Japan’s Silicon Valley? Osaka hopes hi-tech startups will reverse economic woes | Innovation

At first glance, Grand Front Osaka in the heart of Japan’s second city looks like any high-end international mall. Fashionistas parade their latest purchases from upscale boutiques, while expensively dishevelled youths cruise endless escalators, coffees in hand.

But amid global retailers such as Muji, Panasonic and Zara nestle dozens of shops with less familiar names: Enellege, Au, and Kinki University Fisheries Restaurant. These are not traditional stores but one-off outlets offering exclusive new products and services still under development.

Shoppers can try smartphone apps while they are being coded, sample the latest energy-efficient gadgets, or even sit down to a meal of the world’s first farmed bluefin tuna (a species that has been critically overfished in the wild).

Inside a three-storey space called The Lab are even more experimental prototypes, including drones, holograms and digital shopping assistants. With a wave at a video screen, a virtual silk kimono is overlaid on a floor-to-ceiling image of me, following my every move. If I like it, I can add it to my shopping cart without ever squeezing into a changing room.

It is all part of an ambitious attempt by Osaka to recreate the success of Silicon Valley by harnessing the power of individual consumers as beta testers, not online but in person at plazas and food courts in the city’s newest shopping centre.

Japan’s economic woes are well-known. Its GDP is lower than it was 20 years ago, a quarter of the population is over 65, and the brightest youngsters tend to flee to Tokyo or elsewhere. From 2013 to 2015, Tokyo gained 10 times as many people aged 25 to 34 as Osaka lost.

Technology giants like Sharp – recently bought by a Taiwan company but still based in Osaka – that used to rule the world now limp along as ‘zombie’ firms propped up by government cash. A local journalist even wrote a book warning that the city could end up bankrupt and abandoned, like Detroit.

If Osaka’s plan works, today’s initial crop of startups will grow, flourish and lure young workers back to the city to start their own businesses. “Startups are just 8.5% of businesses here but they produce almost 40% of new jobs,” says Masaaki Yoshikawa, director general of the Osaka Innovation Hub, a municipally-funded incubator, quoting data from Japan’s Ministry of Economy, Trade and Industry. “And yet Japan has three times fewer startups per capita annually than the UK or US.”

The Lab will be part of a scheme called Knowledge Capital, designed to help new ideas make it to market faster. It starts in offices above the mall named the Knowledge Salon. This members-only co-working space has hot desks, lounges, and meeting rooms for 275 entrepreneurs, each of whom pays a heavily subsidised fee of just 10,000 Yen (around £60) a month.

If a company needs room to grow, it can occupy one of 52 small dedicated offices called Collabo, or even a fully-fledged office suite, all at knock-down rates. There is also a library, accountant and lawyers on site to offer professional advice.

The next step is to move to the Lab in the mall downstairs. This is currently home to about a dozen startups and universities in the process of perfecting new products. Because most startups can’t spare the staff for their booths at the Lab, Osaka provides professional “communicators” to conduct demonstrations, help users and collect feedback on the products.

“The startup scene in Osaka is at an early stage,” says Sifang Lu, a 30-something developer who moved back to Japan recently after a spell in Silicon Valley. “But here, we actually get this help from the city. In San Francisco, they just collect taxes.”

Lu is working on an app called Meet My Dog that allows users to make playdates with other dog owners. “The key difference between Japan and other countries is that software engineers make very little money here,” he says. “They’re treated like labour.”

Despite securing some funding, Lu is not quite ready yet for the ultimate step: a move to one of the two dozen Future Life Showroom storefronts in the mall itself. In fact, none of the startups that began life at Knowledge Capital has yet graduated to a full retail shop, perhaps because the project only began in 2013. In the meantime, the storefronts have been snapped up by established brands like Coca-Cola and Mercedes-Benz happy to find spaces where they can try something new.

One more alternative shop in the showroom is a medicinal herb restaurant run by Rohto, a pharmaceutical company, as part of a vaguely defined “medical check-up” community project. The restaurant grows many of its own vegetables on site under LED lights. Processing, packaging, transporting, storing and preparing fresh fruit and vegetables uses about four times as much energy of growing them in the first place. Japan’s crowded cities are ideal for experimenting with indoor farming.

Osaka’s efforts in innovation have also reached beyond the mall walls. Moff is a watch-like wearable toy that automatically adds light sabre or air guitar sound effects to children’s games. It was developed during a city-supported hackathon in Osaka, then funded on Kickstarter in 2014, and is already in the shops. The only problem for Osaka is that as soon as Moff found success, it moved out of the city.

“The president of Moff took the company and its engineers to Tokyo,” admits Masaaki Yoshikawa. “But we are targeting becoming a gateway city. In the long run, as Osaka becomes a gateway city with more global connections, we would expect them to come back again.”