2023.12.21 ZEBRAS

The Japanese government includes “zebra companies” within its national strategy

The Japanese government includes “zebra companies” within its national strategyのイメージ

On June 16, in the “Basic Policies” and the “Grand Design and Implementation Plan for New Capitalism” discussed in the Cabinet Decisions, the Japanese government clarified its policy to promote “zebra companies” in the future. (※)

(※) “Cabinet Decision” is the most formal form of government (cabinet) decision-making agreed upon by all ministers. In company terms, it’s like a unanimous board resolution.

In this article, a variety of topics will be covered including “Basic Policies” and the “Grand Design and Implementation Plan for the New Capitalism”, the government’s record on economic policies behind this decision, what kind of policies will be implemented, and what we at Zebras and Company are planning to do in light of these decisions.

Joint meeting of the Council on Economic and Fiscal Policy & Meeting for the Realization of the New Capitalism (from the official residence website)

What are the “Basic Policies” and the “Grand Design and Implementation Plan for New Capitalism”?

Have you ever heard of the  “Basic Policies” of the Japanese government? Those who have experience working with the government may have heard of it. Its official name is the “Basic Policies for Economic and Fiscal Management and Reform”. It is a document that shows the basic policy of the Japanese government’s economic policy.

It is thoroughly discussed at the “Council on Economic and Fiscal Policy”, which is a panel of experts chaired by the Prime Minister, and the final national policy is decided through a Cabinet meeting around June of each year. Among the many documents formulated by the government, it is of the utmost importance and is considered to be part of the highest level of Japan’s national strategy.

The “Grand Design and Implementation Plan for New Capitalism” is a collection of the fundamental ideas pertaining to “New Capitalism” advocated by the Kishida administration. It is positioned similarly to the “growth strategies” advocated by the previous administration, and while the “Basic Policies” summarize the ideas related to economic and fiscal management, more specific policies are written out in the Grand Design and Implementation Plan for New Capitalism.

In these two cabinet-approved documents, it was revealed that the promotion of the “creation of zebra companies and an expansion of impact investment and financing” will be encouraged from the two contexts of “solving regional issues” and “improving the vitality of medium and small enterprises”.

So why has the promotion of zebra companies entered the arena of Japan’s economic national strategy?

Excerpt from the Basic Policy on Economic and Fiscal Management and Reform 2023 (Cabinet Decision on June 16, 2023): * An English version is yet to be released, so we have provided a translation by Z&C.

(Enhancing the vitality of medium-sized and small businesses)
The aim is to enhance the vitality of medium-sized and small businesses that support the regional economy, contributing to the creation of quality employment and stimulating the economy. Additionally, efforts will be made to create and promote small and medium-sized enterprises that serve as drivers for solving social challenges in the rural region and attract impact investments(zebra). Furthermore, efforts will be made to promote growth through the development of industrial infrastructure such as industrial water supply (which encourages business establishment in that region), and through human capital investment in mid-sized companies that drive the regional economy forward.

Excerpt from the Grand Design and Implementation Plan for a New Capitalism(Cabinet Decision on June 16, 2023): * An English version is yet to be released, so we have provided a translation by Z&C.

⑥Support for businesses addressing regional challenges 
To create companies that serve as drivers for solving social challenges in rural regions and to attract impact investments (zebra), which leads to an ecosystem centered around local stakeholders supporting social businesses. 

“New Capitalism” and Zebra Companies

The Kishida administration, which took office in October 2021, declared that it would realize a virtuous cycle of growth and distribution by adopting “New Capitalism” as its economic policy.

“New Capitalism” is an attempt to transform society while leveraging the power of companies and capitalism to solve the issues currently faced in the world, such as the expansion of inequality and poverty (decline of the middle class), the gap between urban and rural areas, the lack of medium to long-term investment, and climate change issues.

In the discussion around new capitalism, one of the points of contention is how corporations should take part in this economic policy, with discussions being held on how to realize management that takes all stakeholders into account.

Government Public Relations Online – Toward the Realization of New Capitalism
“Organization of Expert Discussions on New Capitalism (Stakeholder Theory)” (Materials from the first meeting to realize New Capitalism on October 26, 2021)
Liberal Democratic Party Homepage – What is “New Capitalism”?

“Zebra Companies” refer to companies that are striving for
(1) a balance between social and economic goals
(2) a long-term perspective in growth
(3) management that considers all stakeholders.

It is a movement exploring new ways of business and finance. In other words, we think about the impact our business activities have on society (considering not only the positive effects of our business, but also the negative impacts it generates), and aim to carry out our businesses to solve social issues that carefully consider their future impact and ensuring that every stakeholder is negatively affected. While this may sound like common sense applicable to all companies, is it the case?

For example, aren’t there producers who are struggling because they are being forced to lower their prices more than they deserve to be compensated for?

Aren’t there services that make their contracts extremely difficult to cancel and unjustly profit from it?

Aren’t there companies that take advantage of information asymmetry to offer products to people with limited information or knowledge, products the providers themselves would not recommend to their friends or family?

Aren’t there companies that proclaim “ESG” or “SDGs” but are only concerned with superficial appearances, using their “social good” as a means to gain economic profit?

In our society, as a result of morality being pushed aside during the period of high economic growth to pursue economic profit, are there shadows that have been overlooked in exchange for the wealth we have gained?

Against the excessive emphasis on “increasing market capitalization from a short-term perspective”, we believe that we should carefully explore the diverse ways of management and growth suitable for each company.

Of course, this does not mean it is acceptable to maintain the status quo like some companies do, or to stop challenging oneself and not undertake new initiatives. Zebra companies are those trying to serve society while exploring the optimal ways of management and growth.

Kishida’s “New Capitalism” and zebra companies have many similarities, such as “utilizing the power of companies to solve social issues”, “long-term perspective”, and “stakeholder theory”.

The Kishida administration has been promoting measures such as “promoting human capital investment” and “investment in start-ups” as well.

In addition to this, the administration has recognized the importance of “zebra companies” in overcoming various dichotomies such as “promoting both social developments as well as economic ones”, “recognizing the importance of long-term prosperity over short-term growth”, and “promoting companies with long-term sustainable business models”, and has declared that it will support this as a government.

So, what kind of policies will be implemented in the future?

What is the specific policy direction?

The two documents drawn up at this time indicate the direction of policies as “basic principles,” with more specific policies to be considered in the future. Although the details are not yet clear, there is a clear direction of how these policies will be carried out in the two documents. 

The first point is the “expansion of impact investments”. Impact investments are investments and financing intended to solve social issues. More precisely, they are “investments intended to produce positive and measurable social and environmental impacts alongside financial returns” (according to the Japan Advisory Committee of the Global Steering Group for Impact Investment).

The term “impact investment” has been included in the growth strategy since 2017, and although the concept of the term has been rapidly expanding in recent years, so far it has mostly been about “seeking social impact while keeping the nature of capital and financial methods the same as before”. In other words, investments that seek economic returns traditionally while also “additionally” seeking social impact have come to be understood as “impact investment”.

On the other hand, companies trying to solve social issues may not be able to use existing financing methods. For example, funding for non-listed companies in Japan mostly comes from borrowing, but borrowed money needs to be repaid when the term is due, which is not suitable for new challenges with risks. For this reason, agencies like the Small and Medium Enterprise Agency and the Financial Services Agency have recently started to raise the issue that an expansion and diversification of equity for non-listed companies are necessary.

Most of the equity for non-listed companies was of the “VC type (startup type)” that seeks rapid growth and listing in a short period. Zebra companies are seeking new innovative financing methods due to factors like the longer time needed to monetize solving social issues compared to regular businesses, the lack of a large market size that VCs demand, and the difficulty of balancing the solution of social issues with maximizing shareholder value,  Following this policy, we can expect the government to support risk money suitable for businesses that aim to survive and grow by steadily confronting current issues without focusing excessively on growth or feeling rushed to achieve rapid growth.

The second point is ecosystem creation. To solve social issues through business, it is necessary to collaborate with a diverse group of stakeholders, utilizing each other’s strengths. As mentioned earlier, innovative approaches are needed even for financing, and it is difficult for individual companies to accumulate all the skills and know-how by themselves.

Therefore, the government is aiming to support the management and financing of zebra companies by creating an ecosystem involving various stakeholders to promote new solutions for regional issues. With the government’s backing, we can expect that various players in different regions will continue to grow and collaborate, and the ecosystem around zebra companies will expand.

The third point is the review of evaluation and certification of social impact (results). This will help to clarify what kind of social impact zebra companies intend to produce and are actually producing for various stakeholders, and promote zebra companies so they can obtain management resources such as capital, human resources, and know-how.

The interpretation of the word “solving social issues” varies among people, but by clearly demonstrating what was done and what kind of impact it has had on society, more companies will aspire to become zebra companies.

Support zebra companies and create a kind, healthy, and enjoyable society

Considering these governmental strategies, we would like to promote further collaboration and partnership with many individuals, local businesses, large corporations, investors, financial institutions, municipalities, academia, and media.

For instance, in promoting the spread of zebra finance, we have received many inquiries for finance support from start-ups and second-stage venture businesses.

Facing such requests, in 2021, we invested in the local company “Hitobito” using a non-listing investment method (LIFE), and from 2022, in cooperation with Shiojiri City, Nagano Prefecture (civic innovation base “Sunaba”), we have been implementing regional impact investment initiatives.

Recently, we have been receiving daily consultations from people who are seeking new financial flows while creating social impact, such as:

(1) The restructuring of capital composition and involving new stakeholders in business succession and second-stage start-ups
(2) Female entrepreneurs are inhibited by various hurdles that are not yet widely recognized by society as challenges
(3) Business operators in the primary industries that require a long-term perspective for hypothesis verification.

Based on these consultations, we have also started a new service, “Zebra Finance Design,” to support the creation of finance and governance mechanisms for zebra management.

Apart from us, we have also met with people who share the same awareness of the problem and are trying to create a new form of finance, for example, exploring new forms of CVC in large corporations, and working with regional companies and regional VCs who are exploring unique ways of investment. We would like to spread awareness of a form of zebra-type financing that many people can refer to.

Apart from promoting the spread of zebra finance, we would like to collaborate with many people to promote zebra companies.

For example, with local governments, we can offer support for start-ups and the growth of zebra companies aimed at solving local issues, or actively disseminate information about the situation their region is currently facing to promote collaboration with companies.

We can provide local financial institutions support, to further promote business loans, introduce clients, and support back-office operations to support zebra companies.

For large corporations and existing local businesses, we can expand collaboration through personnel secondments and capital alliances, and work together to solve local issues with zebra companies. (For example, Japan Post Group has already dispatched employees to zebra companies to work on creating new businesses (Local Co-creation Initiative)).

To support zebra companies and create a kind, healthy, and enjoyable society, we hope to advance our collaboration with a diverse range of stakeholders.

If you are interested, please feel free to contact us.