X-HUB TOKYO, which supports domestic startup companies in advancing overseas, held a seminar that introduced case studies of businesses expanding overseas. Takeshi KOJIMA, associate editor of Harvard Business Review, gave a lecture on the perspectives that Japanese companies should have while also discussing Estonia’s startup entrepreneurs.
What kind of Country is Estonia?
Recently, in order to build a bridge of friendship between Japan and Estonia, a ten-year-old girl started a crowdfunding project and was able to raise 500,000 Yen. She then went to Estonia herself, where she met the Minister, and wrote about her experiences on her blog. Next, she is planning on going to Singapore. Since a ten-year-old girl can use technology to do these kinds of things, certainly anyone can do it as well.
Tallinn, the capital city of Estonia, is a beautiful city which is recognized as a world heritage site. The area of the city itself is similar to that of Kyushu and has a population of approximately 1.3 million. Out of Estonia, many “Unicorns” (privately held startup companies that are valued at over $1 billion) are being formed one after the other.
Expanding Business Ecosystems
The Estonian National Museum recently opened. On display there, you will find broken chairs. These were the chairs used by the Estonian engineers that built the Skype system.
Two years after being created, Skype was bought by Ebay and became a wealthy company due to the stock options. With this money, instead of just saving it, they invested in various companies. All the while, companies related to Skype gradually became bigger and more successful. Some call this the “Skype mafia.” After seeing Skype become so successful, there are more and more entrepreneurs who have been inspired and are now trying to make it for themselves as well.
After the “Skype mafia” generation, the “Estonia mafia” was established. These people collect money from abroad, start new business, amass more capital, then invest in the next startup. This kind of cycle is known as an “ecosystem,” and Estonian entrepreneurs must certainly be aware of it.
Estonia’s E-Government Attracts Global Attention
There are three points about Estonia that have attracted the attention of the world. The first is the establishment of an e-Government, which is, to put it simply, the elimination of a hanko (personal seal), paper prescriptions, and paper bills. As a result, there are no long lines at government offices and no need for insurance cards.
In Japan, after the birth of a child, the birth registration needs to be submitted within 14 days. However, in Estonia, within 10 minutes of the birth of a baby, a celebratory message is sent and all of the necessary registration procedures are already completed. Because hospitals manage the citizen identification numbers, they are able to complete these procedures immediately after the baby’s birth. In order to create a world where everything can be done online, there is something called a “digital ID.” This digital ID consists of an electronic authentication and an electronic signature. When connected to a PC, it will automatically login with the user authentication. An electronic signature is an encrypted digital signature.
As a matter of fact, a national election was held in March, and about 44% of the voters voted electronically. This style of voting allows voters to vote anywhere and anytime they want. Naturally, issues of privacy arise, but Estonia has a well-built system. They are able to record who and when a digital ID was accessed, and a severe penalty is placed on anyone for violating any laws. Unlawful access may even result in jail-time. Privacy rights are strictly controlled.
Founding a company with E-Residency
The second point that has attracted so much attention is a virtual residence program called “E-Residency.” This ID was made for foreigners. With this, non-Estonians can establish a company, open a bank account, and sign their electronic signature. You can even apply for this e-residency in Japan.
Starting in 2014, 52,000 non-Estonians from 167 countries have created their own ID. In Japan, more than 1,500 people have one. With this program, people have access to the EU market which consists of more than 500 million people.
A Trial for a Digital Society
The third point is that Estonia is a testing site for a digital society. Estonia has access to national databases and can also connect to private databases. This is a rare case where public and private systems are fully integrated with each other.
There is also a “once-only principle” which says that the government will store the collected data on a single database. In addition, there is a “no-Legacy” rule which states that no public sector IT system can be more than 13 years old, to prevent itself from getting stuck with old, outdated technology.
How a small country became a startup giant
The main reason the Electric Government was able to be established is because after Estonia’s post-war independence they had very little funds are resources at their disposal. After becoming established as an independent nation, it was necessary to begin distributing public services. After thinking about how to best handle this situation, it was decided that an IT-based solution would be the most appropriate. Encryption engineers of the former Soviet Union were able to help quickly elevate the country to modern day standards.
In 1996, the Tiger Leap Project was undertaken with the purpose of heavily investing in and spreading the development of computer and network infrastructure in schools across the country. As a result, those who were students in the late 90s were exposed to the world of IT. It is also worth noting that there were teachers outside of the schools as well. Robotex, the biggest robotics festival in the world, provides an opportunity for students to put into practice what they have learned. Those who do well in the competition are often hired by various companies. I felt that the Estonian people’s refusal to accept the communist block was a major motivational factor in driving startups. I believe that they prefer Western ideology over Russian ideology, capitalism over communism, the individual over the group, freedom over bondage, and a decentralized society over a centralized one.
One Form of Technology Drastically Changes the World
Looking at a photo from the 1900’s, you will see the horse and carriage as the main form of transportation. However, from 1913, there is almost nothing but vehicles. 1913 instantly became the world of the automobile. This just shows how one form of technology can have such a drastic impact on the world. Looking at the market cap from 13 years ago, we can see that the Exxon Mobile Corporation was number one, with GE, Microsoft, City, BP, Bank of America, Shell, and Toyota lining up behind. In 2006, natural resources and crude oil were the most popular markets in the finance world. However, now, in 2019, companies such as Microsoft, Apple, Amazon, Google, PKSHA, Facebook, Alibaba, and Tencent are now in front. Most of these are technology companies. As you already know, due to financial sanctions, foreign financial institutions are not profitable. The value of natural resources has declined, and the situation has changed in a big way. Regarding AI, it is said that about 70% of companies will adopt AI technology by 2030 and that AI will support economic activity. We are about to enter into kind of society that has no precedent.
When asked about his thoughts on the matter, the Estonian president said, “Consider falling behind the times by 20 years. An important thing will be reeducating yourself and acclimating to modern times. We will continue working tirelessly in order to catch up with the rest of the world.”
Also, when interviewed, a lean startup pioneer said, “Airbnb, Uber, borrowing a stranger’s house, these are all ideas that most people would have thought impossible. To young people, however, these kinds of things are becoming a natural and obvious part of life. So please keep this in mind.” We are now heading toward the kind of society where if there is something that you want to do, you just raise your hand up and do crowdfunding or something to raise the necessary capital.
Finally, I would like to end with this. A predictable future, or a future with no enjoyment is boring and uninteresting. The most important thing now is to unlearn. Throw away and forget all of your own successful experiences and start learning anew. After doing that, you can then take the next step. How do you envision the exciting world of tomorrow?
Thank you.