Japanese Business Practices, Start-Ups, and Innovation

[NOTE: This post was updated March 2018]

A recent New York Times’ article observed that Japanese tech giants, like Sony and Panasonic, are incurring huge losses and are “being overtaken by nimbler, cheaper overseas rivals” (Tabuchi, 2012). The article further said these aging Japanese tech giants cannot be relied upon to drive innovation, and that Japanese tech entrepreneurs and their start-ups might just be what’s needed to help infuse fervor into a country in much need of an innovation transfusion.

However, even while Japan’s sluggish economy and its aging population have contributed to Japan falling to #25 in a recent global innovation ranking, Japanese start-ups continue to struggle because of the risk-averse nature of Japanese society.

According to professor Parissa Haghirian (formerly with Sophia University, now at Ludwig Maximilian University of Munich), among the biggest differences between Japanese versus Western business practices are lifetime employment and seniority-based pay and promotion (Haghirian, 2009).

“Lifetime employment refers to the preference of Japanese corporations to hire their employees after their graduation from university and then keep them in the company for most of their length of their careers. Lifetime employment is not a legal requirement for Japanese companies, but a custom that developed after World War II. The strict Japanese labor laws, which make it very difficult to lay personnel off, supported the establishment of this system” (Haghirian, 2009, p. 955).

There are some distinct advantages of lifetime employment. First, organizations can invest in the training and development of their employees over a long period of time. Second, there’s more job security and thus increased employee loyalty and motivation.

Related to lifetime employment is another Japanese business practice of seniority-based pay and promotion. Haghirian (2009) explained that because traditional Japanese companies tend to be hierarchical, employees’ career opportunities are tied to their length of employment with an organization.

I wonder if these Japanese business practices (e.g., lifetime employment and seniority-based pay and promotion), which seems so ingrained in the culture here, might be contributing to the current struggle of Japanese tech giants to remain relevant in today’s globally competitive technology market.

“Japanese society continues to venerate lifetime company loyalty, while penalizing risk-taking and failure. The government has created a cumbersome web of regulations that hampers new entrants. And risk-taking is absent not just among would-be entrepreneurs, but also among investors, who still favor propping up old companies rather than fostering new ones” (Tabuchi, 2012).

Written By: Steve Nguyen, Ph.D.
Leadership + Talent Development Advisor


Haghirian, P. (2009). Japan. In C. Wankel (Ed.), Encyclopedia of business in today’s world (pp. 952-957). Thousand Oaks, CA: Sage.

Tabuchi, H. (2012, October 3). Japan’s New Tech Generation. The New York Times. Retrieved from http://www.nytimes.com/2012/10/04/technology/a-new-tech-generation-defies-the-odds-in-japan.html