How is Japan trying to promote digital transformation?

Taking a top-down approach, the Japanese government began modernizing information technology (IT) infrastructure and services, while building a digitally skilled workforce to support a future digital society, narrowing the urban-rural digital divide, and thereby boosting the country's economic growth.

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In order to promote the development of science and technology, in January 2016, the Japanese Government announced the “5th Basic Plan for Science and Technology 2016-2020”, which proposed to build a super smart society, also known as “Society 5.0”. The main goal of “Society 5.0” is to solve social problems by connecting systems using digital technology as a foundation to merge real space and digital space. This is a society that provides goods and services according to the needs of each individual.

In addition, Japan's “Society 5.0” initiative also aims to create an economic model that harnesses technological innovations to promote digitalization in government agencies as well as in service industries.

According to a forecast by British data analytics and consulting firm GlobalData, the “Society 5.0” initiative will drive Japan’s Internet of Things (IoT)-based IT solutions market to grow from $42.1 billion in 2021 to $60 billion in 2026, at a CAGR of 7.4% over the forecast period. Of which, the manufacturing sector, which involves the use of robots and automation, will account for 13.1% of the revenue of the information and communications technology (ICT) market in Japan.

Digital Agency set up to boost country's tech ambitions

Japan has long been seen as a laggard in digitizing government services, both at the national and local levels. The country is still looking to upgrade technology for government services and record keeping, so it established the Digital Agency in September 2021 to focus on reforming outdated administrative systems of government agencies, which have shown many shortcomings and inadequacies during the COVID-19 pandemic.

Since its inception, the agency has established strategic partnerships with several countries to advance its digital ambitions. Accordingly, in June 2022, the agency signed a three-year agreement with Singapore’s Government Technology Agency (GovTech) to focus on exchanging knowledge and experience in the areas of digital identity (Digital Identity), artificial intelligence (AI), cybersecurity, and cloud computing services. Next, in October 2022, Japan also partnered with the United Kingdom to enhance digital transformation in government agencies. Recently, the Japanese government continued to cooperate with the Philippine government in promoting digital transformation efforts.

The Digital Japan Agency is now encouraging local governments to switch entirely to government cloud computing services by fiscal 2025. An official said a full shift to cloud computing could cut the annual IT budget, which currently stands at around 800 billion yen ($7 billion), by about 30 percent.

Once a country that prided itself on its technological advancements, Japan now has a lot of catching up to do. According to the 2022 Digital Competitiveness Index released by the International Institute for Management Development (IMD) in Switzerland, Japan ranked 29th out of 63 countries, down one place from 2021.

Last year, Japanese Prime Minister Fumio Kishida announced that the government would promote the development of services based on the latest Internet technology (also known as the third-generation Internet or Web 3.0), including new services such as blockchain-based digital assets (NFTs) and metaverses.

As one of the first countries to launch commercial 5G services, Japan aims to cover 98% of its population with 5G by the end of the first quarter of 2024. 5G is identified as a key enabler for digital transformation, and Japan has been promoting 5G development in industrial markets and other use cases to positively impact its economy.

In addition to continuing to promote the development of 5G technology, the Japanese Government is funding research and development (R&D) of next-generation mobile technology (6G) in the future. Accordingly, since the beginning of 2020, Japan has begun discussions on 6G technology. To realize the goal of developing and commercializing 6G technology, the Japanese Government plans to invest 50 billion yen (about 482 million USD) to promote R&D of this new technology. The goal set by the Japanese Government is to develop core network technologies for the 6G system by 2025 and commercially deploy this technology by 2030.

However, Japan’s digital transformation is not without its challenges. Government agencies still rely heavily on old-fashioned paper procedures when citizens want to register for public services, while central and local government offices use different systems to store and manage data, which lack interoperability because the systems are heterogeneous and built by each agency. In addition, the Japanese people are still loyal to traditional technologies that have existed for decades, and abandoning these traditional technologies will take time.

Research data from the US market research company Forrester shows that more than 25% of Japanese businesses are delaying the digital transformation process, while nearly 10% of businesses do not apply digital transformation at all. This figure is higher than other countries, such as Malaysia, where only 2% of businesses do not apply digital transformation, and Indonesia, where only 1% of businesses do not apply digital transformation.

Last year, the new Minister of Digital Affairs, Taro Kono, officially declared war on the use of floppy disks, CDs, and even cassette tapes in Japan. This came after a government committee discovered that nearly 2,000 administrative procedures still required applications or forms to be submitted on floppy disks, CDs, MDs, and even cassette tapes. He publicly pledged measures to eliminate the use of floppy disks for data storage, a practice that has long been considered obsolete in many central and local agencies.

Like many other countries around the world, Japan lacks the right digital talent to meet the country’s digital needs. The country also needs to catch up on cloud computing adoption to fully unleash the potential of today’s technology. With cloud computing investments accounting for just 4% of Japan’s total IT spending in 2021, Japan is behind many countries.

Promoting the revival of Japan's semiconductor industry

Once the world’s largest semiconductor chipmaker, producing more than half of the world’s semiconductor supply in the 1980s, Japan now accounts for only about 9% of global semiconductor production. To increase competitiveness, the country is trying to revive the industry to close the gap with countries like Taiwan, South Korea and China through a series of new initiatives.

In a bid to reduce its dependence on imports of advanced semiconductor chips from Taiwan and South Korea and boost semiconductor production, Japan has approved $7.7 billion in funding to develop semiconductor manufacturing by 2021.

In addition, the government has also funded joint ventures with Taiwanese and American semiconductor suppliers to boost domestic semiconductor production. Accordingly, in June 2022, Japan's Ministry of Economy, Trade and Industry (METI) funded $3.5 billion to build an $8.6 billion semiconductor foundry on Japan's west coast.

This is the first semiconductor foundry co-invested by Taiwan's TSMC, the world's leading semiconductor foundry, to receive government funding and will become the most advanced semiconductor foundry when production begins in late 2024. In addition, many other plans are also being implemented by Japan to enhance the country's capabilities in the field of advanced semiconductor chip manufacturing.

Although Japan is not at the forefront of digital transformation, the country continues to be a major technology player in the region thanks to its long history of technological innovation and its interest in developing new technologies such as IoT, AI and 5G to drive new applications in the digital economy.

Through the use of digital technology, Japan is rapidly advancing digital transformation, putting people at the center and leaving no one behind, contributing to the happiness of each individual by allowing diverse citizens to choose digital services that suit their needs.