Growing AI Market Preoccupies… Korean Startups Enter One After Another
Revelion, a domestic start-up that develops artificial intelligence (AI) semiconductors, selected Japan as its first overseas branch and established a corporation in Tokyo in February. As U.S. big tech companies such as Microsoft, Amazon, and Oracle, along with OpenAI, the developer of "ChatGPT," began to establish large-scale data centers in Japan, Revelion entered the market in anticipation of growing demand for AI semiconductors. An official from Revelion said, "We believe that we can dominate the market only if we enter now, while there are no clear local competitors in Japan."
An increasing number of domestic AI start-ups are entering the Japanese market to target its rapidly growing AI industry. Japan was not previously attractive to Korean start-ups, as it lagged in digital transformation. Until recently, platform companies such as webtoons, messengers, and secondhand marketplaces mainly targeted Japanese consumers. However, as Japan has recently been actively pursuing artificial intelligence transformation (AX), Korean technology companies in fields such as semiconductors, software, and robotics are also entering the market. Market research firm Statista predicts that the Japanese AI market will grow from USD 10.15 billion this year to USD 41.19 billion (about KRW 54.3 trillion) in 2031. This is more than 2.5 times Korea’s market forecast (about KRW 21.6 trillion).
Japanese AI 'Market Imbalance'
The number of AI start-ups operating in Japan has been steadily increasing over the past few years. "Olgoise," which develops AI software for enterprises, completely moved its headquarters to Japan in 2022, and currently, 60 percent of its customers are Japanese companies. Upstage, which develops AI models for document information extraction and sells them to enterprises, also established a Japanese subsidiary last month and appointed a local head. "Japan has more than 10 times the volume of business documents compared to Korea, and capturing just 10 percent of the Japanese market can be more impactful than dominating the Korean market," said Upstage Chief Technology Officer Lee Hwal-seok. "Compared to overseas big tech models, our company is highly competitive in terms of accuracy and speed."
The biggest reason why many domestic AI start-ups are expanding into Japan is that Japan’s start-up ecosystem has not developed enough. The Japanese government and companies are actively seeking to introduce AI technology along with massive investments. The Japanese government announced in November last year that it will invest at least 10 trillion yen (about KRW 97.8 trillion) in AI and semiconductor industries by 2030. According to a survey by Japan's Information Economy and Social Promotion Association (JIPDEC), 70 percent of local companies are using or planning to introduce generative AI.
However, Japan’s technology start-up ecosystem remains less developed than Korea’s. This has created a “market imbalance” in which companies struggle to find local providers of AI services. “We identified AI technology for application at industrial sites for Japan Steel, currently one of our major customers, but there was no Japanese company to implement it,” said an official from Korean start-up SuperbAI, which established its Japanese subsidiary in 2023. “We eventually handled the project from Korea.” SuperbAI is currently supplying vision AI software to Japan Steel for quality inspection and recycling.
Solid Support Attracts Global Investment
Strong investment activity is also accelerating the entry of Korean AI start-ups into Japan. Luton Technologies, an AI portal company, entered the market with backing from Japanese investors, including Z Venture Capital, Japan’s largest venture capital firm. Revelion followed a similar path, securing potential customers through local networks after attracting investment from Japanese venture capital firm Daiwa Ventures (DGDV) in January last year.
As Korean AI start-ups target Japan, more Japanese companies are making early-stage investments. Real World, a start-up developing AI software models for robots in the manufacturing sector, has attracted a total of KRW 21 billion in initial investment from companies such as KDDI, ANA Holdings, Mitsui Chemicals, and Shimadzu Corporation. “Japan, with its strong manufacturing base, is showing great interest in AI technology for robots to be used in factories,” said Ryu Joong-hee, CEO of Real World. “Once technology development is complete, we will pursue technology verification (PoC) in both Korea and Japan simultaneously.”
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