Firmware Update
By Julian Ryall
In late 2010, there was an undeniable sense of dismay hanging over Japan as China became the second-largest economy in the world. It had long been recognized as inevitable that Japan would slip to third place, but it was still cause for some national hand-wringing. A little over a decade later, Japan is at real risk of falling even further in the global economic rankings, in part because the nation has failed to fully embrace technology and digitalization.
The 2020 IMD World Digital Competitiveness Ranking put Japan in 27th place, down four spots from its standing in the 2015 survey. In the meantime, China has climbed from 38th to 16th and South Korea is up to eighth from its previous spot of 18th. Malaysia is now ahead of Japan in terms of making the most of digitalization to spur a national economy, as are Ireland, Estonia, and Belgium—hardly names one associates with the application of the most cutting-edge know-how available to companies.
Must Move Now
“Digitalization is no longer a choice for Japan but an imperative,” said Jim Foster, who serves as senior advisor to the American Chamber of Commerce in Japan (ACCJ) New Digital Agenda Task Force. “The current pace of digitalization here will not permit Japan to keep its position as the world’s third-largest economy. Over the past decade, while other nations have moved dramatically on the challenge of digitalization, Japan has not only lagged behind other countries, but actually regressed.
“Over the past decade, while other nations have moved dramatically on the challenge of digitalization, Japan has not only lagged behind other countries, but actually regressed."
“With significant headroom for digital penetration across industries and government, Japan still has the chance to leverage digital to achieve a new phase of growth in the next decade,” he said. “But given a shrinking workforce and an aging population, the country needs to boost its productivity to make up the gap. Going digital is its last best option.”
There are multiple challenges that exist in a society that continues to place importance on doing business in person and largely adheres to the mantra that traditional ways of doing things are probably still the best.
For example, just 7.5 percent of government administrative services can currently be performed online, with the vast majority still requiring a person to physically visit a government office, fill in reams of paperwork, and apply a hanko (personal seal).
Many businesspeople have their very own digitalization bugbears they fervently wish could be addressed. John Kirch, vice-chair of the ACCJ’s Information, Communications, and Technology (ICT) Committee, pointed out that traditional thinking in business here means that trust can only effectively be forged in a business relationship after numerous face-to-face meetings.
“That means foreign companies, in particular, do not know for quite some time how they stand with potential partners, and decision cycles can take more than a year to complete,” he said. “Sometimes, decision cycles take far too long, are too ponderous. And that’s before we begin building a long-term corporate partnership that relies on paperwork, hanko, fax machines, and several layers of bureaucracy.”
The coronavirus pandemic has further served to highlight the frailties that are so inherent in the Japanese business sphere, points out Alice Graham, co-chair of the chamber’s Digital Literacy and Ethical, Legal, Social Issues (ELSI) Committee and assistant general counsel for Microsoft Japan Co., Ltd.
John Kirch
Senior vice president Uppsala Security
Vice-chair ICT Committee
“Most immediately we have seen, since the first Covid-19 emergency declaration, an inability for most employees to work from home,” she said. “And while Japan has widespread mask usage, I believe this inability for people to work from home is a huge contributor to the Covid-19 caseload and deaths compared with other Asian countries.”
Government Action
If the consequences of failing to adopt digitalization in business are many, varied, and glaringly obvious, what should the Japanese government be doing?
“The first step is to get the Digital Agency up and running with a broad mandate to drive digitalization across ministries and at all levels of government—national, prefectural, and municipal,” emphasized Foster.
“Other initiatives,” he added, “include improving and expanding the procurement of digital technologies and services, promoting rapid adoption of cloud computing through mandating interoperability across government agencies, getting the right balance on data privacy, and setting principles for responsible use of artificial intelligence.”
Judith Hanna, a Japanese policy analyst and advisor to the New Digital Agenda Task Force—chaired by James Miller, head of public policy at Amazon Web Services Japan—concurs that the central government, led by the Digital Agency, “must make some fundamental decisions that reflect on what businesses need to be globally competitive.
“There is no time to lose,” she added. “This means greater dialogue with the international business community and learning from other governments that have already gone through—or are going through—the digital transformation journey.”
Judith Hanna
Japanese policy analyst
Advisor ACCJ New Digital Agenda Task Force
Kirch, who is senior vice president of Uppsala Security—the first blockchain technology powered, crowd-sourced threat intelligence platform—believes the most critical requirement is for the government “to set out a vision of where it wants to go and to define bold goals with target dates so progress can be measured.
“There needs to be leadership and dialogue,” he said. “The vision needs to be communicated, targets must be allocated, and those who are made responsible for meeting those goals must be named and actually held responsible.”
It is imperative, he added, that the digital transformation should leverage the legacy systems, on which Japan currently relies so heavily, by enabling digital-driven integration to dynamically accelerate the time to market of “agile systems” that run on mobile phones, the web, and in the cloud, no matter if it is for a government agency, academia, or an enterprise.
“Change-ready has to become the de rigueur attitude or culture,” he said.
Early Education
Graham believes solutions need to be introduced even before young people first join a company, calling on the government to “aggressively promote digital skills across Japan, not just in colleges, but starting with the youngest students and continuing to adult education.
“Without basic digital literacy, any digital transformation and adoption in business, education, or the government will be limited,” she said.
There is also a lot that the private sector can do in this area, she pointed out.
“If you focus just on the system integrator sector, where the bulk of Japan’s digital talent is currently employed, they can create internships to train high school students, launch programs for employees to volunteer in schools to teach digital skills, and sponsor ‘digital camps’ and competitions among the youngest students to get them interested early.”
Jim Foster
Senior advisor ACCJ New Digital Agenda Task Force
Hanna concurs that there is an urgent need for universities to produce more digital talent, adding that companies need to be communicating with government to identify areas in which there are talent shortfalls. There is also a need to re-skill the workforce for changes in their tasks.
Digital transformation requires designers and data scientists, machine learning experts and data engineers, software developers and cybersecurity experts. But just one percent of the Japanese workforce is at present skilled in these areas. And most are locked up in the operation of legacy systems instead of entrepreneurial startups attempting to develop the next “big thing.” There are just 29 Japanese universities with software-related programs, compared with 117 in the United States.
Mike Benner, co-chair of the ICT Committee and a managing partner at business consultancy MB Partners, said the importance of developing synergies between the government and the private sector cannot be overemphasized and there is a desperate need for both sides to accept and encourage the new ways in which we are all working.
“The digital transformation should … dynamically accelerate the time to market of “agile systems” that run on mobile phones, the web, and in the cloud."
“The elimination of antiquated overtime rules which, in the past, have held workers hostage in the office until the boss leaves, irrespective of their productivity levels, should be a priority,” he said. “Rules around compensation for intelligence-based workers need to be changed to better incentivize non-routine employees to work even more productively, eliminating non-value-added tasks and the custom of working for overtime pay.”
Alice Graham
Assistant general counsel Microsoft Japan Co., Ltd
Co-chair Digital Literacy and ELSI Committee
Not only would these initiatives be relatively straightforward to implement, but they would have a very fast and visible impact on the well-being of staff, in the workplace and beyond.
Foreign Influence
Analysts agree that Japan’s entrenched business culture will be the biggest hurdle to overcome. But, they add, foreign firms have an important contribution to make.
“It is going to require a broad-based effort—and I believe that ACCJ member companies have a role to play in this as well,” said Foster. “Our companies have led the growth and development of the digital economy in Japan over the past decade and have both a business interest and social responsibility in supporting digital transformation in Japan.”
The chamber’s Digital Society Coordination Group is working with all ACCJ committees to examine ways in which companies can show leadership in these areas, he said. Some of the initiatives they are exploring include:
Supporting summer internships for the next generation of software engineers at US companies
Funding scholarships for top Japanese students in computer studies programs at US universities
Raising awareness of, and providing practical experience in, dealing with cybersecurity challenges through hackathons
Engaging in knowledge and experience-sharing with Japan’s startup community
“Obviously, this is a big job, and the resources of the chamber and its member companies are limited, but I feel it is important for us to lead by example.”
Darren McKellin
Area director large enterprise North Asia Zscaler
Co-chair ICT Committee
Vice-chair Digital Transformation Committee
Hanna firmly echoed that belief, adding that it is critical for the foreign business community here to support the debate and engage in local politics.
“It’s not always easy to get behind closed doors within government, but that’s where digital policy is a sweet spot. Japan wants—and needs—to learn from examples offshore,” she said. “It will do it in its own unique and kaizen way—that Japanese approach to continuous improvement—but the pressure is on to do this quickly. That’s something Covid-19 has revealed. I think we can expect more opening up between the government and the international business community, and occasionally that means we will have to get in front of leaders and remind them we are here and want to help.”
Darren McKellin, who jointly chairs both the ICT and the Digital Transformation Committees, sees grounds for optimism in Japan’s corporate world. “Many Japanese companies are now securely accelerating their digital-transformation journey, and it is their top priority,” he emphasized. “These are the companies that will be able to compete on the global stage.”
And there are real-world examples that have underlined the importance of the transformation, he points out, such as the recent SolarWinds security incident, in which hackers breached the Texas-based tech company’s systems and injected malicious code into its widely used IT management software. That has not gone unnoticed at Japanese companies, which are now aware they need to provide their workers secure connectivity to applications, regardless of their location.
“The shift in security is because workers need access to applications, not the network, which is fundamentally different from the firewalls and legacy network security architecture that protect a data center—and were not designed for the digital era,” he said.
Mike Benner
Managing partner MB Partners
Co-chair ICT Committee
But Japanese companies do realize the need for change, he added. The ICT Committee, for example, last year hosted a presentation by a senior official of Konoike Transport about the digital transformation the company is implementing to move its ICT infrastructure into the cloud, permitting a revolution in working styles. Konoike now has a 10-year business plan that includes overseas expansion—and with virtually all the solutions coming from US companies, including OKTA, Inc., Zscaler, Inc., Amazon Web Services, CrowdStrike, Inc., and others.
Yet, on the whole, Japan’s business world still falls far short of the criticality required before digitalization can be declared a success.
“This is a massive opportunity for Japan but also its biggest challenge, as I see it, since the industrial revolution came to Japan,” said Kirch. “It is going to be a tremendous challenge for some companies—and those in government—to entirely change the way they think and have done things for years.
“But the potential payoff is colossal—and it’s important to point out that the benefits will not only be in terms of the nation’s companies and its economy. This sort of change could enable people to lead happier lives with less stress and greater free time. And, I would say, that is the sort of future we should ultimately be working together to achieve.”
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
