user needs will ultimately prevail.

Change management's thinking by consciously creating a "difference

─ What do you think is the key to reforming major companies?

I think it is necessary to consciously create a world where startups choose major companies, rather than a world where major companies choose startups. In today's digital society, large companies that realize the potential of start-ups that utilize the power of digital technology to solve the world's problems will certainly be able to continue to grow. If this happens, the impact on the Japanese economy will undoubtedly be significant.

Instead of trying to develop everything in-house, they should work with start-ups to create new businesses. Rather than telling large companies that are not aware of this potential that they need to be aware of it, the difference in speed and output between companies that are aware of its importance and those that are not will inevitably increase, so I believe that educating people about the results will become even more important in the future. I believe that awareness of the results will become even more important in the future.

─ What should be done first to achieve this?

I think the first thing we need to do is to create an environment in which the management team is willing to take risks and take on challenges on their own. If the top management does not change their way of thinking, the company will not change either. Even if the people on the front lines continue to talk about the need for change from the bottom up, if the top management does not change their thinking, their voices will continue to be rebuffed, and eventually the people who were highly motivated on the front lines will end up working for other companies. If this situation continues, the future of major companies will become increasingly bleak.

What is needed to change the mindset of top management is a "sense of crisis. In this sense, Southeast Asia has a tremendous thirst. Motivated by a sense of crisis and a thirst for a more affluent lifestyle, Southeast Asia is growing rapidly by taking full advantage of the potential of the Internet. On the other hand, Japanese people are in an environment where they have everything they need, so it is difficult for them to develop a thirst compared to Southeast Asians.

However, this is no longer the case. While earning revenue is crucial, it’s even more important to consider 'what we want to achieve'. If the management team can properly present the "vision" that lies beyond the vision and mission, the company will be able to change.

Photo by Hiroaki Otake