Japan's Rising Son

Japan's boldest Internet warrior jumped at the chance to play his hero. Last February Softbank founder Masayoshi Son donned a traditional kimono and joined a group of young entrepreneurs, intellectuals and politicians to stage an amateur production of "Step Forward Ryoma, Stand Up Venture Patriots!" The drama chronicles the life of Ryoma Sakamoto, a swordsman who fought to modernize Japan after Commodore Matthew Perry's "black ships" forced open trade in 1853. Between acts, the performers discussed Japan's economic crisis onstage. Dressed as Ryoma and brandishing a wooden sword, Son beseeched young entrepreneurs to become "samurai of determination," then hailed the Internet as a catalyst for change. "I go online every day, and I'm constantly excited by it," he exclaimed. "It must have felt like this when Ryoma saw the ships and heard tales of foreign lands."

The modern-day samurai is stealing the show. At critical moments in Japanese history, wandering samurai, called ronin, have appeared out of nowhere to rescue the nation. Ryoma helped topple the backward-looking Tokugawa shogun to usher in Japan's Industrial Revolution. A century later the inventor Akio Morita stepped into the savior role and forged a business empire from the ashes of World War II, borrowing technology from Japan's American conquerors to establish one of the world's most-recognized corporations: Sony. Today, Son is taking on the samurai's heroic mission. The 42-year-old founder of Softbank will end the millennium as head of Japan's fifth largest firm--ahead of Honda, Mitsubishi and even Sony. He is the key player in what a recent Merrill Lynch study calls Japan's "Internet tsunami," a tidal wave of new Internet businesses. Led by Son, they are liberating a new generation of cybersavvy entrepreneurs who view Japan's economy as part of a global market. Japan Inc. still dominates, but in its shadows, the technogeeks are building the foundations of a more transparent, competitive society. It is Son's courage and vision--and his ability to slay the staid establishment--that make him NEWSWEEK's Asian of the Year.

More than any other business leader, Son is challenging Japan Inc. to change its ways. He has helped introduce e-commerce, sparked an explosion of venture capital and forced open stock exchanges. His businesses are empowering creative risk takers who might have been suffocated by the rigid rules, hierarchies and relationship-building of corporate Japan. With plans to launch a Nasdaq Japan exchange aimed at high-tech start-ups, Son is unleashing the stock market as a real source of finance; when the market starts trading by the end of 2000, young entrepreneurs no longer will need to cozy up to old-fashioned banks. If at first corporate Japan viewed him as an upstart, even a nuisance, Son is winning the day. Desperate for an escape from Japan's decadelong recession, the government and corporations are turning to him for advice--and funding. "Son's now part of the establishment," admits Eisuke Sakakibara, Tokyo's influential former Finance vice minister. In short, the wandering samurai now rules.

You would hardly know it from Son's casual demeanor. His cluttered office high above downtown Tokyo has none of the black-suited, rigid feel of corporate Japan, and he rips off his tie as soon as he returns from a business lunch. There are signs of his legendary passion for golf (Son built an electronic golf course in his basement, where he practices his strokes). On the wall hangs a picture of Son with his golf buddy Bill Gates. On his desk, financial reports mingle with memos, news magazines and an audio book about Tiger Woods. Son monitors Softbank's share price on his computer and plans the next battle in his Internet revolution. "Now many young entrepreneurs say, 'I'm gonna change the world.' Our... e-entrepreneurs are speaking Silicon Valley's language," says Son with a smile. "I'm getting a lot more optimistic."

Son long ago learned how to be positive in the face of adversity. An ethnic Korean in a country where outsiders are treated as outcasts, Son started breaking the mold as a young boy. He began his journey in a squatter camp on Kyushu, Japan's southernmost main island. Most of the 60-odd families who lived in the hamlet were descendants of Koreans once conscripted as forced labor. They raised pigs and did menial labor; few other occupations were open to Koreans. Settlers mixed little with their Japanese neighbors and suffered constant discrimination. "The Korean kids smelled like a pigpen," says a middle-aged salaryman who grew up nearby. "We used to yell, 'Hey, Koreans,' and throw stones at each other." Like most families, the Sons used a fake surname--Yasumoto--in an attempt to pass for Japanese.

But Son got lucky. Thanks to his father's budding pachinko-parlor business, the clan moved into town and pursued Japan's middle-class dream: education. Taizo, the youngest of four boys, who owns an e-business consulting company called Indigo, recalls his father's way of instilling confidence in his children: "He would sit me on his knee, stroke my head and repeat, 'Taizo is a genius'." The second oldest, Masayoshi, tested into one of Japan's best high schools, in nearby Fukuoka. He quit in six months and, with his father's reluctant blessing, went to study in the United States. "[Son] told me: 'Even if I attend a top Japanese university, I won't be able to get a good job here because I'm Korean'," recalls Itsuo Abe, his homeroom teacher. "I said, 'If they don't want to accept me, that's fine'," remembers Son. " 'I'm going to prove that a human is a human, and that any human with a passion and intelligence can be equal.' That was good motivation to fight harder."

In the free environment of California, Masayoshi Yasumoto decided he no longer had to pretend to be Japanese. "After he left, he wrote me a letter and another to the entire school, saying he was Son, not Yasumoto," Abe told NEWSWEEK. "His explanation was that he needed to use his real name to simplify paperwork, but my impression was that he was freeing himself from an old burden." After high school and a stint at Holy Names College in Oakland, Son earned an economics degree from the University of California, Berkeley. On the side, he imported Space Invader videogames from his father and invented a translation machine that he later sold to Japanese electronics maker Sharp for $1 million. Recalls Berkeley physics professor emeritus Forrest Mozer: "I remember telling my wife, 'We should grab onto that guy because he's going to own all of Japan in 10 years'."

Even at Berkeley, Son had big plans. He considered 40 potential ventures ranging from writing software to opening hospitals (his new bride, Masami Ohno, is the daughter of a prominent Japanese doctor). Computers topped the list. Son established Softbank in 1981, won early deals to put his products in major electronics shops and became Japan's largest software distributor. Like most Japanese start-ups, Softbank fought against a clubby business culture that favored big players. Raising capital was a struggle. Son had to hire truck drivers to do sales because nobody more qualified would join his company. Within a year, Softbank published two computer magazines and was positioned to grow alongside Japan's fledgling IT industry.

Softbank went public in 1994, making Son a billionaire. A year later he stormed across the Pacific for a shopping spree in Silicon Valley. Son bought trade-show impresario Comdex and high-tech publisher Ziff-Davis, spending nearly $3 billion for the prizes. In 1996, he teamed up with Rupert Murdoch's News Corp. to buy a major stake in Japanese broadcaster Asahi TV. Then, in late 1997, Softbank's share price collapsed on rumors of impending bankruptcy at its affiliated asset-management company, MAC, forcing Son to rethink his strategy. A year later he pledged to spin off his publishing, computer and financial-services ventures, which he largely did. Son then stepped up his mergers-and-acquisitions business, targeting companies with new technologies developed in the cutting-edge U.S. Internet market and replicating them in Japan. It's a strategy he still follows.

Son quickly became the No. 1 one Internet player in Japan. On the content side, Softbank has listed Yahoo! Japan, of which it owns a majority stake, and embarked upon dozens of new joint ventures, most recently a deal to replicate WebMD's online medical network. Softbank's E*Trade Japan venture offers online stock trading. A three-way project with Microsoft and Tepco, a Tokyo-based power company, aims to provide broadband Internet links to millions of households across Japan-- breaking Nippon Telephone and Telegraph's monopoly on local telephone service. "People don't expect NTT or Hitachi to change the Japanese economy," says Tsuyoshi Kuwabara, a senior analyst at Schroders in Tokyo, "but they do think Son might do something."

Consider the impact of his boldest move in 1999: Nasdaq Japan. Announcing a deal to create a Japanese sister for the tech-heavy Chicago bourse, Softbank for the first time has brought venture capitalists into play. The concept--offer start-up ventures a welcoming marketplace to go public and raise capital--challenged the Tokyo Stock Exchange's byzantine listing regulations so fundamentally that Tokyo hastily established a new market--Mothers--to aid start-ups. Overnight, listing requirements slackened, and the time horizon for taking new companies public dropped from decades to mere months. The new rules reward entrepreneurship and give venture capitalists a needed exit strategy. Says Mahendra Negi, a senior analyst at Merrill Lynch in Tokyo: "The risk-reward equation has improved 100-fold."

To gauge the impact, visit Bit Valley, a budding high-tech enclave centered in Tokyo's trendy Shibuya district. In less than two years, more than 400 Internet ventures have set up shop in the area and joined the Bit Valley Association, a mini chamber of commerce. Members attend monthly networking parties. The community has spawned online auto dealerships, a public-opinion research company and several Internet service providers. The association's mission statement says the group aims to take "a strong leadership position in the future of Japan's society and economy." On Dec. 1, Bit Valley West opened its doors in Japan's second largest city, Osaka. With such new opportunities, who needs the hierarchical world of corporate Japan? Hiroyuki Ono left behind a prestigious job at Nomura Securities to set up e-Research, a firm that analyzes online businesses--and he plans to list on one of the new exchanges in 2001. "Masayoshi Son has changed the traditional conception of what business is about," says Ono. "The Japanese economy is transforming itself very dramatically."

Japan's legendary resistance to start-up ventures has reversed so sharply that observers now worry that investors might be too reckless, pouring money into nonviable Net companies. "The party is just starting, and people are drinking quite a lot," says Kuwabara of Schroders. "After the fun, there will be some downside risk" and more than a few hangovers. Softbank has invested in 180 unlisted companies, dozens of them Japan-based ventures.

Is Japan's Internet revolution a house of cards? Son would welcome a shakeout to separate "authentic gems" from "worthless stones." True, valuations in Japan have soared even faster and farther than when the first Net stocks took off in the United States, and investors have embraced the "new economy" almost blindly. The Internet frenzy will probably intensify as scores of new companies jockey to go public next year. The trend will increase pressure on old-style companies, from banks to brokerages to retailers--even manufacturers. Internet start-ups will become competitors that erode offline market shares. Start-ups also will poach top employees with lucrative stock options.

With some $40 billion in assets, Son is ready to fix the corporations that may fall. Traditionally, generous labor laws and murky accounting have scared off swashbuckling corporate raiders. But in November, Son's Softbank joined a bid to buy a bubble-era behemoth, Nippon Credit Bank. The failed lender, seized by regulators in 1998, will be sold at auction early next year. The competition: three foreign consortia, two led by Americans and one led by the French. Facing his latest challenge, Son seeks inspiration from a small bronze of the samurai Ryoma that sits in the corner of his office. "He's my hero," says Son. "Despite his simple background, he changed society." It is always an uphill battle. Though cynics might suspect a significant home-team advantage as he bids for Nippon Credit, Son is as foreign to Japan's financial old guard as barbarians from Paris or New York. "Though Softbank is a Japanese company, its brain structure is exactly the same as that of American businesses," an official familiar with the auction told NEWSWEEK. But to a modern-day samurai on a quest to remake Japan in Silicon Valley's image, there could be no higher compliment.