Contextual Obstacles to Entrepreneurship in Japan from the Perspective of the Overseas Japanese Self-Employed
Volume 22, Issue 1 (Article 1 in 2022). First published in ejcjs on 17 April 2022.
Abstract: While the self-employment sector in Japan is rapidly declining, there is an increasing number of self-employed Japanese overseas. It is necessary to identify the structural and institutional factors of low entrepreneurship rather than its cultural factors. The analysis of our original survey data reveals that the overseas self-employed Japanese are unlikely to have a self-employed origin, and most of them became independent to work autonomously by utilising their skills. Furthermore, we assert the importance of the following conditions that affect startups based on the interview data: (1) public and private support for self-employment, (2) the possibility of a horizontal inter-firm relationship, (3) ambiguity in agreement, and (4) assessment of skill and expertise. We argue that these contextual conditions in a society, such as the inter-relationship between economic actors, have significant effects on entrepreneurship opportunities in Japan, and that they are deeply rooted in Japanese economic systems.
Keywords: entrepreneurship, Japanese self-employed workers overseas, inter-firm relationship, ambiguity, assessment of skills
The self-employment sector in Japan was relatively large until the 1970s. However, it has rapidly declined since the 1980s. As shown in Figure 1(a), the number of self-employed workers decreased to about 60% of the total workforce compared with that in the 1970s, and their share in all workers fell to 8%, which is much lower than the average of the 28 European Union countries (15.2% in 2019).
Figure 1. The Number and Percentage of the Self-Employed Japanese in Japan (a) and Abroad (b)
Assuming that working as a self-employed person requires entrepreneurial mindsets and skills, the contraction of the self-employment sector in Japan should be understood as a weakening of entrepreneurship in the Japanese economy (Genda and Kambayashi, 2002). The 2019 Global Entrepreneurship Monitor (GEM) reports that the total early stage entrepreneurial activity (TEA) rate in Japan is the third lowest among the 50 surveyed countries. It is possible to conclude that entrepreneurship in Japan has weakened and is much lower than in foreign countries.
However, we find a contradictory phenomenon when examining overseas Japanese workers. Figure 1(b) shows that the number of self-employed Japanese working in foreign countries has been rapidly increasing, both in terms of its absolute number and ratio to total Japanese workers working abroad, which is the opposite trend to the domestic self-employed in Japan. It is difficult to understand the contrasting trends shown in Figure 1(a) and 1(b) from the standpoint that Japanese people inherently hesitate to take a step forward to entrepreneurship. In this paper, we will investigate other societal contexts that make entrepreneurship in Japan difficult rather than some personal traits specific to the Japanese people such as an “inward-looking” attitude, which is a dominant discourse characterising Japanese youth (Burgess, 2015).
The rapid increase in the number of overseas self-employed Japanese suggests the inappropriateness of attributing weak entrepreneurial activities in Japan to Japanese cultural conditions, such as uncertainty-averse attitudes, as discussed later. Rather, we may need to identify the factors in the structural and institutional conditions of Japanese society and its economy that might prevent potential entrepreneurs from starting their own businesses domestically. Thus, the analysis of why and how the Japanese have started and sustained their businesses in foreign countries will provide a better understanding of the causes of the relatively weak entrepreneurship in Japanese society and new insights into the contextual obstacles to entrepreneurship in a society that have not been fully explored.
Based on the above interests and from a quantitative perspective, this study first investigates individuals who start businesses abroad by comparing them with the self-employed in Japan. Considering the results of the quantitative analysis, we also examine why and how they start their business in foreign countries and what differences there are in the environments for entrepreneurs between Japan and their host countries, relying on their own perceptions from a qualitative perspective. In doing so, we explore the factors of low entrepreneurship in Japanese society, taking country-specific structural and institutional conditions into consideration.
Previous Literature and Research Questions
There are two strands of research in entrepreneurship and self-employment in the social sciences. One is social stratification research, which focuses on the strength of inheritance of parental resources for the status of self-employment. The other comes from entrepreneurship and small business studies, which pay more attention to individual attributes. Both research fields characterise Japan as a case of a society in which it is difficult to open a business. In the context of self-employment in Japan, the following two features have been pointed out in previous empirical studies on social stratification.
First, the proportion of those who inherited their self-employment status from their parents was high. Analysing the factors of self-employment entry in Japan, Ishida (2004) revealed that those with self-employed fathers are twice as likely to enter the self-employed sector than those without self-employed fathers, if other conditions such as education, age, and previous jobs are controlled. Ishida interpreted the positive effects of having a self-employed father on their entry into the self-employed sector as the likelihood of the direct succession of the father’s business and/or the acquisition of knowledge about how to start and continue a business.
Indeed, Japanese people have a high tendency to become self-employed by directly succeeding in their family businesses. Arita (2011) compared the paths of entry into the self-employed sector between Japan and South Korea. The study reveals that the ratio of self-employed Japanese who succeeded in their family business is as high as 40% and almost the same as the ratio of those who started their business by themselves. In contrast, the ratio of self-employed South Koreans who succeeded in their family business is as low as 6%, whereas the ratio of those who started their business by themselves reached three-quarters. From these findings, the succession of a family business is an important entry path into the self-employment sector, and it is relatively difficult for those without self-employed parents to become independent in Japanese society.
Second, self-employed Japanese people generally have high business durability. Park (2010), who conducted a survival analysis comparing the durability between self-employed Japanese and South Koreans, found that the probability of being self-employed for 20 years after their entry is as high as two-thirds in Japan and only one-quarter in South Korea. Moreover, Ishida (2004), who examined the factors of exit from self-employment, found that the durability of those who have a self-employed father is twice that of their counterparts. Thus, self-employed Japanese who succeeded in their family business can, on average, operate their business stably.
At least until the 1980s, the high inheritance rate and durability of the self-employed Japanese can be attributed to the fact that the governing Liberal Democratic Party had given various benefits to self-employed people, such as protection from free competition and favourable treatment in taxation, in exchange for their faithful support to the party (Inoguchi, 1983). However, most of these benefits have been abolished since the 1990s, which may be one of the factors contributing to the decrease in the Japanese self-employment rate. Although the Japanese government has taken various measures, such as the reform of commercial law, to foster the startup of new businesses (Kambayashi, 2017), the business startup rates have not increased significantly (Chushō kigyō chō, 2019) and are relatively low compared to other developed countries (Honjo, 2015; Kegel, 2016). Subsequently, the number of self-employed individuals declined.
Why have business startup rates been so low in Japan? In previous literature on comparative entrepreneurship research, the variance of entrepreneurship activities and attitudes among countries has been attributed to the differences in various country-level conditions, such as legal, political, economic, institutional, and cultural conditions (Terjesen et al., 2016). Among these conditions, previous studies that explored the factors of low entrepreneurship in Japan from a comparative perspective emphasised the importance of cultural factors. Honjo (2015) pointed out the cautious attitudes of the Japanese as a factor that hampers entrepreneurship activities and expected that improving such attitudes may help to increase new business creation in Japan. Kegel (2016) also asserted the importance of cultural and social norms in Japan, such as the attitude to avoid failure and uncertainty, based on a comparison of conditions that affect entrepreneurship activities between Japan and the United States.
Limitations of Prior Studies and Statement of the Research Question
Previous studies have characterised Japan as a society with low entrepreneurship. They argue that the current decline in self-employment in Japan is due to a weak entrepreneurial attitude and relatively strong dependence on the assets of one’s social origin. Admitting these arguments is persuasive; however, they may fail to explain the contradictory fact that overseas self-employed Japanese are increasing, while their domestic counterparts are decreasing. To put it differently, they have not yet determined why Japanese people are less likely to start a business than those in many other industrial societies, even though there is an increasing number of overseas Japanese self-employed who share the same culture with their domestic counterparts.
Social stratification studies have unveiled the strong intergenerational inheritance of self-employment positions, but it is still unclear why the entry of those without a self-employment origin into this sector is relatively rare in Japan. We may need to interpret the strong inheritance rate in Japan as a result, rather than as a cause, of low entrepreneurship. If so, there may be some country-specific contextual factors that confound both inheritance and entrepreneurship, but social stratification scholars have not explicitly focused on these qualitative aspects.
Meanwhile, most of the previous comparative entrepreneurship studies have conducted cross-national analysis treating each country as a unit of analysis to examine the characteristics and factors of entrepreneurship in a country (Terjesen et al., 2016). These studies seem to examine the issues of their attitudes that have rarely been the focus of social stratification studies. However, it is necessary to explore the context of how these attitudes may occur in a more detailed manner, considering that they are not exogenous conditions but are formulated and demonstrated in the fabric of society.
Using a dataset for international comparison, such as the GEM survey, may not be sufficient to extract the impact of institutional contexts that affect entrepreneurship attitudes and behaviours. It is routine to interpret the differences in outcome variables among countries of interest when conducting a comparative analysis. However, it is almost impossible to distinguish the effects of institutional contexts from those of cultural contexts based on country-level variation because both contexts frequently interrelate. This methodological drawback may, in turn, render theoretical arguments vague.
The critics, as mentioned earlier with regard to social stratification and comparative entrepreneurship studies, lead the present study explicitly to focus on the overseas self-employed with the same nationality. Assuming almost the same average cultural and personality traits between workers abroad and domestic workers, the institutional differences between the origin and destination societies are expected to be substantial factors that theoretically explain entrepreneurial difficulties. In other words, the approach to the overseas self-employed will enable us to investigate institutional constraints for entrepreneurship more directly while holding cultural factors constant. The Japanese self-employed can be considered an ideal case for this purpose because they have contradictory trends in the scale of domestic and overseas self-employment, in addition to the fact that the low rate of Japanese entrepreneurship tends to be attributed to their cultural contexts.
Accordingly, it will be another beneficial approach to focus on Japanese migrant entrepreneurs to detect the effects of different national contexts on entrepreneurship, rather than performing a quantitative international comparative analysis. This approach enables us to analyse why and how entrepreneurs have started and sustained their businesses in foreign countries by comparing the conditions for entrepreneurs in host countries with those in Japan. By doing so, we can reveal the factors related to low entrepreneurship in Japan, particularly non-cultural factors that have not been fully examined. Thus, the analysis of overseas self-employed Japanese offers the possibility of investigating the effects of the contextual obstacles of Japan on entrepreneurship. In other words, we anticipate that these contextual obstacles should constrain entrepreneurs’ decision-making and actions that are embedded in the fabric of society, such as inter-relationships between actors.
Few relevant studies have focused on the self-employed Japanese in foreign countries, although the number has been gradually increasing in contrast to that of the domestic self-employed. The only exception is from Yokoyama and Birchley (2019), who focused on Japanese self-initiated expatriate entrepreneurs. They examined the factors behind starting a business overseas through case studies of Japanese self-initiated entrepreneurs in Southeast Asia from the perspective of transnational entrepreneurship (Bailetti, 2018). Although their study revealed the importance of micro-level factors such as global entrepreneurial mindsets for starting businesses in foreign countries, they did not sufficiently compare the macro- and meso-level background conditions that facilitate business startups between Japan as a country of origin and their host countries. Therefore, there is still an opportunity to investigate the effects of background conditions on business startups by focusing on overseas self-employed Japanese from a comparative sociological perspective.
In this study, we employ an approach that relies on the perceptions of overseas Japanese who are self-employed. Previous studies have revealed that the perception of one’s own abilities and possibilities of success as an entrepreneur have a large effect on the extent of individual entrepreneurship activities (Koellinger et al., 2007; Townsend et al., 2010; Honjo, 2015). Considering these findings, the perception of the conditions for entrepreneurs in society is also important to understand people’s decisions about whether to start their business because the self-judgment of the possibility of success as an entrepreneur is based not only on the perception of their personal attributes, such as their abilities, but also on the perception of the business environment for entrepreneurs. Therefore, we attempt to explore the differences in the business environment for entrepreneurs between Japan and host countries based on the perceptions of overseas self-employed Japanese to understand the contextual conditions of low rates of entrepreneurship and the declining self-employed sector in Japan from a comparative perspective.
For this purpose, we will address the following research questions:
(1) What are the personal attributes of overseas self-employed Japanese and the differences with those of domestic self-employed people?
(2) What are the social and economic conditions in the host country that affect their decision to be independent, and how do they differ from those in Japan?
Data and Approach
To examine the difference between overseas Japanese self-employed (including business owners) and their domestic counterparts, this study utilises three types of data: Advancing Dreams in Overseas Societies among Japanese Expatriate Workers (ADIOS-J) Wave1 and Follow-up, ADIOS-J Interviews, and SSM2015. The combination of these data will enhance the credibility of the findings and arguments of the present study.
ADIOS-J Wave1 and Follow-Up
The ADIOS-J is a research project that initially aimed to investigate the career opportunities of overseas Japanese workers. This project launched a yearly panel survey; the first wave (Wave1) was conducted in January 2020. The survey targeted Japanese people who worked overseas and were younger than 50 years. The age restriction is imposed because elderly Japanese emigrate for different reasons, such as early retirement.
The mode of data collection may have been the most critical factor in this survey. This panel did not follow a standard probability (random) sampling procedure because it is impossible to construct a sampling frame that covers Japanese people living overseas. Accordingly, this project relied on an online survey with the help of recruitment agencies for Japanese expatriate workers and web advertisements on social media. The total sample size was 1,011, and the participants’ ages ranged from 21 to 49 years.
Subsequently, the ADIOS-J panel conducted a follow-up survey of Wave1 self-employed respondents (including business owners) in early June 2020. Parents’ status was not included in the Wave1 survey questionnaire; hence, the follow-up survey asked about parents’ employment status at the respondent’s age of 15. Moreover, respondents were asked whether their businesses were viable in Japan as well as the advantages of their businesses in local societies. Of the 157 target respondents who received the ADIOS-J survey request via email, 106 completed the survey (response rate: 67.5%).
It is necessary to mention the potential impact of the COVID-19 pandemic, which has spread worldwide since January 2020. This is because our respondents might not be able to continue their businesses, but instead return to Japan. However, we did not find clear evidence that this pandemic caused respondents to quit their jobs or return to Japan. Only four of the 106 respondents returned to Japan, and two did not work during the follow-up survey. In their free answers and interviews, they also made little reference to the impact of COVID-19. Accordingly, we tentatively concluded that the influence of the pandemic might be limited in the present study.
ADIOS-J Interviews for Business Owners and Self-employees
After the follow-up online survey, the ADIOS-J was conducted with additional in-depth interviews via video calls or email with seven respondents. These in-depth interviews were conducted to better understand the background of overseas self-employed Japanese and why they were doing business there. The results of these interviews also have implications for the challenges of entrepreneurship in Japan. Table 1 presents the profile of each interviewee.
Table 1. Selected Interviewee Profile
The ADIOS-J data can provide substantial information about the situation of Japanese self-employed workers abroad, which has rarely been explored. Meanwhile, the findings of the ADIOS-J data alone do not reveal their characteristics because they may also apply to self-employed people in general. A comparative perspective is favourable, and Japanese domestic counterparts are most suitable for comparison.
In this study, we analyse SSM2015 data as a domestic Japanese counterpart. The present study utilised SSM2015 data for two reasons. First, the survey sample was randomly drawn, and the response rate seems to be sufficiently high compared to other surveys conducted in a similar period. It can be assumed that the sample is nationally representative. Accordingly, SSM2015 was an acceptable benchmark dataset.
Second, the SSM2015 data include all the variables of interest in this study, whereas the ADIOS-J data mentioned above contain the same variables. Few accessible Japanese survey data contain information about respondents’ occupations, their parents’ social status, and other social backgrounds. Thus far, only the SSM2015 data seem to satisfy the first and second aspects mentioned above.
In the data analysis, we first determined who the overseas self-employed Japanese are. We then quantified their characteristics by comparing the descriptive statistics of the ADIOS-J and SSM2015 datasets. The descriptive analysis was conducted as follows.
First, we compared the background factors between overseas and domestic Japanese self-employed samples. The SSM2015 data originally included participants aged 20–79 years. However, for comparison with the ADIOS-J, we restricted the sample to those aged 21–49 years. We then compared the distributions of age groups, academic performance at age 15, educational status, and respondents’ first jobs between the two datasets. We then compared the social origin of the subjects in the ADIOS-J with that in the SSM2015. In this study, we used the father’s employment status at the respondent’s age of 15 as the origin variable. For SSM2015, respondents were divided into self-employed workers and employed workers based on their current employment status.
Second, we obtained the occupational status characteristics of the ADIOS-J sample. Occupation indicates one’s socio-economic position in the society in which one lives. Through comparisons with the Japanese domestic sample and international statistics of migrants, we investigated whether Japanese self-employed overseas are more highly skilled than self-employed workers in general.
For the first and second aspects, the present study used a weight that adjusts the sample distributions of the ADIOS-J with that of SSM2015. The weight comprises age groups, academic performance at age 15, educational status, and respondent’s first job. We use the weight because the differences in respondents’ social origin (father’s employment status) and current occupation might only be due to the characteristics of the sample compositions or biases. Even if not perfect, the weighted data can describe the situation of Japanese people who start their business overseas under conditions roughly equivalent to a nationally representative sample. The weighting technique used in this study is the iterative proportional fitting algorithm, which is also known as the raking method. It is a method of matching the distributions of multiple factors in a sample with the marginal distributions of the benchmark population (Deming and Stephan, 1940).
Social backgrounds lead to their motivations and attitudes toward entrepreneurship, which is the third topic of the quantitative analysis. The ADIOS-J follow-up asked respondents why they started their businesses with a multiple-choice format and the perceived advantages of doing business overseas in a free-answer format.
With the results of the quantitative analyses prior to the qualitative ones, we narrowed down the focus of the interview survey to the following points: (1) how they started their current business, (2) what they think of as differences in utilising the skills of self-employment between Japan and the country of living, and (3) any other differences between the Japanese context and abroad. We asked these questions in a semi-structured way and then inductively summarised their answers into four points, as discussed in the next section.
Who Are the Overseas Self-Employed Japanese?
Differences in Backgrounds between the Japanese Self-Employed in Japan and Overseas
Table 2. Characteristics of ADIOS-J Wave1 and SSM2015 Samples
First, we compared the backgrounds of overseas self-employed Japanese (ADIOS-J) and their domestic counterparts in Japan (SSM2015). Table 2 shows the distribution of each variable by sample type and sex.
The proportion of the youngest group (21–24 years old) was lower in the ADIOS-J sample than in SSM2015. There is probably another reason for this, besides the sample bias due to non-randomness. In obtaining a residential status overseas, the length of labour market experience can be a sign of being experienced in their jobs. Accordingly, the age distribution appears to be proportional to the length of labour market experience.
Educational attainment also differed between the two groups. Overall, the overseas sample exhibited higher academic performance at 15 years of age than the Japanese national sample. Educational status was higher in the ADIOS-J sample than in the SSM2015 sample, and this difference in educational status affected their first occupation. The proportion of subjects with professional or technical occupations was higher in the ADIOS-J than in the SSM2015. The percentage of “Salesperson” jobs was also higher in the ADIOS-J, which may be due to a specific demand size for those with sales experience in Japan by the Japanese firms abroad (Ishida et al., 2019). In sum, overseas self-employed Japanese consist mainly of highly educated white-collar workers.
Table 3. Distributions of father’s job of ADIOS-J and SSM2015 Respondents
As previous research has shown, having a parent who is a business owner or self-employed makes it easier for an individual to inherit and mobilise the parent’s assets. Although they are currently living outside of Japan, it is possible that self-employed workers abroad enjoy the benefits of having self-employed parents. Table 3 investigates whether the self-employed or employed respondents in SSM2015 share similar characteristics with the ADIOS-J self-employed sample.
Unlike the social origin of the self-employed sample in Japan, the highest percentage in terms of social origin among the overseas self-employed sample were respondents whose fathers were regular employment workers (about 71% in men and 64% in women). The results presented in Table 3 do not confirm that self-employed overseas Japanese workers inherit the same employment status as their parents. Instead, this suggests that people without a connection to their parents’ business resources may strategically choose self-employment.
Occupational Distribution at the Current Job
Table 4. Distributions of occupational statues at the current job between ADIOS-J and SSM2015
Table 4 shows the weighted ADIOS-J and SSM 2015 data for the distribution of current jobs. Although it is impossible to make a strict comparison because of the difference in the classification scheme between the two datasets, we can see that the ADIOS-J sample has a higher proportion of professional or technical occupations in the current job. In addition, the professional or technical share is higher in the self-employed than in other employed workers in the ADIOS-J sample.
They also seem to be different from general labor migrants. Although its report does not include permanent migrants and those in other regions, for example, the OECD shows that migrants in European societies are more likely to engage in manual or unskilled occupations than general workers (OECD, 2019: 165).
The above results show that the ADIOS-J respondents are close to so-called middle-class migrants, not labour migrants. We have already seen in Table 2 that their educational background and early professional status were high. Middle-class migrants, unlike labour migrants, would have obtained a job in their country of origin. They do not migrate to search for job opportunities, but for a better quality of life (Benson and O’Reilly, 2009; Tzeng, 2012), which includes various aspects, such as a better work environment and work-life balance.
Reasons for Starting Business Overseas and the Perceived Advantages
Figure 2. Reasons for starting business overseas (M. A.)
The results mentioned above imply that the overseas Japanese self-employed are neither the typical Japanese self-employed who make use of inheritance of their parents' assets (e.g., social networks and entrepreneurial knowledge and attitudes) nor labour migrants who work only for financial reasons. Instead, they appear to be non-manual or highly skilled middle-class migrants in the countries in which they live. They must rely on their own skills and experiences thoroughly because they cannot enjoy the entrepreneurial resources inherited from their parents. It appears essential for them to use their abilities to the fullest to start and maintain their business.
Given this interpretation, they may want more autonomous business conditions. Figure 2 presents the distribution of the reasons for starting their businesses using ADIOS-J data. The most common reason was to work freely. The second most common reason was to utilise their hobbies and skills. Meanwhile, we can see that the incentives for socio-economic attainment are not the primary interests of the respondents based on the findings in Figure 2. First, the percentage of the reasons that they want to increase their income is lower than the non-monetary reasons mentioned above. Second, they do not always adhere to the needs of business owners. Third, few of them think that they must be self-employed to obtain labour market opportunities. In summary, pursuing freedom for work in the ADIOS-J sample is aligns with a middle-class career orientation.
Figure 3. Perceived advantages of doing the business overseas (F. A.)
What advantages do they anticipate in opening and conducting an overseas business? Figure 3 illustrates the distribution of the perceived advantages of overseas self-employment. Initially, we asked the ADIOS-J respondents to freely describe their thoughts on their advantages. We inductively classified their responses into 12 categories, as shown in Figure 3. One respondent’s answer may apply to more than one category, and each category is not exclusive.
Some of the categories refer to the demand-side aspects of host countries. Demand-side conditions are a pivotal element of the opportunity structure for migrant entrepreneurship (Kloosterman, 2010). The most frequently cited topic is low barriers to entrepreneurship. For example, inexpensive opening costs and fewer regulations were the primary descriptions in this category. Data reported by the World Bank show that there are more procedures to start a business, with higher costs in Japan than in some other Asian and European societies (World Bank, 2019). These explicit obstacles possibly restrain entrepreneurial attitudes in Japan, as pointed out in a previous study (Chushō kigyō chō, 2019). “Support for the self-employed” is relevant to these aspects.
In terms of the demand-side aspects, the respondents also appeared to enjoy (i) intermediary benefits between Japan and the local society, (ii) possibilities of cultivating market opportunities, and (iii) comparative advantages of the business. For category (i), some respondents mentioned that they could commercialise Japanese culture (e.g., food and music) so that people in the host society could consume it as well. This category is in line with the findings of previous research on ethnic and transnational entrepreneurship (Aldrich and Waldinger, 1990; Barberis and Solano, 2018). Categories (ii) and (iii) are similar. Some Japanese self-employed people thought that they would have many competitors in Japan concerning (ii), and that their business might be slightly out of date in Japan concerning (iii). Accordingly, they believed there was more room to develop their businesses in the host society. To the extent that they weigh demands in Japan and the host society, there is mixed embeddedness in their entrepreneurship activities (Barberis and Solano, 2018). “Businesses which fit the local society” and “Ease of access to the local community” are also similar categories.
Meanwhile, there are also many cases that apply to management and employment practices. “Autonomy over the style of work” is the second most frequent category and corresponds to the reason for starting a business of “To work freely.” Similarly, they seem to think of skill- and performance-based circumstances in the host society as advantageous. As relevant categories with the autonomy of work, they refer to equal working relationships with people both inside and outside of one’s organisation and fast decision-making, although the number of cases is not more than those of other categories.
The advantages stemming from the demand side in the host society attract the overseas Japanese self-employed, as entrepreneurship scholars have previously stressed the impact of the given or exogenous conditions. However, the results in Figure 3 indicate that the interactions and interdependencies among colleagues and business counterparts also structurally constrain respondents as an endogenous process. Relying on the descriptive results of the quantitative data, we proceeded to our interviews carefully to examine the factors surrounding their perception of doing business.
In sum, the above quantitative results reveal that the overseas Japanese self-employed more actively choose self-employment as their way of working than their domestic counterparts in Japan. In addition, the objective of starting self-employment appears to be full utilisation of their skills and autonomy in their work.
How Do the Self-Employed Japanese Perceive the Business Environment in Japan and the Host Society?
In this section, we explore factors that facilitate the business startup of self-employed Japanese in foreign countries for the above purpose, compared with the conditions in Japan through an analysis of the interview data. Based on the analysis results, we point out the following four factors: (1) public and private support for self-employment, (2) the possibility of a horizontal inter-firm relationship, (3) ambiguity in agreement, and (4) assessment of skill and expertise. Through our analysis, we will discuss that the circumstances of working as a self-employed person in Japan may be insufficient to accomplish their goals, according to the interview data of the respondents.
(1) Public and private support for self-employment
The first factor is the support for entrepreneurs in society. Some of our interviewees, especially those in developed countries, pointed out that generous support from the government and other official institutions is a crucial factor in starting their business. According to the respondents, the support they received abroad is much more generous, although local governments and other official organisations in Japan offer support to potential entrepreneurs.
For example, Haruka, a female restaurant owner in Europe, stated the following.
Before starting my business, I was worried about funding, employment/human resource education, management, and marketing. However, the support services and training courses for entrepreneurs I had taken in the country have lessened my worries. (Haruka)
Specifically, she took a two-month course on starting new businesses for foreigners (in English with pay) and a three-month course on starting new businesses for the unemployed (in the local language, free, and participants were given an unemployment allowance). Moreover, she received entrepreneur support services provided by the local government (creating a business plan and writing loan applications and cash flow charts necessary for management) and support services for new employers (conducted by lawyers) provided by public employment and business service offices. These generous services helped her start a new business in her foreign country.
Momoko, a female freelance artist in Europe, cited the existence of compensation for the absence of work for freelance artists as an important background condition for her choice to work as a freelancer.
In this country, there is a system that protects freelance artists by compensating income during the period of finding no jobs. (…) Before working as a freelancer, I was worried that there weren’t guarantees for stable income, so I think I was able to start working without the worry thanks to this system in this country. (Momoko)
In some developing countries that have little support for entrepreneurs, private agencies offer help in starting a new business. Some interviewees stated that by outsourcing the procedures necessary for establishing new businesses to these agencies, they can start their new business easily at a lower cost.
For example, Ayaka, a woman who runs an art class for children in East Asia, points out that convenience and low cost made it easier for her to start a business. In her case, all the establishment and registration procedures were entrusted to an agency at a cost of only several hundred dollars. In addition, monthly accounting work is also outsourced instead of hiring an employee; it only costs tens of dollars per month. Thanks to these supports, she was able to pay the initial cost of establishing her own company using only the money she saved while working as an employee for several years. She did not need to borrow money for her business.
Therefore, for interviewees who want to be entrepreneurs, generous public support, and convenient and low-cost services from private agencies are important factors for smooth business startups or freelance careers.
(2) Possibility of horizontal interfirm relationships
The second factor concerns the relationship between large and small firms. In Japan, firms often construct stable subcontracting relationships, as exemplified by Toyota’s Kanban system for the just-in-time delivery of components by suppliers to auto manufacturers. The subcontracting relationship between a prime contractor, larger firms in many cases, and subcontractors, smaller firms in many cases, tends to be hierarchical, in which the former expects the latter to dedicate various efforts to meet the prime contractor’s requests (Hill, 1995).
Chika, a female sales consultant on precision instruments for professionals in Europe, stated that it was difficult for her to establish a horizontal relationship with Japanese clients. She added that large Japanese firms tend to assume a hierarchical client relationship, similar to the subcontracting relationship widely observed in Japan. For this reason, she thinks it would be difficult to establish her business domestically.
One example of the problems she encounters when doing business with Japanese clients is the difficulty of interacting with them on level ground.
(when asked for a sales consulting contract with a Japanese company) One of the conditions I propose is to make open discussions. But this is really difficult for Japanese companies to achieve. Even if they answer “yes” at the time of contract, when I point out problems of the product and try to discuss how to improve them, they won’t listen to me, saying “No, it’s not true. There should be nothing wrong with our product.” (Chika)
When I disagreed with Japanese clients about how to sell the product and suggested a different approach, I was even told, “You don’t need to talk back, please do only what we requested.” (Chika)
She attributed such imperious attitudes of Japanese companies to the inter-firm relationship model of the hierarchical subcontracting relationship between large and small firms that prevailed in Japan. She had never had such an experience with Western companies. According to her, they are willing to improve their products and approaches by listening to her suggestions and discussing them with her on level ground. Chika feels it is much more difficulty to do business with Japanese companies compared with Western companies because Japanese clients have greater power and expect her to obey them regardless of her intentions.
Thus, small companies tend to be in a subordinate position when constructing an inter-firm business relationship with large firms in Japan compared to Western companies. This may bring about greater difficulties in starting up and running a small business-to-business company in Japan. This specific characteristic of inter-firm relationships in Japan may impede professionals, particularly those with much experience in international businesses, from working as freelancers or presidents of small companies in Japan.
(3) Ambiguity in agreement
The third factor involves the ambiguity of the agreement, which was mentioned by several interviewees. Management researchers have long pointed out that decision-making procedures in Japanese firms are implicit and ambiguous (Keys and Miller, 1984; Keys et al., 1994; Sato and Parry, 2015); many things tend to be left unsettled even when contracts are made. Makoto is currently playing traditional Japanese instruments and running classes in Eastern Europe. He was a performer in Japan before emigrating. He experienced a disadvantage in Japan because of this ambiguity. Chika faced a similar issue when working with Japanese companies after starting her business in Europe. According to her narratives, Japanese firms tend to have obscure situational awareness when starting a business with her. In both cases, Japanese clients do not seem to think it necessary to share precise information with each other in making agreements, regardless of whether they have that awareness.
In this country, we can convey what we need from each other without ambiguity, so we are less likely to have problems. If any problem occurs, I think it is possible to resolve it quickly. In Japan, however, requests for performances were often vague in terms of price, time, and content. I feel like the clients tend to avoid talking about these difficult topics and make them obscure. (Makoto)
I have worked with several Japanese companies, and one of the most common requests I receive is, “Our company has a product like this. We would like to sell it in Europe. What should we do?” […] (After getting such inquiries) I asked some questions about whether they did research for its market needs, how large the market size they anticipated is, who their market competitors are, what the similar goods are, pros and cons, and so on. In most cases, however, I could not receive proper answers from them in advance. (Chika)
Ambiguity is a source of the exercise of power. A study focusing on a large financial corporation in the UK pointed out that ambiguity is “critical to the exercise of power because it presents building blocks without instructions that require interpretation” (McCabe, 2019: 170). As previously mentioned, one of the characteristics of Japanese companies is their ambiguous decision-making process. Given that ambiguity is indeed a strategic resource for power, it may be possible to assume that Japanese firms and staff take advantage of uncertain situations, regardless of their intentions.
In his case, Makoto said, “Some clients often asked me to play the music for free when I lived in my hometown in Japan.” In the interview, we could not see that he actively negotiated his terms of the request. This fact suggests that the ambiguous client-contractor relationship would weaken the latter’s bargaining power because he might lose his opportunity because of his claims.
Meanwhile, Chika currently has autonomy in her relationships with her business partners in Europe, and she does not think that she can do the same work in Japan. She feels that “the people in Japanese companies are not good at identifying and discussing problems. [...] They are always thinking of ‘but’ and how to justify their past mistakes, which makes it difficult to discuss.” It would be difficult for her to develop her business under such circumstances because she may need to deal with ambiguity in the power relationship between large and small firms.
(4) Assessment of skill and expertise
The fourth factor is the difference in skill evaluation between Japan and the local societies overseas. In general, the Japanese labour market has not long relied on the idea of directly evaluating the skills and expertise of a particular job. Instead, it valued the length of service in the same corporate organisation; moreover, the staff had opportunities for promotion and salary increases through job rotation among various departments (Uehara, 2009). Therefore, in the decision-making process in the workplace, the positional hierarchy is more decisive than the job responsibilities of individual staff members. This structure is still acceptable in Japanese society; hence, workers’ active assertions of their expertise and ideas does not lead to a high job evaluation in Japan.
For instance, Misaki, a certified aesthetician, said that while working in Japan, she struggled to express her own opinions to her supervisor. She worked for a Japanese company before immigrating to North America, where she obtained her certification as an aesthetician.
The whole company is systematised, and the system excludes those who do not follow it. [...] I felt that my boss’s opinion was all that matters, and it was difficult to make the most of my experience and ideas. On that point, in this country, I got a lot of praise from my boss, and it led to an increase in tips and salary. (Misaki)
Misaki’s case study is a subjective example. Along with little direct evaluation of her skills, however, her narrative reflects another characteristic of skill assessment in Japan. She thinks that her current country allows her the opportunity to question and negotiate her skills evaluation, which is not the case in Japan, where she could not bargain about her salary and assessment. According to a prior study, this situation is also common in Japan (Nakamura, 2019).
The lack of negotiations on an individual basis can be detrimental to freelancers’ evaluation. Makoto felt that the client was more interested in the performer’s background than whether he or she would satisfy the audience.
In Japan, the clients tend to focus more on the backgrounds (such as in the case of music, contest wins) than on the actual quality of the work. They appear to regard only those who are dedicated to one job and have worked there for a long time as professionals. Otherwise, they do not value players at all. In this country, the clients will appreciate performers as long as they satisfy audiences with their works. (Makoto)
He is not the only respondent who thinks that Japanese clients do not adequately assess compensation for their skills and services. Chika also said, “Japanese firms tend to start a negotiation about the price at the lowest level, unlike European companies. […] I do not feel appreciated when they negotiate like that.”
In addition to being under evaluated by clients, workers may contribute to discounting their own values. Sumire, who is now working as an architect in Europe, pointed out that some Japanese (creative) workers are likely to accept work orders that are not worth the cost.
[Japanese architects] did not seem to care about the price, and I did not either. It was because they loved their job like a hobby, they were young, passionate about the job, and too busy working to spend money on other things. So, many architects take on work at too low a price. The clients naturally ask for work at a low price. [...] In Japan, architects even listen to the client’s wishes and present many plans before a contract. (Sumire)
Her narrative shows one of the reasons why it is difficult for workers to appropriately price their skills and expertise in Japan. It is conceivable that the contractor may be willing to perform much above the price. In this respect, being under evaluated is unlikely to be a problem. However, with clients and contractors accepting that state of affairs without any questions, it becomes difficult for the self-employed and freelancers to continue working for adequate compensation in Japan.
Discussion and Conclusion
Summary of Results and Contributions to the Studies and Discourses on Japan
This paper focuses on overseas self-employed Japanese, whose number is increasing, and explores their social origin and occupational statuses based on our original survey data, and the conditions that facilitate starting their new businesses in a foreign country as compared with the conditions in Japan, relying on their perceptions. In doing so, we examined the contextual factors of low entrepreneurship and the decrease in the self-employment sector in Japan from a comparative perspective. Taking the perspective of self-employed Japanese abroad, who are transnational workers, enabled us to gain insight regarding the structural barriers to entrepreneurship in Japan.
Based on the perceptions of overseas workers in this paper, we extracted the above conditions as factors that lead to low entrepreneurship in Japanese, particularly those of non-manual skilled workers. These conditions, except for frugal support for the self-employed, have seldom been pointed out in the previous literature on entrepreneurship in Japan from a comparative perspective. Although it might be difficult to change these conditions in a short time because they are deeply rooted in Japanese economic and employment systems, these conditions should be improved to develop entrepreneurship among Japanese people who hope to work autonomously by becoming independent.
Our results contribute to studies on the contemporary Japanese economy and society by reconsidering the discourses on Japan as follows. First, this study indicates that some of the features of the Japanese economy, which had been thought of as strengths, are now becoming weak points or impediments to developing startups in Japan. As long as the economic activities of Japanese firms are self-contained domestically, hierarchical control, ambiguous communication, and a closed skill evaluation scheme could be effective in reducing transaction costs, and large firms could take advantage of these features. Small business owners or the self-employed in Japan might even enjoy the benefits of such power relationships because their parent companies paternalistically ensured business contract stability and protection toward the subsidiary enterprises (Lincoln and Kalleberg, 1985; Lincoln and McBride, 1987). There is almost no alternative for the self-employed or entrepreneurs other than to follow their superordinate, but the interactions between large and small firms within the domestic context have resulted in their business advantages based on such power relationships.
However, global economic competition has gradually undermined the long-term relationships within and between Japanese firms, and the self-employed in small enterprises can no longer expect economic benefits from large firms. Nonetheless, the abovementioned features seem to remain in the Japanese market, based on the interview results. In such circumstances, it is not attractive for entrepreneurs to begin new businesses in Japan. Our quantitative and qualitative results suggest the possibility of revisiting the strengths and weaknesses of Japanese organisations in the globalised age.
Second, our results provide insights into alternative images of young and middle-aged Japanese workers. There are some pessimistic views about them as being short on their proactivity about status attainment and career formation. The inward-looking orientation (uchimuki shikō in Japanese) is a typical example of the discourse, which takes issue with the decreasing number of young Japanese studying abroad in some long-term degree programs. More generally, a survey of the Nippon Foundation reported that Japanese youth lack hope and desire for society and their lives. Of course, these are independent views of each other in different contexts. Still, they seem to be similar in that both can be the source of positioning Japanese youth’s way of thinking as a personal issue rather than a structural one. The problem of entrepreneurship in Japan can be similarly framed.
Our results imply that the structural obstacles in entrepreneurship may disturb potential entrepreneurs in Japan who rely on the interviews with Japanese self-employed overseas. As previously mentioned, the past strong points of the Japanese market, which had been efficient but unequal and obscure for Japanese firms, may, in turn, reduce the motivation for Japanese youth and middle-aged people to start their businesses in Japan. Our study suggests that personal and attitudinal issues are social and structural.
Contributions to Self-Employment Studies and Future Issues
This study can also provide new insights into self-employment studies in the fields of both social stratification and entrepreneurship from a comparative perspective. As a contribution to social stratification research, our findings of the present study imply that the intergenerational inheritance of self-employment is more influential in Japan. That is, demanding entrepreneurial circumstances in Japan may cause a certain number of potential entrepreneurs to abandon efforts to open a business. Under such a situation on the labour-demand side, it should be realistic for them to choose employment as hired workers rather than to force themselves to start a business. In addition to intergenerational inheritance, the entrepreneurial opportunity structure can depend on the interactions between entrepreneurs and their business counterparts as well as social values placed on skills and abilities.
On the other hand, the findings from our interviews add insights into entrepreneurial studies. Many previous studies have relied on the GEM dataset, which probably contributes to determining the measurable backgrounds that stimulate or suppress entrepreneurship. Our results, however, indicate that there should be other factors relevant to starting a business, although they are difficult to quantify. In particular, it is the inter-relationship between economic actors that can become observable through an intensive qualitative investigation, as illustrated in this paper. From inductive findings, it will be possible to develop more standardised measures of interdependencies in future research.
Finally, it is necessary to mention the following limitations because the present study is exploratory. First, there is a possibility that the ADIOS-J data analysed in this study might not fully represent the entire population of overseas self-employed Japanese individuals. We cannot deny the sample bias due to non-random sampling, and it is mandatory to look for any measures to adjust the bias in our future task. Second, the results of our interviews are still subjective, and it is not certain whether their narratives are empirically true. We should construct measurements corresponding to our findings in the present study and examine the effects of these factors in a more detailed manner. Even though these limitations are inevitable in deepening the discussion of entrepreneurial circumstances in contemporary Japanese society, they also indicate that there is a possibility of further development of the present study.
This study was supported by JSPS KAKENHI (grant number JP18H00922). We also appreciate the two anonymous referees for reviewing the manuscript.
1. See the OECD Website for the self-employment rates across countries at https://data.oecd.org/emp/self-employment-rate.htm (Accessed on July 23, 2020).
2. “Global Entrepreneurship Monitor (2019/2020) Global Report at https://www.gemconsortium.org/file/open?fileId=50443 (Accessed on 23 July 2020). The low rate can be attributed to the low entrepreneurial aspirations and attitudes toward seeking business opportunities among Japanese people (Honjo, 2015).
3. However, having a self-employed father does not have significant effects on the entry into the self-employed sector for women (Takenoshita, 2012).
4. Masuda (2006) pointed out that financial and managerial support programs by local governments are not sufficient and appropriate for potential entrepreneurs in Japan.
5. However, we expect that the situation of the destination societies may affect the perception toward entrepreneurship. Because it was impossible to conduct a random sampling in the present study, as mentioned below, the institutional barriers stemming from the perceptions of the overseas Japanese people may reflect the sampling bias to some extent. It is a methodological limitation, and we discuss it in the conclusion.
6. We performed a logistic regression explaining the unit-nonresponse with respondent’s country at the Wave1, gender, age, educational status, and occupation as predictors. This supplementary analysis showed that the socio-economic variables did not affect the propensity of participating in the follow-up survey.
7. The response rate of the latest round in 2015 was 50.1% in total. The response rate of the younger cohort, which is this paper’s explicit focus, is lower than that of the older cohort. However, response rates of those in their 20s, 30s, and 40s were 45.5%, 47.1%, and 46.5%, respectively, which are close to the total response rate (Shirahase, 2018).
8. In exchange for dedication, a subcontractor can expect a long-term business relationship with the prime contractor.
9. This paternalistic view of large Japanese companies is just one of their features, and some economists and sociologists in the 1980s indeed thought it was economically rational concerning their performance and competitiveness.
10. See, for instance, The Economist, “Few young Japanese want to study or work abroad,” Feb. 4, 2021, https://www.economist.com/asia/2021/02/04/few-young-japanese-want-to-study-or-work-abroad, online (Accessed on July 31, 2021).
11. See, Nippon Foundation, “Survey Finds Japanese 18-Year-Olds Short on Hope and Aspirations at https://www.nippon.com/en/japan-data/h00604/survey-%EF%AC%81nds-japanese-18-year-olds-short-on-hope-and-aspirations.html (Accessed on July 31, 2021).
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Article copyright Ishida Kenji and Arita Shin.