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Cablegate: Incj President Meets Ambassador to Discuss Innovation And

VZCZCXRO1385
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #2907/01 3550112
ZNR UUUUU ZZH
R 210112Z DEC 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8327
INFO RUCPDOC/USDOC WASHDC
RUEHKSO/AMCONSUL SAPPORO 8517
RUEHOK/AMCONSUL OSAKA KOBE 1828
RUEHNAG/AMCONSUL NAGOYA 5132
RUEHFK/AMCONSUL FUKUOKA 8016
RUEHNH/AMCONSUL NAHA 0362
RUEHEG/AMEMBASSY CAIRO 0352
RUEHRO/AMEMBASSY ROME 2318
RUEHFR/AMEMBASSY PARIS 6596
RUEHTV/AMEMBASSY TEL AVIV 0814
RUEHLO/AMEMBASSY LONDON 2515

UNCLAS SECTION 01 OF 02 TOKYO 002907

SENSITIVE
SIPDIS

STATE FOR EEB/CBA HARITON, EEB/BTA, EAP/J
PASS TO AUSTR CUTLER, DAUSTR BEEMAN

E.O. 12958: N/A
TAGS: ECON JA
SUBJECT: INCJ President Meets Ambassador to Discuss Innovation and
New Business

1. (SBU) SUMMARY: Ambassador Roos and Innovation Network
Corporation of Japan (INCJ) President and CEO Kimikazu Nomi
discussed ways to improve the Japanese environment for innovation
and entrepreneurship on December 14. Nomi described impediments
within Japan's entrepreneurial ecosystem, and outlined the key goals
the INCJ will pursue as Japan seeks to gain greater economic benefit
from its cutting-edge technological innovation. The Ambassador
noted USG concerns about transparency regarding INCJ support for
Toshiba's unsuccessful bid to acquire the transmission and
distribution division (T&D) of the French energy concern Areva SA.
Overall, both agreed there is scope for further bilateral discussion
and possible cooperation between the INCJ and private-sector
institutions, particularly the venture capital community in the
United States. End Summary.

IMPEDIMENTS TO ENTREPRENEURSHIP IN JAPAN
----------------------------------------

2. (U) Innovation Network Corporation of Japan (INCJ) President
Kimikazu Nomi outlined several features of Japan's economy and
culture that discourage greater utilization of Japan's innovative
capital and a more dynamic venture business climate in a December 14
call on the Ambassador. A focus on new business creation should
help generate new jobs and economic growth, as well as promote
better utilization of Japan's intellectual assets, he said.

3. (U) One obstacle to entrepreneurial behavior is the mindset that
only technology matters, reflecting a Japanese bias toward
manufacturing. Another unhelpful attitude is to discount things
"not-invented-here," which manifests itself in proprietary
approaches to technology and business practices. Nomi characterized
the Japanese economy as having weak network functions such as
interchange between academic institutions and industry, and even
cross-industry fertilization. He also cited a lack of risk capital
and the difficulty new ventures in Japan have finding financing from
either banks or capital markets.

4. (U) Nomi acknowledged a significant volume of Japan's IPR goes
unutilized, with rights holders neither exploiting it themselves nor
being willing to let others do so. Japanese industry, as well as
the financial sector, often do not value non-tangible assets or
price risk accurately. The lack of mobility of skilled labor,
management, and researchers in Japan is another impediment to
cross-fertilization of ideas. Additionally, more work needs to be
done to develop a full range of market exits for venture businesses,
because both M&A (mergers and acquisitions) activity is limited and
there have been few IPOs (initial public offerings).

INCJ GETTING STARTED
--------------------

5. (U) In light of these factors, INCJ aims to encourage the
development of venture capital infrastructure and, eventually, an
entrepreneurial ecosystem in Japan. INCJ was established in July
2009 and, as of November, has built a staff of nearly 50. They
represent a diverse cross-section of skills and experience drawn
from technical fields, finance, accounting, law, and management, and
were selected from among the best of over 1,000 candidates. INCJ's
funding comes from both government sources and private-sector
investors and stands initially at about USD 10 billion.

6. (U) Key INCJ functions Nomi described include: providing
long-term risk capital to supplement private capital; facilitating
flows of information; promoting open innovation; and encouraging
more commercialization of indigenous IPR. He acknowledged, though,
that for a functioning entrepreneurial ecosystem to emerge, it will
require building capacity among financial firms, law firms,
accounting firms, patent lawyers, technology licensing offices,
incubators, and mentors and angel investors. Additionally, it will
require the support of both government officials and industry, who
eventually should come to see venture business activity in their
interest as well. One of the basic reasons for INCJ' inception,
Nomi explained, was to create momentum for the sweeping changes
necessary in a manner visible to all.

7. (U) Asked what criteria INCJ will use to prioritize among
prospective investments, Nomi replied it will consider: potential

TOKYO 00002907 002 OF 002


to address social needs, potential for growth, innovativeness, and
profitability. He did not explain more specifically how INCJ will
value new investments, but said he expected it would focus initially
on sectors such as environment/clean technology, energy, the
Internet economy, and life sciences/health care.

POSSIBLE COOPERATION
--------------------

8. (SBU) The Ambassador expressed support for INCJ's goals, but
noted they are ambitious and will take time. He suggested Japan
could achieve some of these goals in the near term more quickly by
joining with foreign partners or talent to access needed skills not
available domestically. The Ambassador cited models such as Israel,
which successfully and quickly launched its own venture market by
finding U.S. partners to match needs that could not be met at home.
This might involve new Japanese ventures also setting up a parent
company in the United States to better engage with the U.S. venture
capital community, but it could offer important benefits. Nomi
acknowledged, in seeking prospective investment partners abroad,
they would have to be flexible in the deals they would accept. Nomi
and the Ambassador agreed a potentially fruitful area for
cooperation might be to work to clear impediments to such
cross-border arrangements.

INCJ SUPPORT FOR TOSHIBA
------------------------

9. (SBU) Regarding INCJ's support for Toshiba's bid to acquire Areva
T&D, the Ambassador conveyed USG concerns about transparency of
operations at INCJ, highlighting that INCJ's support put General
Electric, another investor in INCJ, at a disadvantage. Asked about
INCJ's thinking behind the decision, Nomi acknowledged the concern
and responded the decision on Areva T&D had been the INCJ's own. He
argued the goal had been to acquire technology that would have been
important to Japanese industry more broadly, and that INCJ had
intended to strengthen the ability of Japanese industry to compete
internationally in sectors outside of manufacturing by making it
available beyond Toshiba, because one of INCJ's goals is the
promotion of open innovation.

ROOS

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