Sachio+Semmoto

Disruption of service
JAPAN is not known for its entrepreneurs. Bold small-business leaders are scarce; corporate decisions are usually made by consensus. Companies, according to an old saying, would rather that 100 employees each take a single step forward than one of their number take 100. This was the prevailing mentality when Sachio Semmoto took an engineering job in 1966 at Nippon Telegraph and Telephone (NTT), then a state-owned monopoly. To become a cog in such a mighty machine was considered one of life's highest callings. His talent was spotted and in the 1970s he was sent to America to get a doctorate. But the education he ended up receiving was of a different sort.

In America, having a job at one of Japan's most important companies counted for little. Some even sneered at the idea of working for a bloated monopoly. “That gave me culture shock,” Mr Semmoto says. “I couldn't understand that—I was proud of working for a government organisation.” But it dawned on him that there was an alternative to the industrial giants that he had always known. A decade later in 1983, at the age of 41, he stunned his colleagues by announcing that he was leaving to start a rival company, just as market liberalisation was starting. Such things were not done. Leaving a job was considered foolhardy; starting a competitor was regarded as deep betrayal.

“No one stood up to compete. But I perceived that if no one stood up, then Japan would not change. So I stood up,” Mr Semmoto says. The Japanese establishment did not share his enthusiasm. Some businessmen and politicians said they would use their power to ensure that his venture failed. But competition had its effect: outrageously high call charges fell and services improved; telecoms became more accessible to more people. Mr Semmoto's venture, today called KDDI, is the second-largest telecoms operator in Japan, with revenues of around $35 billion.

The way Mr Semmoto launched the firm sheds light on how entrepreneurship in Japan differs from that in the West. He teamed up with Kyocera, a huge ceramics firm that made electrical components, among other things. New companies in Japan often rely on big firms for backing, rather than beginning as wholly independent start-ups. Venture capital, then as now, remains paltry compared with Europe and America. The appetite for risk among investors and founders is also meagre. Rather than resembling snipers crawling on their bellies, as in Silicon Valley, Japanese start-ups are more like battleships in formation.

Mr Semmoto went on to take a post as a business professor at Keio University. But by the end of the 1990s the Japanese government was wringing its hands over another telecoms problem. Despite its high-tech wizardry, Japan was trailing in the internet age. At the end of 1999 only around 20% of the population was online, compared with around 40% in America. Moreover, prices were high; a heavy internet user might pay $200 a month.

Again, the provision of service was dominated by slow-moving incumbents—even KDDI had grown comfortable and complacent. So Mr Semmoto launched eAccess, a broadband company. Just as he had annoyed his NTT colleagues by setting up a rival, he now did the same at KDDI. “Of course I am controversial—one has to accept that as an entrepreneur,” he says. “If you want to disrupt the social infrastructure, which is very conventional, then you have to face pressure.” Its entrance helped to reduce prices by more than half across the industry, and within a few years eAccess had 15% of the market.

Meanwhile, yet another kink needed straightening in Japan's telecoms market. By 2005 mobile phones were everywhere but prices were far higher than in other countries. Constantly providing subscribers with fancy new handsets and tacit price collusion among the three operators—the same stodgy ones that had kept internet rates so high—were to blame. When licences for new wireless services were made available, Mr Semmoto saw his chance and another new firm, eMobile, was born. In Japan the boss of a new venture usually visits the heads of rival firms to show respect, but Mr Semmoto raised eyebrows again by refusing to do so. (He also has a reputation for being un-Japanese in his dealings with subordinates, confronting them with their mistakes rather than simply nodding politely.)

As an entrepreneur, Mr Semmoto “looks for the contradiction” (as he puts it) and then pounces. The inconsistencies might be high prices but no competition, or high uptake of a low-quality service. Japan's mobile market recently surpassed 100m subscribers; eMobile accounts for fewer than 200,000 users. But it is attacking with a radical business model: inexpensive flat-rate wireless data for any device (it plans to add voice service soon). And eMobile's costs are low, partly because it is the only Japanese operator that does not rely on domestic equipment-makers, buying instead from Ericsson of Sweden and Huawei of China. In most countries that would be no big deal, but in Japan it constitutes a stinging rebuke for local suppliers. And the fight goes on

Businessmen are defined by their successes; entrepreneurs by their setbacks. Mr Semmoto has just hit a new obstacle: eAccess, together with Softbank, its sometime rival, recently failed to win a new high-speed wireless-data licence from the government. But his efforts to shake up corporate Japan continue. He has made corporate governance a priority at his recent ventures, appointing truly independent directors, many of them non-Japanese—a rarity in Japan. He is also campaigning to encourage Japanese to study abroad. Thirty years ago the world's best universities teemed with Japanese students; today their seats are filled by Chinese and Koreans, he says. “If we do not go to the outside world, we cannot survive,” he says. In his own career he has repeatedly looked beyond the constraints of the usual Japanese ways. And because of that, he remains an outsider.

From [|The Economist]

Return to Businessmen & Entrepreneurs