Why is Japan struggling with digital transformation?

Japanese culture is a hugely successful national export, growing around the world thanks to the country’s rich history, heritage and cuisine – all combined with technological superiority. When we picture Japan, we might imagine a high-tech nation where bullet trains zip through the countryside and cities are powered by advanced, modern connectivity systems.

Floppy disks are still widely used in Japan.

However, surprisingly, Japan has been lagging behind in digital transformation for decades. Research data from the US market research firm Forrester shows that a quarter of Japanese companies have stopped implementing digital transformation, while 9% have not applied digital transformation at all. This figure is higher than other countries, such as Malaysia, where only 2% of companies have not applied digital transformation, and Indonesia, where only 1% of companies have not applied digital transformation. Furthermore, the survey also shows that only 39% of companies in Japan are participating in the digital transformation process.

Many old technologies are still used in Japan.

Professor Parissa Haghirian of Sophia University, Tokyo said that most offices in Japan still use fax machines for work exchanges. Another tradition that is still widely used is the personal hanko seal. Unlike Vietnam and many other countries in the world - where only companies (legal entities) use seals, in Japan, each person (individual) uses a hanko seal instead of a personal signature. Accordingly, before COVID-19, almost all documents had to be stamped instead of signed.

In Japan, online banking was introduced almost a decade later than in many other countries in the world, and many banks still do not have this application. Most Japanese citizens still use small bank books instead of online banking applications like other developed countries in the world.

According to Professor Parissa Haghirian, there are several reasons why change is so slow in Japan: workers here do not change jobs frequently, which means they will not find many changes in internal processes based on experience from their previous company, so everything remains the same. In addition, IT resources are also limited, leading to businesses having difficulty developing new digital platforms based on IT.

A key issue is that Japan is grappling with a rapidly aging population. Statistics show that in 2021, Japan had 36.21 million people over the age of 65, accounting for 28.9% of the population. Meanwhile, the figure in 2020 was 28.6%, much higher than the US (16.6%), Sweden (20.3%), France (20.8%) or Germany (21.7%).

These people are still loyal to traditional technologies that have existed for decades. Therefore, observers say that abandoning these traditional technologies will take many years in Japan.

Professor Haghirian added that decision-makers in agencies and businesses are often older people, so they find it difficult to accept change. In addition, many customers are also older, so they do not feel comfortable using new systems or technology applications. On the other hand, they have time to go to offices and banks in the city to do the procedures directly instead of having to rely on online services.

Professor Haghirian commented that it will be difficult for the Japanese government to abandon the use of outdated technologies. Whether the government can successfully digitally transform public services or not requires a comprehensive long-term strategy for the whole country, managed and implemented by IT experts.

Ditching Old Technology to Enter the Digital Age

Japan’s patriarchal traditions are a major obstacle that makes it harder to wean off outdated technology, agrees Jun Mukoyama, senior researcher at the Asia-Pacific Initiative. Standards set by those at the top of an organization who prefer old approaches, and the risk-averse and infallible nature of government officials also slow down change.

The Japanese government’s failure to embrace digital technology in its response to the COVID-19 pandemic has been widely criticized in Japan. It has taken months for the government to deliver cash handouts to citizens and the government has been unable to capture real-time patient data because hospitals and medical centers rely on telephones and fax machines for communication. This is very different from the experience in other countries around the world, where digital transformation has accelerated during the pandemic.

The “hanko” mark has been used in Japan for nearly 2,000 years.

The shock of defeat in the digital war prompted the Japanese government to look back at itself by establishing the Digital Management Agency in September 2021. More than a year after its establishment, the Japanese government is making progress in its digital transformation.

Recently, the new Minister of Digital Affairs Taro Kono officially spoke out and declared war on the use of floppy disks, CDs and even cassette tapes in Japan. This comes after a government committee discovered that nearly 2,000 administrative procedures still require applications or forms to be submitted on floppy disks and CDs.

When he first took office as Minister of Digital Affairs in early August 2022, Kono was outspoken in his criticism of the use of fax machines and “hanko” stamps in COVID-19-related paperwork. With the advent of the internet and cloud storage, Minister Kono is trying to move away from these outdated technologies and toward online applications.

The issue has come to light as part of the Digital Ministry’s broader review of the country’s processes, which is currently reviewing around 60,000 regulations and administrative procedures that regulate the storage of floppy disks in specific processes in order to move to online storage.

The country's Digital Agency is hoping to introduce a bill amending all of those regulations by 2023, while guidelines that do not require legal amendments will be revised in 2022.

In 2021, the Japanese government focused on laying the foundation for digital transformation within the government. For example, over the past year, the Japanese government has been cleaning up fragmented or non-standardized data to create accurate, unified, and reliable databases.

In addition, the government has also created inter-ministerial roadmaps to plan for the coming years and built the Individual Number System called My Number, which is part of the digital tax and social security number system. With such steps, it is hoped that the digital transformation process will be carried out more smoothly in the coming years in Japan.

Change starts from within

Tsuneo Fujiwara, vice president of global technology research and advisory firm Gartner, said in 2018 that the Japanese government realised it needed to go digital, failing which the country could suffer economic losses of up to 12 trillion yen (about £71.6 billion) a year. However, he also said there were some challenges the Japanese government needed to overcome, including an ageing population and a lack of IT talent in the country.

There have also been many changes within the Japanese government leadership in recent times. Accordingly, one of the most strongly pro-digital prime ministers was Yoshihide Suga of the Liberal Democratic Party. He was elected in September 2020 and immediately established the government's Digital Ministry, but resigned just a year later. After Yoshihide Suga's resignation, Japan's first Digital Minister, Yoko Ishikura, was also forced to resign. In addition, it seems that other ministries often ignore recommendations from the Digital Ministry on how to digitize internal processes.

To carry out digital transformation, Japan's Ministry of Digital Affairs has announced digital governance rules, encouraging companies to launch digital transformation projects.

As in any country, digital transformation will help modernize Japan. Digital transformation could rekindle the culture of innovation that the country has lacked for the past 30 years. Japan was a highly innovative country after World War II, but in recent decades it has focused on improving existing processes rather than implementing new ideas. From a cultural perspective, digital transformation could be a breath of fresh air to get Japan back on track.

Although Japan has made encouraging progress in digital transformation in recent times, the country continues to face problems such as an aging population, leaders who refuse to embrace change, and public services in dire need of modernization./.