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Historic Kyoto Emerges as Japan's High-Tech Hope

February 13, 2001
Having once been Japan's capital for over a millennium, Kyoto boasts a proud and culturally rich tradition. But venerable customs and sightseeing assets are not its only claim to fame. The nation's sixth-largest city has one of the highest concentrations of enterprising high-tech start-ups and other potential leaders of the information technology revolution in Japan. The pioneering, independent-minded managers at Kyoto's small, dynamic enterprises are setting an example for their counterparts at Japan's corporate leviathans.

Fertile Ground
Tradition and innovation have always coexisted side by side in Kyoto. After absorbing Chinese influences in the early Heian period (794-1185) it established a new type of economy. Home to the emperor for nearly 1,100 years, Kyoto attracted some of the country's most innovative artisans and technicians. They preferred to work in small traditional businesses, rather than build large companies, and thus the city has been a breeding ground for venture businesses for centuries.

For the modern entrepreneurs, moreover, the city offers many advantages. There are many banks despite the relatively small population, and it is easy to attract good staff because so many people want to live in this city of beautiful temples and cloistered gardens. City officials estimate that about 300 high-tech ventures have sprouted in recent years, with scores planning to make initial public offerings over the next few years.

The likes of Kyocera Corp., Rohm Co., and Murata Manufacturing Co. are already well-established names in the global market, and Nintendo Co. stands in a class by itself with a 5 billion dollar cartoon-and-game worldwide empire. Dozens of other firms with world-leading technologies have sprung up in their wake, buoyed by a strategy of focusing on their core strengths in the production of chips, new materials, chemicals, and computer equipment. Many more could emerge in the years to come, thanks to a wealth of top-notch academic institutions--including Kyoto University, which has produced four of Japan's six Nobel laureates in science--and an assortment of incubator facilities.

New Economy Leaders
Riding on the electronics boom in the 1970s, Osamu Murata turned his father's pottery shop into a manufacturer of innovative ceramic components. Now Murata Manufacturing is a world leader in components to control the flow of electricity in notebook computers, palmtops, cell phones, and handheld audio gear. In fiscal 2000, Murata had 4.3 billion dollars in consolidated sales and posted 581 million dollars in net income.

Launched in 1958, Rohm enjoys unrivaled market dominance as a maker of custom integrated circuits. After founder Ken Sato developed the smallest, lightest resistor available as a university student, he spun this technology into a business. Rohm was the first to commercialize a new chip that can store information even when the electricity is turned off, and it developed the world's first semiconductor laser for magneto-optical disks. Its emphasis on global niche markets and efforts to build profitable companies by holding down costs and building revenues has also earned it top honors in rankings of the nation's best-run companies.

Following closely behind these success stories is Nidec Corp., a maker of miniature motors that was voted Japan's number one stock performer by the Nikkei Financial Daily. Shunning the system that pampered a handful of electronics giants--which relegated even the most innovative start-ups to subcontracting roles--Nidec chose to go global. Today, exports make up three-quarters of Nidec's 1.4 billion dollars in annual sales, and the company controls two-thirds of the world's market for spindle motors. Unlike many firms outside Kyoto, moreover, Nidec boasts a healthy operating profit of 125 million dollars.

Catering to international markets is critical not just for Nidec but for most Kyoto IT firms. About half of Rohm's and Murata's business, for instance, is overseas.

"The local market in Kyoto is just not big enough to support burgeoning growth," notes Shin Yasunobe, executive director at Stanford Japan Center-Research in Kyoto. "That is why many of the success stories have looked to overseas markets."

A Bright Future
Kyoto has always excelled in adding value, taking a craft that costs 1,000 yen (around 8 and a half dollars) and selling it for five times that much by making it beautiful.

Now, local governments are offering their help as well. The city government is actively encouraging new businesses, not just in hardware but also in fields such as software and Internet applications. Thanks to local business initiatives, Kyoto is the only Japanese city to boast a privately operated research park in its downtown district. Kyoto Research Park is home to the next generation of high-tech ventures, with nearly half of its 130 tenant companies coming from the new media and IT sectors.

Kyoto Prefecture, meanwhile, has outlined an "IT Bazaar" concept to promote the growth of IT firms in a region stretching from Kyoto Research Park to Kansai Science City spanning Kyoto, Osaka, and Nara Prefectures.

"Venture firms don't have too many opportunities to sell their products to the big corporations," notes Stanford Japan Center's Yasunobe. "So rather than provide subsidies, the proper role of the public sector should be to provide bazaar-like forums where start-ups and the more established firms can mingle casually. New start-ups don't have the money to move into pricey, state-of-the art high-tech parks. As the examples of New York's Silicon Alley and Shibuya's Bit Valley show, clusters of cheap office buildings seem to be a crucial prerequisite for the hatching of a community of start-ups."

Gone are the days when the manufacturing behemoths could drive the economy forward through unbridled expansion. What are needed henceforth are not obedient workers but employees with a lot of good ideas. And as a city with a vast pool of wisdom in how innovations can be turned into profits, Kyoto's future in the information age could be even brighter than its illustrious past.

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Trends in JapanCopyright (c) 2001 Japan Information Network. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.