| BUSINESSWEEK ONLINE : AUGUST 28, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Even the E-Rents Are Outrageous in Tokyo (int'l edition) Costs are crushing for would-be Web startups Keita Shimanuki considers himself lucky. While studying for an MBA at the University of Pennsylvania's Wharton School in 1998, he logged on to the Internet to discover that his employer, Long-Term Credit Bank of Japan, had folded. With his future in Japan unclear, Shimanuki devoted the rest of his time in the U.S. to learning about Internet ventures. He even started one as a class project, an experience he hoped would help him when he returned home. But Shimanuki was in for a shock--a sticker shock. After moving back to Japan last July, he started CMAuction.com, a marketplace for advertising space. That's when he learned how costly it is to launch an Internet venture in Japan. Everything from renting an office to registering a domain name is so expensive that the costs conspire to sink even promising ventures. The outlays slice through seed money--leaving entrepreneurs with little time to prove themselves to investors hungry for quick returns. Take the seemingly simple act of registering a company. In the U.S., Shimanuki spent $75 to register his Internet venture, Resume.com, with Pennsylvania state authorities. In Tokyo, he paid 0.7% of the company's capital, or $6,770, as a stamp tax. An additional $370 went for an article of incorporation, and his bank charged 0.25% of the company's capital, or $2,420, to draw up papers securing his line of credit. To issue new shares, he has to repeat the entire process. Altogether, Shimanuki forked over $10,000 to launch a company with less than $1 million in capital. A startup with, say, $30 million in capital would pay close to $300,000 in incorporation and other costs. ''These fees are ridiculous,'' says Shimanuki. ''Why do I have to support some government worker?'' Fixed costs can be killers, too. Landlords consider Internet companies risky tenants, so many are forced to pay from 12 to 18 months rent in cash as a security deposit--compared with two months in the U.S. ''It's hard to get a landlord to pay attention if you're a startup, so you have to put up big deposits, which speeds up your burn rate,'' says Kelly Miyashita, an asset manager at Goldman Sachs Realty Japan, which converted two Tokyo office towers into info-tech-friendly buildings. Rents in Tokyo are among the world's highest. Office space in commercial districts costs $125 per square foot, compared with $65 in downtown New York. For all that, tenants still must install their own office interiors. Furnishings for a 30-person office can run as much as $200,000 and must be paid for in cash, since merchants rarely extend credit. Establishing a virtual address is just as difficult. Registering a domain name in Japan takes about 10 days and costs $360. In the U.S., registering an unused name takes as little as a minute and costs about $40. In Japan, only established businesses can register domain names, and it's difficult to swap names with others. Fumitaro Ohama got so frustrated with the process that he registered his Web site, which follows the latest Japanese pop trends, in the U.S. as Urajoho.com rather than Urajoho.co.jp. Says Ohama: ''It makes us sound more international, anyway.'' GROWING PAINS. To survive financially, Japanese Web entrepreneurs are on the lookout for creative solutions. Mae Towada, president of the women's community Internet site eSampo, ran her company out of the living room of her two-story Tokyo home when she first started in 1999. The building used to house a beauty parlor, so it included air conditioners and lots of electrical outlets. Within a year, Towada's company outgrew the space. Unable to find an affordable office to rent, she moved her family to a nearby apartment so her company could take over the entire house. ''It was cheaper for me to move out,'' says Towada. ''You can build another whole Web site for the amounts that [commercial] landlords want.'' Determined entrepreneurs like Towada have succeeded in overcoming the hurdles that Japan's overpriced economy throws in their path. Shimanuki, for instance, now employs 16 people and has 300 companies registered to swap ad space on his Web site. But unless high costs and red tape are diminished, Tokyo's Bit Valley won't rival New York's Silicon Alley anytime soon. By Ken Belson in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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