Japan Digital Agenda 2030
Big moves to restore digital competitiveness and productivity
As the world enters a new and transformative era—one in which companies and governments rapidly embrace digital technologies and ways of working—Japan faces a strategic imperative: reigniting productivity and growth through digital transformation.
In 2009, the American Chamber of Commerce in Japan (ACCJ) published a white paper entitled Achieving the Full Potential of the Internet Economy in Japan. The study detailed a range of recommendations across Japan’s still-nascent internet economy, including changes in government information and communications technology (ICT) procurement practices, measures to protect privacy and intellectual property, steps to promote online commerce and digital government, as well as the digitalization and sharing of healthcare data under appropriate safeguards.
A decade later, many of these issues remain and are closely tied to Japan’s declining productivity and weak growth in key sectors. During the same time frame, elsewhere in the world, many of Japan’s competitors, such as China, India, and South Korea, are moving ahead rapidly to ramp up their digital economies. To keep up, Japanese industry and the government need to fully embrace digitalization across the economy—from manufacturing, healthcare, and finance to the retail sector and the delivery of government services.
In July 2020, the ACCJ leadership launched the New Digital Agenda Task Force to oversee the research and drafting of a successor to the 2009 study. The goal was to lay out the issues facing Japan this decade as the country works to digitize its economy and society. After careful consideration of proposals from leading international consulting firms with deep expertise in the digital policy space, the task force chose McKinsey & Company as a partner in the project. The timing of the research fortuitously coincided with the September 2020 start of a new Japanese administration, led by Prime Minister Yoshihide Suga, which has made digital transformation its signature initiative.
The Road Map
The new ACCJ study, published in February and entitled Japan Digital Agenda 2030, identifies the big moves that Japan needs to take over the next 10 years, highlighting the underlying technology-use cases and setting out the digital transformation barriers and enablers to achieving them. The analysis details:
How Japan’s education system and corporate sector can do more to support the creation of a broader base of digital talent
Ways in which Japanese industry and government can digitalize their operations
The respective roles startups and existing system integrators can play in accelerating digital transformation
The analysis is supported by quantitative and qualitative surveys of US and Japanese business and policy leaders, which benchmark progress over the past decade, as well as in-depth interviews with over 100 government, business, and technology leaders in and outside Japan. More than 200 data sources were consulted to gather critical inputs across a range of industries, topics, and technologies.
The Challenge
In 2020, Japan is the world’s third-largest economy, underpinned by its leadership in sectors such as industrial and automotive manufacturing, high-quality infrastructure, as well as a professional culture infused with a strong work ethic and deep experience in the crafting and delivery of high-quality goods and services.
Yet, over the past decade, productivity has gone from stagnant to declining—a course that needs to be reversed if Japan is to remain globally competitive. On the rise are competing nations making significant productivity gains through the development of technical talent and the application of proven digital technologies that include cloud-based infrastructure and software, mobile devices and apps, machine learning and deep learning, and many other developments.
Japan’s relatively low digital competence is in stark and unexpected contrast with its economic strength. In 2020, the country ranked 27th in digital competitiveness and 22nd in digital talent. It registered only single-digit penetration in areas such as e-commerce, mobile banking, and digital government service usage. And of the global total, Japan has produced just five of the more than 500 unicorn startups—those with a private or public valuation of more than $1 billion. These metrics fall far short of Japan’s full potential.
Standing in the way of digitization are some self-imposed constraints:
A high-context culture with a risk-averse mindset
Senior leaders focused on company longevity rather than productivity
Limited exposure of some industries domestically to global competitors
Continuing gridlock between a private sector waiting for digital endorsement by government, and a government waiting for the private sector to forge ahead
A deficit of more than half a million software-related engineers, who are needed to build the software applications that will take the country forward
This situation is confounding, because the technologies to build a digital future are available in the cloud today, accessible with a few clicks. It has never been simpler to hire talent from around the globe or to grow talent locally by leveraging the large number of online courses available.
But meaningful change will not occur unless Japan’s government and business leadership make a definitive and far-reaching commitment to digitization over the coming 10 years. Absent such a change, current gross domestic product (GDP) growth and productivity-rate trajectories suggest that economies such as India and Germany will overtake Japan in the 2030s.
“Meaningful change will not occur unless Japan’s government and business leadership make a definitive and far-reaching commitment to digitization over the coming 10 years."
The Opportunity
The data and analysis presented in Japan Digital Agenda 2030 confirms that incremental changes will not close the digital competitiveness gap. Japan must undertake a transformative set of reforms that we call big moves—concerted efforts by major industries and stakeholders to reinvent their businesses, capitalize on emerging trends, and utilize digital technology across the value chain. The 11 big moves identified in the paper are built around four themes.
Digital Talent: Japan needs a bold plan to more than triple the bench of digital talent, focusing disproportionately on software developers, data engineers, data scientists, machine learning engineers, and other types of new jobs.
This would take Japan in a different direction from the continued deepening of hardware talent, which is Japan’s acknowledged forte and has underpinned its economy to date. Instead, what is required is a mindset shift that values software expertise as highly as traditionally prized hardware or non-software engineering disciplines.
Other areas requiring attention are the upskilling of the current workforce and the digitization of the education sector, through greater investment in teachers and technology.
Industry Transformation: The Japan Digital Agenda 2030 calls for leapfrog moves by the four core industry sectors that account for nearly 50 percent of Japan’s GDP: industrial and automotive manufacturing, wholesale and retail, healthcare, and financial services.
These sectors have single-digit digital penetration metrics in areas such as the number of advanced digital manufacturing facilities and the percentage of e-commerce penetration. The Japan Digital Agenda 2030 draws on examples from more than 100 proven-use cases to illustrate how Japanese firms can leverage cloud-based applications, machine learning, deep learning, e-commerce technologies, the Internet of Things, 5G, cybersecurity, and other digital technologies to drive an increase in revenues and a reduction in costs and expenses. With strong policy leadership and targeted investments, by 2030 Japanese business could deliver:
An artificial intelligence-enabled industrial sector
Digital healthcare at scale for the elderly population
Truly omnichannel retail experiences
A modern, streamlined mobile banking system facilitated by globally interoperable frictionless payment processes
Digital Government and Infrastructure: But the private sector cannot do this alone. Sustainable progress in economy-wide digitalization requires a strategic commitment by central and local governments to drive connectivity, cybersecurity, and the availability of cloud resources to support the new wave of applications.
The starting point—and an opportunity for an early harvest—is the rapid deployment of digital applications in the public sector to digitize the services it provides to citizens and businesses, doing away with lengthy processes that require physical visits, paper, seals, faxes, and other analog methods.
Longer term, Japan needs to take its already world-beating infrastructure to the next level through private–public partnerships to roll out smart-city technologies, such as 3D-printing for home and business construction, cloud-based systems for integrated traffic management, and state-of-the-art disaster preparedness and management systems.
Economic Renewal: Japan can take pride in having more than half of the world’s oldest companies. But it also needs to find a way to drive greater economic renewal and innovation in the corporate area.
The answer is greater investment and focus on its still-small startup sector. Japan needs to grow a new generation of digital entrepreneurs ready to boldly address global customer problems with software, and to move decisively beyond its currently inward, hardware-centric focus. Reforms are needed to encourage founders, attract talent, and enable startups to scale globally. A related key to economic renewal involves the transformation, from a problem to a solution, of existing Japanese systems integrators.
These large but often complacent IT giants account for more than 60 percent of Japanese IT spend and 70 percent of IT talent. They need to be encouraged to actively update and expand their technology offerings, and to assist their clients in moving rapidly to the cloud, from their present expensive-to-operate and vulnerable legacy on-premises systems.
These giants also must provide their clients with tailored business solutions, not just a menu of technology options.
US–Japan Partnership on the Digital Economy
The final recommendation in the 2009 white paper calls for the creation of a process through which the US and Japanese governments, and their respective private sectors, might work together in driving the many proposals found in the white paper.
It is proposed that this be done through a US–Japan Dialogue on the Future of the Internet Economy, with government, private sector, and academic participation. The recommendation was developed with the express intention of avoiding, in the internet space, much of the friction that has characterized the US–Japan economic and trade relationship since the early 1970s.
As is stated in the 2009 ACCJ Internet Economy White Paper: “Collaboration on the internet economy escapes the zero-sum dynamic of many trade talks and can help nurture the innovation that is essential to the future of our economies. This dialogue would break new ground for the United States and Japan, since the emphasis would be on mutual learning, exploring areas of convergence, and transferring agreement between the two countries into a broader regional and global consensus.”
The proposal has struck a responsive chord in government and business circles in both countries, resulting in the November 10, 2010, formal launch of the US–Japan Policy Cooperation Dialogue on the Internet Economy.
Both governments participated and were led by the US Department of State and the Japanese Ministry of Internal Affairs and Communications. The business communities were represented by the ACCJ and Keidanren (the Japan Business Federation). Over the past decade, the Cooperation Dialogue has been convened 11 times, most recently on September 25, 2020.
The habits of cooperation nurtured by the Cooperation Dialogue over the years resulted in the announcement on October 7, 2019, of the US–Japan Digital Trade Agreement. The agreement includes:
Inter alia provisions prohibiting custom duties and discriminatory taxes on digital products
A commitment to ensuring the bilateral free flow of data, including financial services
Mutual recognition of digital signatures
Prohibition of localization limiting where data can be stored
Protection against forced disclosure of proprietary source code algorithms
As the Dialogue continues to mature, discussions increasingly are likely move from bilateral concerns to developing shared positions in international fora, such as the Organisation for Economic Co-operation and Development, and in coordinating positions vis-à-vis third parties, such as the European Union (EU) and China.
For example, the Statement on Innovation and Digitalization, released at the Osaka G-20 meeting in 2019, highlighted philosophical differences between the US/Japan and EU positions with respect to rulemaking for the digital economy.
Europeans favor a larger government role in internet governance, while the US and Japan support more market-driven solutions.
This partnership between the two countries on shared international concerns is vitally important to ensuring the future growth and innovation of a global digital economy from which both countries can benefit.
Leveraging the cooperation and progress that have been spurred on by the Cooperation Dialogue—and with reference to the data and analysis found in the Japan Digital Agenda 2030—government and business must set the goal of digital transformation during this decade as a top national priority.
Next Steps
The ACCJ’s objective in researching and drafting the Japan Digital Agenda 2030 is to contribute positively, as a partner with Japan, in introducing and promoting the greater utilization of new digital technologies and business models. Over the past decade, our companies have become an increasingly important part of Japan’s digital economy—and with that comes responsibility.
We plan to use the data and analysis presented in this study as a platform and road map for a series of ACCJ policy papers that outline changes in government regulations and corporate practices that we see as essential to unlocking the full benefits of digitally driven innovation in key economic sectors covered in the Japan Digital Agenda 2030, such as manufacturing, healthcare, retail, financial services, and the provision of government services.
We also take seriously the responsibility of our companies to support the development of the digital economy in Japan by considering ways to help develop digital talent locally, engage proactively with Japan’s startup community, and better cooperate with Japanese corporate counterparts and the public on shared cybersecurity and data privacy concerns.
Jim Foster
Senior advisor
ACCJ New Digital Agenda Task Force
THE JOURNAL
Vol. 58 Issue 4
A flagship publication of The American Chamber of Commerce in Japan (ACCJ), The ACCJ Journal is a business magazine with a 58-year history.
Christopher Bryan Jones, Publisher & Editor
