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HOME NRI JOURNAL Bringing A “Digital Revolution” To Japan

NRI JOURNAL

Innovation magazine that generates hints for the future

Bringing A “Digital Revolution” To Japan

Kotaro Kuwazu, Executive Fellow, Deputy Division Manager of Consulting Division, Division Manager of Center for Strategic Management & Innovation

Oct. 09, 2018

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In recent years, amid the rapid advance of digitalization, the US’s GAFA (an acronym for Google, Apple, Facebook, and Amazon) and China’s BAT (an acronym for Baidu, Alibaba, and Tencent) have vied for leadership and intensified their competition, while Japan is seen as experiencing decreased prominence and a heightened sense of crisis.
Since the proliferation of the Internet began in 2000, Japan has had a consistent tendency to be overwhelmed by the dynamism of North American ventures. Additionally, in the past few years, Japan has been pressed by the Chinese approach of strong coordination among government, business, and society. This cannot be chalked up to Japan’s having simply fallen behind in R&D or technical development, and we need to start viewing the gap between society’s capacity to implement digital projects and the ability of the people to accept digitalization as a problem.

 

Mature Japanese Culture Fetters Digitalization

Taking electronic money as an example, even though Japan led the way technologically in the use of easy-to-use contactless payment methods initially employed at railway turnstiles, surveying the globe reveals that it has now been overtaken in mass by NFC, QR, and other latecomers. While the Japanese government promotes the continued adoption of digital money as a national strategy, its future goals represent less than half of the present levels in China.
Compared to other countries, the volume of cash circulation is extremely high in Japan, and the transition to cashless payment methods has not made much headway. The reasons for this are decidedly not negative, and in many cases stem from virtues of Japan: there is trust in advanced paper money printing technology (there is virtually no risk of counterfeit bills in circulation), ATMs and other cash-related infrastructure are widely available and highly convenient, and the public spirit of the people is such that cash is never stolen from street-side vending machines. But on the other hand, Japanese people bear an inherent and steep social cost from the lack of digitalization in the flow of money, and this disadvantage cannot be ignored.
Japan is aging and facing labor shortages faster than the rest of the world, and it will eventually become unable to bear this high cost. By all rights, Japan should be pursuing lower social costs through proactive digitalization and automation, but with many people voicing the opinion that even unmanned financial institutions and distribution stores “lack warmth” or “should be handled by people”, there is a deep-rooted resistance to digitalization and automation in Japanese society.

Conversely, there is a massive flow of energy and resources into digitalization in China, and the influence of this is felt around the globe—not just in neighboring Japan.
It is becoming increasingly likely that Chinese vendors will lead the world in the technical infrastructure for automated operations and 5G mobile technology. It is not only the free competition stemming from laissez-faire that generates strong technology, and China’s “digital socialism” and “digital planned economy”, so to speak, in which the society takes the initiative to propel technology, appear to be forming yet another trend that will influence the entire world.

Japan Must Recognize the Crisis and Dismantle The Status Quo

Looking at modern China, it is a persuasive argument that it is precisely because China was a late-bloomer with little to lose that it was able to fully integrate the benefits of digitalization in a shorter period of time.
It is ironic that precisely because China’s social infrastructure such as paper money printing technology and ATMs were comparatively inferior, the transition to—and acceptance of—electronic money (which entails no worries of counterfeit bills and does not rely on ATMs) has proceeded smoothly, whereas the solid infrastructure that Japan has had in place since before digitalization has made it difficult to adopt digital technology across the board.
Economic development in Asia was once thought of as a “flying V”, in which the spread of new technologies and businesses began in Japan and then to South Korea, Taiwan, and China, in that order. However, from the perspective of digitalization, it is China that leads the pack, followed by South Korea and Taiwan, with Japan bringing up the rear. While Japan may have thought of leading this flying V, at some point they’ve fallen behind and are struggling to keep up. To break free of this situation, Japan must deliberately acknowledge this crisis where Japan is a country that has been handicapped and is straggling behind.

There are countless issues that Japan must address, but in terms of maintaining Japan’s presence and predominance internationally, I think it is the promotion of digitalization and automation that is ultimately the most important.
I believe that initiatives billed as part of a “digital revolution” are needed to deliberately disassemble Japan’s perfectionism and its people’s deep-seated desire to maintain the status quo. This would necessarily entail promoting the growth of new ventures and the participation of young people alongside decisive, strong initiatives to reform the aging foundations of industry and educational, medical, and other social systems that are bound to impede digitalization—and in a sense, these initiatives would be destructive in nature. This should begin with reevaluating and enhancing Japan’s available frameworks, including the special zone system and the executive authority of local governments.

 

NRI Research Paper Knowledge Creation and Integration August, 2018

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Nomura Research Institute, Ltd.
Corporate Communications Department
E-mail: kouhou@nri.co.jp

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