Exploring new markets overseas is becoming a strategic imperative among Singapore companies.

As business landscapes evolve, exploring new markets and expanding overseas have become a key priority for many Singapore companies. This is particularly evident among Small and Medium-sized Enterprises (SMEs), which are increasingly recognising the immense potential that lies beyond their domestic borders. The DBS annual SME Pulse Check survey conducted at the end of 2022 revealed that over 60% of SMEs in Singapore have indicated overseas expansion as a key business priority^[1]. This is contributed by the reopening of borders along with support from government schemes such as the enhanced Enterprise Financing Scheme^[2] announced in Budget 2023, which enables local companies to gain access to financing across all stages of growth.

Among the array of enticing markets, Japan has emerged as a particularly alluring destination for Singaporean businesses. Apart from having a large consumer market backed by sizable economy, bilateral agreements were signed between both nations in May 2022 to boost the flow of entrepreneurs and enterprises by promoting greater access to start-up and innovation ecosystems^[3]. Initiatives such as business matching sessions to connect Singapore and Japanese firms with accelerators, business partners and investors, are put in place to empower businesses to build market knowledge and tap into new opportunities, deepening their networks in the process.

Japan has seen growing interest among Singapore companies from diverse industries, as exemplified by various market entries in the past year.

Drawn by the influx of tourists into Japan in a post-pandemic era, five-star resort hotel operators from Singapore, Capella Hotels & Resorts and Banyan Tree Holdings, have announced plans to enter the Japanese market. Capella Hotels & Resorts intends to open its first Japanese hotel in Kyoto as early as the summer of 2025[4], located on Yamatooji-dori in the historic Miyagawa-chō district[5]. The office of renowned architect Kengo Kuma, which designed the Japan National Stadium for the 2020 Tokyo Olympics, is supervising the construction. On the other hand, Banyan Tree Holdings plans to open flagship hotels in Kyoto and Hakone from now through 2026. These hotels aim to provide signature standards of service that will serve as a benchmark for all future Banyan Tree locations in Japan[6]. The presence of Singapore hotel groups in Japan contributes to enhancing tourism infrastructure while attracting affluent visitors to experience premium accommodations.

Shifting the focus to a more mass-market brand, Singapore design studio Beyond the Vines launched its first international pop-up store in Tokyo in March 2023 as it seeks to grow its international presence[7]. The brand, known for its minimalist and contemporary designs, has gained popularity in Singapore and other Southeast Asian markets. Its entry into Japan reflects its recognition of the country’s vibrant fashion scene, and the opening in Tokyo allows the brand to tap into the city’s fashion-conscious consumer base. While the initial pop-up store only lasted for a week, Beyond the Vines has since launched another pop-up at Miyashita Park North in Shibuya, which will remain at the location for a month until the end of July 2023. The expansion demonstrates Singapore’s fashion industry’s potential to resonate with the Japanese market.

On the technology front, Singapore-headquartered Fintech company M-DAQ Global has announced the opening of its Japanese office in Fukuoka in September 2022[8]. The company specialises in providing currency conversion and payment solutions, enabling businesses to transact seamlessly across different currencies. It sees opening a subsidiary office in Fukuoka as a natural fit for a myriad of reasons, including its similarity to Singapore in terms of the active collaboration between private and public sectors to develop innovative solutions for business needs and quality of life improvements. M-DAQ has since commenced discussions with the Fukuoka City Government, Kyushu Railway Company and other entities to improve the foreign currency user experience when making retail and travel transactions. This expansion highlights Singapore’s ability to deliver advanced financial services on an international scale.

In addition to Singapore companies that entered the Japan market recently, others are exploring pathways through trade exhibitions. The Franchising and Licensing Association (FLA) has led a delegation made up of popular Singapore brands including Crystal Jade, Five Star Chicken Rice, Playmade and iJooz, in forming the Singapore Pavilion exhibiting at the 40^th Japan International Franchise Show in March 2023. Through this event, local companies sought potential business partners to carry their brand, while gaining an initial sense of their product acceptance in Japan.

These activities underscore the increasing interest and capabilities of Singaporean companies in capturing opportunities in the Japanese market. With that being said, entering the Japanese market presents a set of unique challenges for Singaporean companies, ranging from language and communication barriers to cultural nuances and intense competition. Overcoming these obstacles is crucial for successful market entry.

Public agencies such as Enterprise Singapore and JETRO offer a multitude of initiatives to provide support for Singaporean companies venturing into the Japanese market.

Enterprise Singapore assists Singaporean companies in their internationalisation efforts by providing various support initiatives, including grants and market access programs, to facilitate market entry. For instance, the Market Readiness Assistance (MRA) Grant offers financial support to Singaporean companies to defray a significant portion of eligible costs associated with market entry activities, helping businesses assess market potential, establish networks and promote their products or services[9].

Hailing from Japan, JETRO (Japan External Trade Organisation) operates in Singapore with the mission of promoting trade and investment between Japan and Singapore. ‘Invest Japan’ serves as a platform to attract and assist Singaporean companies interested in establishing a presence in Japan. Through this initiative, JETRO offers support services including consultation services on company incorporation, networking opportunities and temporary business office facilities in Japan among others to help Singapore companies make a more informed decision prior to market entry[10].

In addition to support from the public sector, local companies can leverage the expertise and guidance by IGPI, a Singapore-based Japanese management consulting firm.

IGPI Singapore offers a range of services to support Singapore businesses in their overseas expansion. Services can be broadly divided into:
● Management consulting, where we help companies identify growth opportunities, develop strategies to establish a presence in the target market. In the process, we often employ business matching techniques to find suitable local partners which could be crucial to successful market entry
● M&A advisory, where we guide companies through the end-to-end deal process, ensuring successful transactions

Our past and current engagements include:
● Supporting a local F&B chain in its market entry into Japan, including performing a market study, identifying and selecting the most suitable strategic partner
● Supporting a local wholesaler and retailer in its market entry into Japan through business matching, by shortlisting promising partners and facilitating discussions towards the formation of the partnership
● Organising missions trips to Tokyo with various industry associations, where we led delegations made up of senior executives from Singapore companies to gain insight into doing business in Japan

IGPI Singapore can support your company in its market entry into Japan and maximise its chances of success – Get in touch with us!

[1] The Straits Times: Exploring new markets, expanding overseas key priorities for most Singapore SMEs: Survey (21 Mar 2023):  https://www.straitstimes.com/business/exploring-new-markets-and-expanding-overseas-are-top-priorities-for-most-s-pore-smes-survey

[2] For more details, please visit: https://www.enterprisesg.gov.sg/financial-support/enterprise-financing-scheme

[3] CNA: Singapore, Japan ink agreements on promoting start-ups, digital transformation for governments (26 May 2023): https://www.channelnewsasia.com/singapore/singapore-japan-ink-agreements-promoting-start-ups-digital-transformation-governments-2709716

[4] Nikkei Asia: Thai, Singapore hotel groups target Japan’s tourism boom (26 Jun 2023): https://asia.nikkei.com/Business/Travel-Leisure/Thai-Singapore-hotel-groups-target-Japan-s-tourism-boom

[5] Artist’s impression of the upcoming Capella Kyoto: https://capellahotels.com/en/capella-kyoto

[6] Banyan Tree Group Press Release (Jun 2022): https://www.banyantree.com/assets/2022-06/220624-banyan-tree-group-debuts-japan.pdf

[7] Inside Retail: Singapore’s Beyond The Vines to open first store in Japan (15 Mar 2023): https://insideretail.asia/2023/03/15/singapores-beyond-the-vines-opens-first-store-in-japan/

[8] Technode Global: Singapore’s M-DAQ Global Opens Japan Office as part of international expansion (13 Sep 2022): https://technode.global/2022/09/13/singapores-m-daq-global-opens-japan-office-as-part-of-international-expansion/

[9] For more details, please visit: https://www.enterprisesg.gov.sg/financial-support/market-readiness-assistance-grant

[10] For more details, please visit: https://www.jetro.go.jp/singapore/investinjapan.html

About the author

Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experiences especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.

Mr. Zhi Hao Thean is an Associate at IGPI Singapore. Zhi Hao started his career with IGPI. He graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his time at IGPI, he is involved in multiple engagements pertaining to market entry, strategy development and benchmarking studies across diverse industries.

 About IGPI

Industrial Growth Platform Inc. (IGPI) is one of Japan’s premium management consulting and investment firms headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI was established in 2007 by former members of Industrial Revitalization Corporation of Japan (IRCJ), a USD 100 billion sovereign wealth fund focusing on turn-around projects in Japan. IGPI has 14 institutional investors, including Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few. IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and funded startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making our own venture investments (30+ till date) adds to our uniqueness. One of our recent investment endeavours has been a VC fund in Europe (EUR 100mn fund) along with Honda, Panasonic, JBIC etc. (a couple of our investees are now unicorns). IGPI group has ~6,000 employees on a consolidated basis.

* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

In this article, we highlight why it is imperative for CPG companies of all sizes across the value chain, now more than ever, to develop or refine their rationalisation framework in their product management toolbox, share key success factors in crafting a rationalisation strategy and shed light on common pitfalls.

Macro trends depict a critical juncture for the CPG industry

In 2021, facing rising input cost inflation and squeezed margins, Nestlé S.A. kicked-off Project TASTY as part of a wider value creation strategy, focusing on achieving cost savings, margin improvements and long-term growth via SKU rationalisation and recipe and packaging optimisation.

Table 1: NIQ 2023 Consumer Outlook Report – Global CPG Price Inflation Rate

One year on, CPG companies across the value chain faced persistent inflation, driving prices higher and negatively impacting sales volumes across categories. The pandemic also accelerated digital transformation across the entire value chain, with CPG companies of all sizes finding themselves at varying stages of implementing and leveraging newfound digital infrastructure, data pools and analytical capabilities. Changing consumer preferences stemming from rising prices and the pandemic include a rising preference for online shopping, variations in purchase frequency and a flight towards value, albeit varying across the different product categories.

Such shifts warrant a reprioritization of multi-dimensional criteria in assessing an SKU’s historical financial and operational performance and strategic importance in the short and long-term. At a time of internal change and external shifts, CPG companies have been presented with a golden opportunity to revisit their product mix management strategy, spanning both SKU innovation and rationalisation.

Performing a one-off innovation or rationalisation exercise will not suffice – corporations should capitalise by fundamentally redesigning their product mix management frameworks, leveraging new consumer touchpoints, access to big data and advanced analytics while revisiting and updating previous methodologies and key performance indicators (KPIs). In lieu of current cost-side pressures, SKU rationalisation remains a priority and a valuable first step in the SKU optimisation cycle.

Key success factors to maximise value from SKU rationalisation

Category managers and executives have long understood the need to consider the importance of considering multiple performance dimensions in addition to SKU-level financials and embracing product basket synergies, overall mix value contribution and long-term growth potential.

In developing or refining existing frameworks, much emphasis is placed on analytical capabilities, data collection and execution agility. However, CPG companies today should also consider strategic elements that have significant bearing on the value unlocked from a rationalisation exercise, such as the following:

1) Design Digital Infrastructure to Support Rationalisation Needs

The push for digital transformation entails new infrastructure, workflows and data collection and analysis capabilities. In the midst of change, companies that capitalise on this opportunity to amalgamate existing SKU rationalisation workflows and data needs with new systems will be able to minimise resources spent on data interpretation and developing actionable insights.

In migrating to new systems, optimization from the collection of data through to the visualisation and framing of key indicators is imperative and companies must actively drive the development of integrated workflows from the get-go. Executives and managers should also re-evaluate existing digital infrastructure and contrast this against rationalisation needs and the price and value of current market offerings.

2) Systemize Qualitative Insights and On-the-Ground Feedback

In the pursuit of data-driven insights on SKU performance, companies must also recognise the value of consolidating, interpreting and transforming qualitative inputs from within the organisation (and in some instances, select third-parties involved in distribution, retail or day-to-day operations) into actionable items. More often than not, following rigorous quantitative analysis, qualitative assessments are performed at the executive level or within the steering committee as a final ‘check’ just before implementation to ensure alignment with leadership’s understanding. In doing so, a wealth of insights from the ground remain untapped and deep understanding of select categories or products are not fully leveraged.

To capitalise, companies must embark on a path of systemizing qualitative inputs, designing existing SKU rationalisation frameworks to periodically collect, consolidate and transform feedback from the ground into actionable items.

3) Supplement Targets with Sensitivity Analyses

Forming the basis of a periodic rationalisation exercise is a set of clearly quantitative targets spanning different performance dimensions, such as a minimum improvement in gross margins or process cycle efficiency. Leveraging stronger analytical capabilities and big data, companies can supplement such targets with sensitivity analyses comprising multiple iterations and combinations to obtain a clearer picture of:
(1)  The array of possible rationalisation solutions to achieve current targets
(2)  The extent of marginal improvements by extending the number of SKUs reduced in different scenarios

In doing so, companies shift from a target-focused mentality to one of value-maximisation, driving larger value gains in the long run. The steering committee and key decision makers should also note the interests of other stakeholders and evaluate the pros and cons of adopting a rationalisation strategy based on the company’s ultimate priorities.

Case-in-Point: Trimming SKUs to drive margins in beverage distribution

IGPI Singapore worked with a beverage distributor undergoing a major system migration to analyse their existing SKU portfolio and recommend candidates for rationalisation, which would improve:
●      Financial metrics by driving gross margins
●      Operational metrics by improving warehouse inventory turnover
●      Strategic metrics by aligning the SKU mix with the firm’s strategic direction

We designed a framework detailing each step of our approach to the rationalisation, beginning with segmenting SKUs into analysis groups based on key criteria. We proceeded to develop and refine the KPI that determined each SKU’s performance. Next, we performed multi-dimensional analysis supplemented with sensitivity analyses for each KPI to identify potential candidate SKUs, while managing data coherence across legacy and new systems. Finally, we incorporated qualitative insights drawn from departments within the company and industrial best practices to develop our final rationalisation recommendations.

Recognizing the importance of implementing a sustainable solution for our client rather than a one-off exercise, we developed a tailor-made rationalisation tool custom-fitted for the new system to allow managers to replicate our work steps, perform the rationalisation exercise and quantify the impact on KPIs independently going forward.

The rationalisation led to a significant reduction in the number of SKUs, projected growth in gross margins and improved operational workflows.

Common Pitfalls in the Rationalisation Process

1) Misalignment across Department Silos and KPIs

High-level company-wide strategic direction and goals underpin a rationalisation exercise, forming the basis of rationalisation targets and facilitating compromise across KPIs in pursuit of long-term value. Companies must beware of the formation of silos and internal misalignment on wider company goals between departments, which lead to tunnel vision, push-back and low quality implementation. A common example is the conflict of interest between sales and cost centres, leading to either topline targets or cost savings achieved at the detriment of the other. This can be addressed through a clear prioritisation process, facilitated conversations across key functions and dedicated resources to achieving compromise. Taking the middle ground will not be the indicator of successful alignment – a compromise in lieu of company objectives will.

2) Suboptimal Allocation Methodologies

Evaluating the financial performance of an SKU leverages heavily on allocating key components in the cost-to-serve equation to individual SKUs to obtain gross and contribution margins. Analysis quality is only as good as the quality of its input data – underlying assumptions such as allocation base have significant implications on the results of the rationalisation and if suboptimal, may result in the trimming of well-performing SKUs mistakenly classified as poor performers along select KPIs. Companies can mitigate this through comprehensive analysis of cost drivers and testing existing assumptions through iterations of rationalisation execution and review.

3) Compromised Execution and Implementation

The gap between actionable insights and executing on said insights is a major factor in determining the long-term benefits reaped from a rationalisation exercise, especially in the context of operations and workflows. Compared to insight derivation, this step involves more stakeholders and key process owners, requires more nuance in implementation and is far less straightforward. Companies must devote sufficient resources to support the transition following a rationalisation throughout the organisation, be it in terms of product portfolio, brand equity, sales strategy or people-related factors such as upskilling, managing workflow changes and resource allocation, etc. More often than not, such responsibilities fall to the decision makers in the rationalisation exercise – companies should recognise shared responsibilities and understand that a new pair of hands, more experienced or suited in implementing solutions, may be required to take over from the initial decision makers. A possible solution is the concept of segmenting and allocating scopes to different process owners, to make good executive decisions on what to rationalise and address the issue of how and when.

4) Lack of Process Discipline

SKU rationalisation has always been a continuous process, enabled now more than ever with the advent of analytical capabilities and round-the-clock data collection. A key component of the value in rationalisation lies in the future insights derived from acting on current actionable items and with each performance, product portfolios and existing frameworks are refined to maximise value. Opportunistic rationalisation exercises conducted in times of distress fail to leverage on this, resulting in superficial performance analysis and one-off improvements with minimal impact. Successful companies integrate rationalisation into workflows and continually improve analysis processes, implementation frameworks and strategies, developing self-sustaining engines over time.

How can IGPI Singapore help?

IGPI has deep experience in strategising, developing, analysing and implementing sustainable product optimisation solutions for companies across all parts of the value chain based on a proprietary approach, leveraging our expertise in multiple sectors in the wider CPG industry. To find out more about how we can support your value creation endeavours, get in touch with us here.      

About the author

Mr. Hoong Tian Jin is an Associate in IGPI Singapore. Before joining IGPI, Tian Jin started his career at Ernst and Young Singapore in the Assurance service line, where he led digital audits and reviewed operational controls of healthcare, pharmaceutical and manufacturing companies. During his time in university, he also worked at an e-commerce start-up performing business development, online marketing and search-engine optimisation. He graduated from the National University of Singapore with a Bachelor of Business Administration (Accountancy). Tian Jin is proficient in English and Mandarin. He is passionate about corporate and social responsibility and volunteers regularly with numerous non-profit organisations to give back to society. In his leisure time, he enjoys football, music and chess.

 About IGPI

Industrial Growth Platform Inc. (IGPI) is one of Japan’s premium management consulting and investment firms headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai and Melbourne. IGPI was established in 2007 by former members of Industrial Revitalization Corporation of Japan (IRCJ), a USD 100 billion sovereign wealth fund focusing on turn-around projects in Japan. IGPI has 14 institutional investors, including Nomura Holdings, SMBC, KDDI, Recruit and Sumitomo Corporation to name a few. IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and funded startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making our own venture investments (30+ till date) adds to our uniqueness. One of our recent investment endeavours has been a VC fund in Europe (EUR 100mn fund) along with Honda, Panasonic, JBIC etc. (a couple of our investees are now unicorns). IGPI group has ~6,000 employees on a consolidated basis.

* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

The motivation of this article is to capture select examples of the Australia-Japan innovation activity across diverse stakeholders and to draw attention towards keeping a closer eye on Australia’s innovation ecosystem where many opportunities exist and cut across business, technical and financial collaboration with startups, universities etc.

Japan and innovation – setting the context

Japan is an advanced nation that has historically enjoyed the reputation of being a tech front-runner. It has contributed many innovative companies to the world. This has been largely driven by the commitment to quality and a strong work ethic that propelled Japan to economic success in the post-world war II era. Japan went on to become the 2nd largest economy in the world after the United States. This was followed by the ‘lost decade’ when Japan’s economic bubble burst. Since then Japanese companies have been constantly redefining themselves in an ever-evolving world.

At the same time, if we zoom out to the global stage across the past few decades – where the world was becoming smaller, closer and more global with every passing year, new companies (“startups”) were grabbing the limelight and opening their wings. These companies include the likes of Apple, Google, Amazon etc. which don’t require any introduction. Taking a closer look at the top 10 rankings by largest market capitalization between Japan and USA^[1], one would immediately spot that some of the “new” companies that can be seen as torch-bearers of innovation actually became bigger than the conventionally large players such as auto manufacturers, financial institutions etc.

Table 1: Top 10 rankings of the largest market cap companies in 1986 & 2016
(*Companies in red font are 30 years old or less)

The above table reaffirms a very clear message about the importance of innovation. Most corporations are built around a unique set of products or services. That’s why at a certain point, they reach a point of saturation, where their product line has been upgraded/extended to the maximum. The profit margins stop growing so dynamically. When they reach that moment (or are about to), they need to innovate to keep growing^[2]. Harvard Business Review reports that since 2000, 52% of enterprises in the Fortune 500 “have either gone bankrupt, been acquired, or ceased to exist” due to digital transformation^[3].

In order to innovate, from a Corporate lens, the innovation can be simplistically be classified into two types:
(1) Closed – E.g. Internal R&D, In-house innovation labs, Internal accelerators etc.
(2) Open – E.g. Corporate VCs (CVCs), External accelerators, Innovation teams etc.

In recent years, more and more Japanese companies have been actively promoting the idea of open innovation. With many Japanese companies operating beyond borders in search of new solutions, there are increasing opportunities for overseas companies as well^[4]. The typical destinations for open innovation outside of Japan have been the USA, Europe, Israel, Singapore etc. This can be corroborated by a quick search of the destinations where Japanese CVCs mostly set their mandates. For e.g. Sony Innovation fund which has US$250m AUM has offices in US, EU, Israel, Japan and India^[5].

With this backdrop, the focus of this article is to draw attention to Australia’s startup ecosystem which sometimes gets overshadowed or under-appreciated amidst the global innovation ecosystems that many Japanese corporations turn towards for their open innovation initiatives.

Australia’s startup ecosystem – stating the facts

While to some, Australia is more popularly known for sandy beaches and ocean views, Australia’s startup ecosystem (with ~6,500 startups^[6]) is promising with innovation across various sectors that is rapidly growing. A study by Startup Blink ranks Australia at 8th place globally and 2nd place within the APAC region for its startup ecosystem^[7].

Table 2: Startup Blink Global Ranking Index 2022 – Asia Pacific

The above holistic scorings are based on the sub-scores measuring quantity score (including the number of startups, co-working spaces, accelerators, startup-related meetups, etc.), quality score (including traction of entities in all ecosystems, presence of strategic branches and R&D centers, presence of unicorns, exits, and pantheon companies, global startup events, number of startups backed by accelerators, etc.) and business environment score (including diversity index, internet freedom, R&D investment, number of patents per capita, top universities per location, etc.). Such rankings can help provide a good flavor of the relative prominence of Australia’s startup ecosystem in the region.

When it comes to the sheer scale of startups, Australia has been performing well for its population size with 21 unicorns as of Oct’22 – many of which have been opening their wings on the global stage –

• Pantheons include Canva, a website for design and publication that offers tools that non-designers can use, and Atlassian, a cloud-based enterprise collaboration suite solution that gives teams access to problem-tracking, development, and collaboration tools.
• Some other famous unicorns include Fintech companies such as Airwallex, Judo Bank, blockchain based Immutable and HR-tech called Employment Hero to name a few.

In terms of sector attractiveness from an investor’s perspective, Health, Fintech, and Energy are the top 3 industries that received funding in Australia in 2022. Health startups raised the most money in 2022 ($853 million), followed by Fintech ($839 million), and Energy ($404 million), according to Dealsroom.co. (see Figure 1)

Figure 1: Australian startups’ fund raised by sector in 2022^[8]

The Australian innovation startup ecosystem has been growing and is further catalyzing. Australia venture capital Airtree, Blackbird and Square Peg raised a staggering amount of ~$2.5 billion in new funds in 2022 showing confidence to grow the Australian startup ecosystem further.

Why should Japan consider Australia

Japanese companies have been expanding overseas for decades – including Australia. Therefore, Australia is not ‘new’ for Japan but historically it is also true that Australia was largely being seen through the lens of conventional businesses (e.g. “digging the earth” etc.). This was in stark contrast to countries such as the USA that built a strong reputation for technology (e.g. Silicon Valley) during the same period and attracted Japanese corporates to explore innovation opportunities too. For example, many leading Japanese CVCs have strong activities in the USA while in an Australian context, the examples are far and few. This is because, for many Japanese corporations, Australia’s name and perception of innovation don’t come in the same breath as Silicon Valley, Singapore, Israel, etc.

Unfortunately, these perceptions can’t evolve overnight but there are reasons why Japan should look more closely at Australia with a dual objective – (i) Scouting innovation to solve Japan’s challenges and (ii) New business creation opportunities for Japanese Corporates in Japan and beyond.

Some of the various sectors in Australia that can be considered and are not limited to

1. Clean Tech – Australia’s strategic location provides them with an opportunity to become a renewable energy superpower with the world’s largest rooftop solar penetration, sophisticated grid systems, strong winds, etc., giving them an edge in this field. Their unique location also led to the birth plethora of promising green startups that can help to tackle climate change which can be important for Japan due to their energy security needs as well as slow progression towards net-zero emissions.
   
2. Smart City – Australia’s startups are shaping the future of smart cities. Companies within the private sector are innovating with technologies including video analytics and IoT, building a digital “bridge” to support traditional engineering demands in transport and utilities^[9], etc. These innovations can help Japan strengthen its future of smart cities since Japan has a declining population and is particularly vulnerable to natural disasters due to its topography.
   
3. Health Tech – Australia is home to many cloud technologies that are helping to accelerate research and innovation for complex healthcare issues – from mapping the brain, predicting seizures to improving rehabilitation for elderly patients, etc.^[10] The sector is especially useful for given their aging society.
   
4. Agriculture Tech – Agriculture is a critical part of the Australian economy, with the country’s agricultural, fisheries, and forestry sectors valued at $69 billion and growing^[11].  Australia is home to numerous AgriTech startups in Australia who are providing livestock management software, developing sensor probes and software for soil moisture monitoring, using SaaS-enabled hardware and system for precision aquaculture, robotic packing solution for food supply chain, etc. These advancements can come in handy for Japan in view of Japan’s shortage of farm workforce while also ensuring that Japanese consumers’ high expectations for quality of food products are met.

From a Japanese lens, apart from the facts stated above, some of the reasons why Japan should consider Australia more closely are: 

1. Good test market – Australia can serve as a good test market for Japanese companies looking at foraying into USA and Europe. The developed world characteristics, technology adaption, regulatory aspects, high GDP/capita and diverse population are some of the reasons that Australia can not only provide a market ‘close to home’ but market feedback and learnings that can help tackle other western world markets more effectively.
   
2. Strong bilateral relationship – Both Japan and Australia share a deep relationship that can act as a catalyst to exploring innovation collaborations more closely. The relationship has only gotten even stronger over the past couple of years as a result of developments in the global geopolitical landscape. There is currently more cooperation and government and industry collaboration than ever before in this closely connected partnership.
   
3. Proactiveness of universities – Australian universities, which are one of the best in the world with 7 universities ranking in the top 100 world university rank 2023 act as an active stakeholder in the development of the innovation ecosystems that helps to create an entrepreneurial culture and build connections to improve funding and opportunities for startups.
   
4. Other factors – There are other factors that contribute to Australia’s attractiveness that include (i) Stable economy, (ii) Government’s support for startups, (iii) Educated population & migration (brings talent), (iv) Time zone convenience etc.

Examples of Australia-Japan collaborations

The good news is that in recent years, Japanese Corporates have been getting relatively more active in the Australia-Japan innovation corridors. But don’t take our word for it – let us look at some examples that encompass a variety of ecosystem players, including startups, universities, and financial institutions / venture funds. These various collaborations can be in the form of business, technical or financial collaboration.

1) Japanese Corporation and Australia Startups Collaboration

Collaborations between Japanese enterprises and Australian startups are growing as Japanese organizations are becoming more receptive to “open innovation” with Australian companies. The spectrum of partnerships in these sectors includes energy, smart cities, mobility, etc. and examples include:

Table 3: Examples of collaborations between Japanese corporation and Australia startups

2) Japanese Corporations and Australia Universities Collaboration

Japan has a great appreciation for the educational and scientific institutes of Australia and new relationships are increasingly being established between Australian universities and Japanese companies. Some examples of collaborations include:

Table 4: Examples of collaboration between Japanese corporation and Australia Universities

3) Japanese and Australia Financial Institutions / VCs Collaboration

Japanese investors, both new and established, are increasingly trying to focus on the innovation prowess of Australia. Some examples include:

Table 5: Examples of collaborations between Japanese and Australia Financial Institutions / VCs

Collaboration between Australia and Japan can be seen in many different angles and different stakeholders are playing their part to increase awareness and provide support to foster cross-border innovation between both countries. For example, JETRO launched J-Bridge (Australia) in 2021, a platform for exploring various prospective partnerships between Japanese corporations and Australian startups that strives to create a bridge of innovation between the countries.

In summary…

To conclude, Australia is an exciting region to consider and has been overshadowed by other prominent startup ecosystems in the US and Europe, etc. However, the growing number of collaboration examples in Australia-Japan’s innovation corridors can potentially turn more Japanese Corporates’ attention to this innovation hub down under too – and if you have preconceived notions, you may well be in for a (pleasant) surprise!

How can IGPI Australia help?

IGPI is well networked with most Japanese mega corporations as well as Australian startups – be it Japan (HQ), ASEAN (RHQ in many cases) and Oceania offices and support them for a number of initiatives. If you are an Australian startup, we can assist you find the right potential partner for your market expansion plans beyond Australia. IGPI provides highly customized APAC business advisory to its diverse range of clients including but not limited to:

• Open innovation roadmap
• New business creation support
• Market assessment for business opportunities
• Strategic partner / capabilities search
• Commercial negotiations support
• Other custom hands-on support (in-market)

[1] S&P Capital IQ, Diamond Company Ranking
[2] Iterators, Corporate Innovation Guide: Problems, Solutions & Real Life Use Cases (2023)
[3] Harvard Business Review, Digital Transformation Is Racing Ahead and No Industry Is Immune (2017)
[4] JETRO, The current situation of open innovation in Japan: The points that overseas companies should bear in mind (2021)
[5] Sony Innovation Fund, About Sony Innovation Fund (n.d.)
[6] TechCouncil of Australia, Turning Australia into a regional tech hub, https://techcouncil.com.au/newsroom/turning-australia-into-a-regional-tech-hub/
[7] StartupBlink – Global Startup Ecosystem Index 2022 (2022)
[8] Dealroom.co, Update on Australia’s startup ecosystem in 2022 (2022)
[9] Innovation Intelligence – The future of Australia’s smart cities (2022)
[10] All Things Distributed, Is Australia the new epicenter for healthtech startups? (2023)
[11] AgFunder News, Innovation hub AgriFutures growAG. plans to make Australia the agtech capital of the Southern Hemisphere (2022)
[12] FuelCellWorks, LAVO and ITOCHU Corporation Collaboration to help industries achieve SDG (2022)
[13] Hivery, Australian AI startup, HIVERY, partners with JR East Water Business to optimize vending machines in Japan (2020)
[14] Powerledger, P2P renewable energy trading in Japan (2018)
[15] Icetena, Construction of next gen surveillance system (2021)
[16] Business News Australia, E-bike innovator Zoomo goes full throttle with extra $28m in Series B (2022)
[17] Startupdaily, Suzuki drives $21 million raise for electric vehicle software startup Applied EV (2022)
[18] NTT, University of Technology Sydney and NTT Group partner to promote smarter, safer and more secure cities (2021)
[19] Herbert Smith Freehills, Japan-Australia Investment Report 2022: Decarbonisation (2022)
[20] Ashurt, Landmark business alliance formed between Artesian and MUFG Bank (2023)
[21] AFR, Japanese institutions turn their eyes towards Aussie tech start-ups (2021)

About authors

Mr. Rachit Khosla is the Country Manager of IGPI Australia. Rachit is a seasoned strategy consulting professional with over 14 years’ experience of leading and executing market entry and growth strategy (both organic and inorganic) and open innovation engagements for Fortune 500 businesses and large MNCs across Asia Pacific. He has advised clients in a diverse range of industries including automotive, fin-tech, industrial and manufacturing, med-tech & healthcare, smart cities, construction materials, travel, IT & telecommunications to name a few. Rachit was the former Country Manager and Director for YCP Solidiance (Japanese owned) and Founder and CEO of an online B2B marketplace startup for professional advisory services focused on Emerging Markets.

Mr. Nicholas Quek is an Analyst in IGPI Singapore. Nicholas graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his time in university, he gained internship experience at OCBC bank where he took on a compliance role responsible for AML. He was also a Teaching Assistant for Financial Markets and Investments, and a Research Assistant for Real Estate Investment Trusts (REITs). In his final year, Nicholas embarked on an experiential learning course where he formulated strategies to increase e-commerce sales for an MNC. He also analyzes and identifies innovative Australian companies in the space of carbon neutral, smart city (incl. energy SaaS), mobility, etc. to help foster collaboration with Japanese corporations in ecosystem-level engagements.

 About IGPI

Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government.
IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron.

* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

Development progress of Iskandar Malaysia

Iskandar Malaysia is the main southern development corridor in Johor, Malaysia. It is one of five priority regional development projects promoted by the Malaysian government since 2006. Iskandar Malaysia’s plan aims to develop the economy of the southern part of the state with a population of 3 million and a nominal GDP of RM120.4 billion by 2025. However, as of 2020, the population had only increased to 1.93 million while the nominal GDP had grown to 83,225 million, according to Iskandar Regional Development Authority (IRDA). [Refer to chart 1]

One of the reasons for the stagnation of growth is the impact from the coronavirus disease (COVID-19). The border closure as well as the inter-state movement control order have halted the flow of foreigners and Malaysians into the region, impacting industries including retail and tourism. The real estate market has also been hit hard by declining demand for luxury condominiums and land. However, since the restrictions have been lifted, the flow of people has recovered, signs of economic recovery have begun to appear, and progress has begun to be made in the plan.

Johor’s major investment sectors

The investment sector in Johor is divided into three sector categories, namely the primary sector (i.e. agricultural and plantation & commodities), the manufacturing sector (i.e. chemicals, electronics, etc.) and the service sector (i.e. information & communication, real estate, etc.).

The top two investors in Iskandar Malaysia from 2006 to 2021 are China and Singapore, with inflows of RM54.9 billion and RM25.1 billion, respectively, followed by US and Japan, according to IRDA.

Johor received RM70.6 billion worth of investments in 2022, the highest amount recorded in the past decade and the highest among all of the states in Malaysia in 2022. These investments are primarily from multinational companies seeking to diversify their operations to other countries as they adopt a China-plus-one strategy amid the trade war, according to the Johor’s State Investment, Trade and Consumer Affairs Committee chairman.

The majority of the recent investments in Johor have been in the service industry, including technology-intensive projects like hyper-scale data centers (HDCs). The reason for this focus is attributed to Johor’s availability of land and utilities capacity, which makes it suitable for supporting the funding and infrastructure requirements of such projects. The state is a hot spot for large tech players with operations in Singapore to set up data centers in the Johor for a couple of reasons – lower construction cost for data centers, affordable access to large-capacity energy, wholesale high-speed data connections and their close proximity with Singapore to support their business, all without compromising the time lag in data transmission. As such, the state’s favorable conditions demonstrate the region’s potential for new business creation in Southeast Asia (SEA). With the right management consulting support and strategic planning, Johor can leverage these advantages to attract even more investments and foster new business growth in the area.

The investments in Johor could also have a positive ripple effect that can help mitigate the issue of unsold residential properties due to an increase in employment opportunities. In April 2023, the Prime Minister announced that Malaysia received an investment return of RM170 billion from Chinese investors, witnessing the highest investment in history. Of China’s total commitment, an estimated RM80 billion will be invested for the petrochemical refinery in Pengerang, Johor. Further investment inflows in Johor are also likely to soar in 2023 as the state government is in active discussions with more companies involved in petrochemicals, pharmaceuticals and data centers to move their operations there.

Brain drain and connectivity problem

To fully capitalize on the potential for new business creation in SEA, Malaysia must address two key issues affecting the progress of further economic development in Johor, which are brain drain to Singapore and connectivity with Singapore.

One key factor impeding growth in Johor is the outflow of talent to Singapore. In fact, a total of 1.13 million out of 1.86 million Malaysians who have migrated overseas are residing in Singapore as of 2022, according to the Malaysian Human Resources Minister. The demand for skilled labor will increase in tandem with the inflow of tech-intensive investments in Johor, thus the state government would need to address the issues of talent retention and attraction back into Malaysia, including nudging local industries to offer higher wages to entice Malaysians currently employed in Singapore.

Secondly, making progress with the longstanding connectivity challenges in Singapore, especially in terms of traffic congestion at the Woodlands Causeway and Tuas Second Link (the two land crossings across the Straits of Johor connecting Singapore and Malaysia), is another key aspect that can aid Iskandar Malaysia’s growth. Massive traffic jams are norms at one of the busiest land borders in the world which could often make a usual 30-minute journey an agonizing 3 hours or even longer. Reducing congestion is a key priority for the state government since it would have a “multiplier effect” on investment, jobs and the economy.

New Rapid Transit System (RTS) Link as a double-edged sword

To improve connectivity, foster people-to-people ties and generate shared economic and social benefits between Johor, Malaysia and Singapore, the two governments are working on Johor Bahru – Singapore Rapid Transit System (RTS) Link. The RTS Link will cross the Straits of Johor via a 25m-high bridge from Woodlands North Station in Singapore to the Bukit Chagar Station in Johor Bahru. When commencing passenger service by end-2026, the RTS Link will be a standalone Light Rail Transit (LRT) System with the capacity to serve up to 10,000 commuters during peak periods, for every hour and in each direction, and it is anticipated to help lessen traffic congestion as well as the stress associated with cross-border travel.

When fully operational, the faster and easier commute between the two countries will benefit the local economy in Johor. One industry expected to benefit from the RTS Link is real estate. During the height of the property boom in Iskandar Malaysia from 2010 to 2013, many Singaporeans bought residential properties in the hopes of flipping them for investment gains or even using them as a second home. The RTS Link will be seen as a major boost for these property owners, who can now expect a stress-free cross-border journey, as well as for new owners looking to find reasonable housing options in Johor and commute back and forth for work and study in Singapore. Other than the real estate industry, tourism, retail, education, medical industries in Johor are also expected to benefit from the RTS Link.

While the RTS Link certainly benefits the local economy in Johor, the game-changing transport system will potentially accelerate the issue of brain drain to Singapore. There are reportedly over 300,000 Malaysians commuting daily for work in Singapore. Currently a large number of them travel by chartered bus or private motor vehicle but as the journey between the two countries is made more convenient, more Johoreans might look for employment in Singapore commuting via the RTS Link.

There is a delicate line between increased connectivity to Singapore and brain drain, and Iskandar Malaysia will need to find the balance and tackle these issues in tandem. That being said, the state government, in collaboration with management consulting experts, should develop comprehensive strategies to maximize the benefits of the RTS Link while ensuring that Johor retains its skilled workforce and nurtures a conducive environment for new business creation in SEA.

Media reports in the past referred to Johor as potentially the next Shenzhen of Malaysia and as a possible New Jersey to Singapore’s Manhattan. With a strong focus on innovation, strategic partnerships, emerging sectors, and talent development, Johor has the potential to establish itself as a leading hub for new business creation in SEA, enhancing its economic growth and integration with Singapore. And as connectivity is one of the key factors to economically integrate people in these cities for reasons including trade, investment, and tourism, we will pay close attention to the new RTS Link and its impact on future developments between Johor and Singapore.

*This article is based on the lecture IGPI Singapore gave to the Japanese business community in Johor Bahru in April 2023. IGPI Singapore provides management consulting services to companies including new business development, talent acquisition and retention, and restructuring of offices, factories, and logistics facilities which appear to be urgent problems to tackle in companies based in Johor, Malaysia. As a premier management consulting firm, IGPI Singapore can help businesses identify lucrative opportunities and develop tailored strategies to enter Asian markets, make structural improvements and more. To find out more about us, browse through our insight articles or get in contact with us.

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About the author

Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experiences especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.

 About IGPI

Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around fund supported by the Japanese government.
IGPI has vast experience of supporting Fortune 500s, Govt. agencies, universities, SMEs and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with it making its own venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with Japan Bank of International Cooperation (JBIC) – one of JV’s initiative is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic and Omron.

* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.

Increasing global attention is being paid towards CCUS technology

The International Energy Agency’s Sustainable Development Scenario (SDS), with the premise that we will achieve the 2°C target in the Paris Agreement, assumes that CCUS will account for about 15% of emission reductions in 2070, and CCUS is considered an indispensable technology for achieving net zero emissions in the future (Figure 1).

• Tackling emissions from existing energy assets
  • CCUS is one of the few technologies that can remove CO₂ emissions from thermal power plants.
• Solution for sectors with hard-to-abate emissions
  • The industrial sectors such as cement, iron and steel, chemicals, or long-distance transport are said to be the most difficult to reduce CO₂ emissions due to the nature of the their processes. In this context, CCS is currently one of the most cost-effective options.
• Platform for low-carbon hydrogen production
  • Hydrogen (green hydrogen) is needed to be produced by water electrolysis with electricity derived from renewable energy. Depending on the cost of renewable energy, blue hydrogen is considered cost-competitive for the time being.
• Removing carbon from the atmosphere
  • In case emissions remain in sectors where CO₂ reduction is difficult to achieve for zero emissions, they need to be compensated by CDR. Biomass power generation with CCS (BECCS: bio-energy and CCS) and DAC+CCS (DACCS) are positioned as important options as CDR technologies in the long term.²

High potential demand and potential supply capacity of CCUS in ASEAN are gradually attracting more attentions from investors

Collaboration with the local governmental entities is the key to penetrate ASEAN

Recently, IGPI Singapore has supported multiple clients with regards to CCUS Projects

About the author

Mr. Tatsushi Sasakura is a Senior Manager of IGPI Singapore. Tatsushi has worked in Mizuho Bank and Deloitte Tohmatsu Financial Advisory (DTFA) in Japan. At DTFA, he belonged to the Corporate Strategy team specializing in business strategy planning, M&A advisory, and business due diligence. He was also engaged in crisis management, supporting clients to tackle emergencies. He has profound experience in the energy, consumer, and financial industries. He covered a wide range of clients including Private Equity Funds and large-sized companies. Tatsushi graduated from Waseda University with a B.A. in International Political Science and Economy.

About IGPI

Japanese companies should consider venturing abroad amid a shrinking domestic market, to explore opportunities that lie in neighbouring ASEAN countries

Why Southeast Asia and in particular, Singapore?

Japanese companies face both ‘hard’ and ‘soft’ issues when identifying a suitable business partner in Singapore

Common ‘hard’ issues faced by Japanese companies in Singapore include limited knowledge about local business practices and language barriers

Conversely, common ‘soft’ issues faced by Japanese companies in Singapore include the speed of decision-making and lack of management support for overseas expansion.

Japanese companies can navigate through these issues by deploying the right human resources, obtaining management buy-in through an objective process, and engaging management consulting firms with a sound understanding of local markets

Recently, IGPI Singapore worked closely with an established Japanese company to identify a suitable business partner to support its market entry into Singapore.

• Conducting a market assessment, including trends, opportunities, challenges and case studies of prominent players to gain an understanding of the industry landscape
• Longlisting and shortlisting prospective partners using a selection framework
• Arranging and conducting sounding interviews to gauge interest level
• Facilitating face-to-face meetings with prospective partners
• Determining the most suitable partner using an evaluation matrix

About the authors

Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations, such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experience, especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.

Mr. Zhi Hao Thean is an Analyst in IGPI Singapore. Zhi Hao started his career with IGPI. He graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his penultimate year, Zhi Hao embarked on an internship in Corporate Advisory, where he was engaged in M&A, financial due diligence, and valuation projects across various industries. He also worked as a Research Assistant at SMU, where he performed academic research on real estate investment trusts. Zhi Hao is proficient in English and Mandarin. He enjoys keeping up with the latest developments in consumer technology such as smartwatches and mobile operating systems in his free time.

About IGPI

 Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with a presence and coverage across Asian markets. IGPI was established by former members of the Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government. In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus on the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support for the commercialisation and monetization of technologies. IGPI Australia is a branch office of IGPI Singapore. The latter, which was established in 2013, focuses on management consulting and M&A advisory in Southeast Asia across various sectors. We act as a bridge between Japan and wider APAC, having advised on market entry strategy, potential target search, valuation, due diligence, M&A process management, post-merger integration and change management for leading Japanese clients. In addition, we have helped businesses in Southeast Asia enter Japan and acted as sell-side advisors for SMEs and private equity funds looking to divest. IGPI Australia was established in 2020 with a dual focus of helping Australian businesses enter and grow in ASEAN / Japan and attracting Japanese investments into Australia. We have since successfully helped to connect multiple Australian businesses with Japanese businesses within IGPI’s network.

In ASEAN, where the environment is changing rapidly, business opportunities are expanding, and the “Exploration” is being required more than before

The population of 10 ASEAN countries is about 660 million, making it the third-largest region after China and India. In recent years, GDP has increased rapidly with the rise in per capita income, rising from $ 0.6 trillion in 2000 to only 13% of Japan, to $ 3.1 trillion in 2020, 61% of Japan. It will account for 6.8 trillion yen in 2030, which is expected to exceed Japan’s GDP (see Figure1^[1]).

Acquiring organizational capability for exploration is a challenge for many large Japanese companies in general

Key factors of organizational transformation for Japanese companies to succeed in new businesses in Southeast Asia

  (1) Co-creation and penetration of MVV (Mission, Vision, Value) and Strategy

• The headquarters and overseas offices work together while discussing missions, visions, values, and strategies in the region in a two-way manner, and they are penetrated to each member in overseas offices.

  (2) Appointment of capable leaders and appropriate delegation

• Appoint a person who can think in a new way and try hard to make a thing happen as a leader of an overseas office regardless of his/her nationality.
• Sufficiently delegate to overseas offices/local teams after clarifying the scope of delegation.

  (3) Sufficient resource allocation

• Management allocates resources with direct involvement and support.
• Provide resources separated from the existing business.

  (4) Effective monitoring

• The headquarters and overseas offices co-create monitoring indicators to reduce unnecessary reporting work.
• Make business decisions based on rational standards and make proper decisions.

  (5) Generation of “knowledge” at overseas offices

• Accumulate the knowledge and know-how gained/formed at overseas offices, and learn lessons from failure to be successful next time (do not find a person who is to blame when you fail).

  (6) Sharing of “knowledge” at the headquarters / overseas offices

• Accelerate growth by horizontally utilizing the knowledge and know-how accumulated at the headquarters / overseas offices in other regions.
• Overseas offices share local business opportunities with the headquarters and collaborate with it for business development.

  (7) Appointment of appropriate management members

• Add those who have an understanding of creating new businesses in emerging Asian countries to management members.

  (8) Building a foundation to support new business creation

• Separate the organization that engages in new business creation from the existing organization.
• Develop and allocate human resources (coordinators between the headquarters and overseas offices, etc.) to promote local new business creation activities
• Establish and properly operate personnel-related systems (evaluation, remuneration, placement, etc.) to secure excellent local employees and improve the motivation of Japanese dispatchers.

It is important to derive a unique solution considering the situation of your company

The value provided by IGPI

About the author

About IGPI

This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness, and accuracy of such information. All rights reserved by IGPI.

What makes Vietnam an attractive destination?

Figure 1: GDP growth rate of ASEAN countries during 2014 – 2020³

• Exports increased at a remarkable average annual rate of 12.8% during 2015 – 2019 and nearly 5% in 2020⁴, allowing Vietnam to enjoy a trade surplus for 5 consecutive years from 2016 to 2020.

• young population, investment incentives and preferential treatment created by various Vietnam’s FTAs such as CPTPP and RCEP.
• Vietnam’s population is expected to expand to 120 million by 2050 from 96.5 million in 2019⁷. The workforce is young, dynamic, better educated and digital-savvy.

How does Australia – Vietnam bilateral trade relationship facilitate Australian businesses?

• ASEAN-Australia-New Zealand Free Trade Area (AANZ)
• Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
• Regional Comprehensive Economic Partnership (RCEP)

Opportunities for doing business in Vietnam

1. Agriculture  

• Food-borne illness and food poisoning due to bacterial contamination caused by poor hygiene.
• High use of antibiotics, pesticides and chemical fertilisers above recommended level and lack of traceability are other elements causing food safety concerns.
• Low technology adoption leads to volatility in agriculture production

2. Healthcare

• Shift of focus from communicable to non-communicable disease due to increasing prevalence of chronic diseases in Vietnam such as diabetes, cancer, cardiovascular disease and etc.
• Greater healthcare demand is expected in Vietnam as Vietnam is identified as one of the world’s fastest-ageing societies
• Overcrowding and high-occupancy rates in rural areas due to limited resources (doctors, hospital beds etc.)

3. Banking

• Vietnam has one of the lowest bank penetration rates in ASEAN
• Low access to credit by SMEs due to guarantees and collateral requirements

4. Education

• Demand for talent and highly-skilled workers in Vietnam far surpasses supply as local qualifications in many fields are not well acknowledged
• Lack of e-learning platform further limiting access to education in major cities which is further emphasized due to Covid-19 movement control

What challenges Australians may encounter in entering Vietnam?

• Difference in culture between Australia and Vietnam: Compared to Australia, Vietnam may not have a formal bidding/tenure procedure in many business scenarios. Relationships with local stakeholders such as suppliers, industry associations, local government and central ministries are key. Thus, Australian partners need to show their commitment and invest time in building trust. Third-party introduction or recommendations can be a good start.
• There are still grey areas in Vietnam laws and regulations. This may result in difficulties in interpretation, application and compliance for foreign investors. However, as part of Vietnam’s commitment to a variety of FTAs, the Government is focusing on reforming the legal system to make them consistent with international standards and result in a more business-friendly regulatory environment. Australian businesses can also find local partners to assist in understanding and complying with regulations, permits and laws.
• Corruption still remains a challenge in Vietnam. Vietnam ranked 107 (out of 180) on Transparency International’s 2017 Corruption Perceptions Index. Anti-corruption has moved up the political agenda recently. With the determination of the Government of Vietnam in anti-corruption, a new Law on Anti-corruption was issued in November 2018. The Decree guiding the implementation of the Law was passed in 2019²⁶, which improves Vietnam comprehensive ant-corruption legal framework.

Wrapping up

IGPI insights and how we can make a difference for Australian business?

• Market landscape study and strategic options for go/no-go
• Custom hands-on support for strategy implementation
• Business matching support through our established network in Vietnam

About the authors

About IGPI

Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp

1. World Bank – Vietnam overview (2021)
2. World Bank – Vietnam: Achieving Success as a Middle-income Country (2013)
3. World Bank – GDP growth (annual %)
4.  World Bank – Vietnam exports of goods and services (annual % growth)
5. World Bank – Vietnam exports of goods and services (annual % growth)
6. Austrade – Export markets: Vietnam
7. World Bank – Vietnam overview (2021)
8. World Bank – Vietnam overview (2021)
9. DFAT – Vietnam country brief
10. United Nations COMTRADE database
11. Vietnam Briefing – Why the agtech industry will aid Vietnam’s hi-tech growth (2021)

12. Interflour Group – About us
13. DFAT – Business envoy (2018)
14. WHO – Human resources for health country profiles Vietnam (2016)
15. Vietnam Investment Review – Vietnam’s private hospital chains keep attracting foreign investment (2020)
16. Austrade – Icon Group to pioneer treatment-plan exports to Southeast Asia
17. Ibid.
18. CPA – About us
19. Austrade – Cerebral Palsy Alliance looks to Vietnam to grow its impact (2019)
20. Austrade – Digital banking in Vietnam: A guide to market (2020)
21. World Bank – Vietnam mobile cellular subscriptions (per 100 people)
22. Vietnam Briefing – Education in Vietnam: Opportunities and Challenges (2020)
23. RMIT University, About RMIT
24. Austrade – Vietnam edtech scoping study (2020)
25. Ibid.
26. Baker McKenzie – Vietnam: New Decree Relating to Implementation of New Law on Anti-Corruption (2019)

What is Proof of Concept?

What is the use of PoC in corporate startup cooperation?

PoCs in ASEAN

• Financial services industry: Know Your Customer (KYC) blockchain PoC jointly conducted by a few banks (both local and foreign) and a government agency in Singapore²
• Healthcare industry: Healthcare startups partnered with a private healthcare provider in Singapore on adoption of its AI-powered tool³
• Manufacturing industry: Smart factory joint PoC between a Japanese conglomerate and a listed company in Thailand⁴

What are the advantages of PoC?

1. Validating that the idea is feasible with lesser resources involved Companies undertake various steps to test the solution before fully committing to the development and production of the final product. These steps include the PoC, Prototype and Minimum Variable Product (MVP). PoC is one of the first steps undertaken to ensure the idea is practical and feasible at a reasonable cost. It is also completed within a relatively shorter timeframe than a prototype or MVP. (Note: PoCs validate the feasibility of an idea, while prototypes are made to demonstrate how the idea can be developed.)

2. Uncovering potential issues and obstacles during the product launch PoCs help to identify any potential problems that might occur when production or implementation takes place. Potential problems can be related to technical, legal or functional aspects or the like. They should be resolved before the product is launched in the market. By conducting a PoC, companies are able to identify risks and obstacles and find ways to eliminate, mitigate and address these problems. This increases the likelihood of success when launching the products.

3. Helps to determine chances for scalability When proposing an idea on a new solution to key management, one of the main questions frequently asked will likely include: “how scalable is the end product?”. Through a PoC, companies can understand if the proposed solution complements their current product portfolio, or can be sold to different customers across different categories, geographical region, etc.

A PoC can also help companies assess their current capacity and capabilities in meeting the escalating demand of the products. It prompts companies to reflect on how to go about growing and mass-producing the product taking into consideration things like production capability, human resources, workflow standardization, among other things. This results in better planning and preparation for the production stage.   

4. Helps gain funding from stakeholders After the PoC is conducted, the project team can better illustrate the usability and profitability of the idea to the stakeholders. They can support the idea of the new solution in detail with illustrations and sufficient data. A PoC serves as evidence to stakeholders that the idea proposed is practical, attractive for the target market, and achievable for the company. It helps to convince stakeholders that the investment is worthy, and to get their approval for more resources and funding to develop the proposed idea.

What are the key steps when running a PoC?

What are some key elements of a successful PoC?

How can IGPI make a difference to corporates and startups?

• SEA Point, a partnership between KK Fund and IGPI, which serves as an accelerator program helping corporates collaborate with startups and SMEs across Southeast Asia
• Developed the concept of an ideathon – created a business model from the shortlisted ideas to allow for a global fortune 500 to enter a new space in the technology-driven health and wellness sector in Southeast Asia
• Supported KDDI in their accelerator program including the selection of startups, service development in KDDI∞Labo, business matching, “Demo day”, etc.

Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp

Lei Ling Lim Senior Manager +65 94880526 l.lim@igpi.co.jp 

What makes Japan an interesting market to consider?

How do typical Australian startups commence their Japanese expansion plans and how can the Government provide assistance?

• There are several accelerator programs which help provide appropriate cross-cultural training and educational resources for Australian startups. One example is the Startup Boot Camp (SBC) program – it is a global family of industry-focused programs that support early-stage tech founders globally expand their companies. These programs provide direct access to an international network of the most relevant mentors, partners, and investors with useful financial capital and influential marketing resources¹⁵. In particular, the Startupbootcamp Scale Osaka program is the specific program which is hosted in Japan.
• Several proven/mature startups usually use a variety of resources for their strategy planning. These include initial knowledge build-up, approaching both Australian and Japanese Govt. bodies for initial advice and engaging industry experts and consultants for consulting support to scratch beyond the surface, and custom hands-on-support to make their dent in Japan.

• The Japan External Trade Organization (JETRO) is a Japanese government organization that provides free business consulting support services to companies expanding to Japan. With the support of JETRO’s dedicated staff, companies can incorporate their business; receive Visa, immigration, and HR support; find dedicated office space; identify local government subsidies; get tailored market studies; and more¹⁶.
• As the Australian government values entrepreneurs that seek to enhance Australia’s international reputation, there are often grants/financial assistance that is made available to Australian businesses to further help strengthen international ties between the two nations (e.g. Australia Japan Foundation Grant Program)¹⁷. Subject to eligibility and aptness, such grants can prove beneficial to Australian business contributing to the Japan-Australia relations.

What are the key challenges that Australian businesses need to be aware of in IGPI’s view and experience?

1. Many Australian businesses underestimate the cultural differences between the two economies. Among Japanese corporations, the English language is not widely spoken in business and government environments, except for trading partners who regularly work with their given international ties. More often than not, meetings that are in English are rare, making an interpreter a necessity. Furthermore, the country has a number of social norms, practices, and procedures that differ from the inherent customs of Australia. As Japan is largely a homogenous country while Australia is very multicultural, it can be difficult for people from both sides to understand the nuances of each other’s culture. However, taking steps to understand and appreciate the differences can prove very beneficial to commence and nurture a journey based on trust and mutual respect. Although the internet is flooded with resources on this (deep) topic, a good and highly recommended starting point is an online publication –“A Guide to Bridging the Cultural Divide” The Australia Japan Business Co-Operation Committee (AJBCC) & The Japan Australia Business Co-Operation Committee (JABCC).
2. The internal decision-making processes associated with large Japanese companies can be a long and tedious process. This is predominantly due to the systemic hierarchical decision-making processes that govern Japanese organizational structures. The Japanese people are typically detail-oriented, careful, and value ‘Nemawashi’ – an informal process of laying the foundations for a proposed change or project by talking to the people concerned so as to gather support and feedback. Additionally, it is also due to the risk averseness in the Japanese culture that typically, Japanese executives will have to consult a number of individuals before concluding on a solution. Australian startups must be prepared to wait long periods of time for final decisions to be made and executed.
3. Japanese laws and regulations are known to be more strict and conservative in comparison to Australia. As a result, it can be challenging to overcome or work around regulatory hurdles associated with operating in Japan. For example, Japanese employees are strongly protected by labor laws and judicial precedents. Therefore, it is more difficult to lay off workers there than it is in Australia. This is why companies are encouraged to consult and attain the support of a specialist who is well-versed in the Japanese structures before hiring staff.

What are examples of some Australian startups that are making inroads in the Japanese market?

How can IGPI add value to the Australian startups?

• Market landscape study and strategic decision making for go/no-go
• Tailored Japan market entry strategy (organic/in-organic)
• Custom hands-on support for strategy implementation
• Identifying and matching companies with relevant partners through our established network in Japan (IGPI have direct access to relevant department / personnel in many Japanese conglomerates, trading houses and SMEs)

About the authors

About IGPI

Kohki Sakata Chief Executive Officer +65 81682503 k.sakata@igpi.co.jp