Osaka has long been known as a merchant city, home to small but innovative businesses ranging from consumer electronics to processed foods. But the city where young entrepreneurs once flourished has recently found itself playing second fiddle to Tokyo.

No matter where they’re from, Japanese — especially younger ones who come up with hit ideas — end up taking them to Tokyo because its sheer size means new thinking gets embraced in ways that Osaka and, indeed, the Kansai region, just do not.

College graduates from western Japan often prefer to remain in Kansai, especially if they know they will have to help take care of their elderly parents soon. Many have dreams of starting their own business. But if they’re operating in the popular IT sector or the service industry, Kansai is just too small, or too conservative, for most young entrepreneurs, — even if they have a good idea and can find funding.

In addition, long-established ties, family connections with customers and suppliers, and a host of other hidden realities can make it difficult for outsiders, especially in the service industry, to succeed. Newcomers are viewed less as potential partners with ideas for increasing profit, and more as potential rivals with ideas that can put the established players out of business.

In recent years, the city of Osaka has begun to recognize that such thinking is killing the local economy and tax base. Whatever one thinks of Osaka Mayor Toru Hashimoto, he is surrounded by younger supporters, many of them entrepreneurs or self-employed professionals fed up with the area’s fossilized attitudes toward developing entrepreneurs.

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At Business Innovation Center Osaka, Chie Yamano is aware of the need to encourage budding businesspeople.

“People can come in off the street and get advice about starting a business in Osaka. We can look at their business plans, provide advice on where to find local lawyers, accountants and real estate agents. We hold seminars for startup businesses, and can make introductions to potential business partners,” Yamano said.

Real estate in parts of Osaka is dirt cheap, and the cost of living is generally less than that of Tokyo.

But costs are not everything. Contacts and access to startup capital are also crucial.

Unlike Tokyo, Osaka and the Kansai region in general lack the number and types of groups needed to match entrepreneurs with investors.

One place getting attention for its attempt to unite young entrepreneurs in Osaka is Knowledge Salon. The organization, based in the Grand Front Osaka building that opened last year, is part of the larger Knowledge Capital facility and holds lectures, workshops and other business-related events.

“Our members come from a wide variety of backgrounds, and have a broad range of interests, but there are many here who have an interest in forming their own business and are looking for potential partners or collaborators,” said Yu Sekiguchi, an assistant manager at Knowledge Capital.

Virtually all official interest in, and attention to, nurturing entrepreneurship in Kansai is focused on sectors that the central and local governments and Kansai business organizations run by huge corporations have deemed priorities. These include pharmaceuticals, biotech, medicine and even tourism, if Kyoto is included.

But what about the service industries?

Food is an especially cutthroat business in Kansai. Any chef, wannabe chef, or budding restaurateur with dreams of becoming Japan’s version of Wolfgang Puck or Jamie Oliver will find that, while it’s fairly easy to set up a restaurant, keeping it going is another matter.

While Osaka claims it’s the kitchen of Japan, outsiders often see Kyoto, a huge destination for domestic and international tourists, as the potentially better market.

However, the Kyoto restaurant industry is quite closed, and despite efforts on the part of the city to promote Kyoto cuisine nationally and internationally, only entrepreneurs with unique ideas and an ability to adjust to the “Kyoto standard” of preparing and serving food — regardless of whether that food is traditional Japanese fare or not — are likely to succeed.

That said, compared to just a decade ago, one can see a greater number of younger restaurateurs in Kyoto today, many of whom are focusing on specialized cuisine, especially macrobiotic, vegetarian and organic dishes prepared with locally grown produce.

“There are definitely opportunities for a certain type of restaurant owner in Kyoto. The food has to be unique, but not too unique, of high quality, but still affordable and adjusted to Kansai tastes, which are different from Tokyo tastes and often less spicy. It also helps if you can create a cozy or even exclusive atmosphere,” said Jiro Fujii, an Osaka-based restaurant consultant who advises potential clients about Kansai.

After the March 11, 2011, Great East Japan Earthquake and tsunami, Kansai’s leaders hoped concerns about further damage would lead to an influx of younger people who wanted to escape Tokyo and start over. That has not happened to the extent some predicted.

In fact, the worry among Kansai politicians and business leaders is that, given the rapidly aging population, declining birth rate and a possible accelerated shift to Tokyo ahead of the 2020 Olympics, the region, especially Osaka, will continue to lose business.

Freelance journalist Yuji Yoshitomi, in a recent book about Osaka, warned that without an economic recovery, the city will likely go the way of Detroit — run-down and bankrupt.

Yamano admits the city needs to do more to bring in young entrepreneurs. But she said there is an understanding among the younger generation of Osaka leaders that they need to do more to encourage entrepreneurs and that now, actually, is the time for Japanese with an entrepreneurial bent to get established.

It’s a message Osaka has paid lip service to for decades, though. Despite a myriad of competitive advantages on paper (excellent transportation systems, good living environment, lower cost of living, access to a huge pool of young labor via the universities), only time will tell if the latest message of “Come west, young entrepreneur” marks the beginning of the long-awaited, much-promised, and not yet realized Osaka, and Kansai, renaissance.

Kansai Perspective appears on the fourth Monday of each month, focusing on Kansai-area developments and events of national importance with a Kansai connection.