The Impact of DX and Work Style Changes in the Era of Living with COVID in Japan

March 28th, 2023 [No. 110 – 2022]

Fujikazu Suzuki
Coordinator,
Research Center for Solidarity-based Society, Japan
 
 

The Impact of DX and Work Style Changes in the Era of Living with COVID in Japan
Part 4: Problems with DX in Japan and the Future Outlook

It is often pointed out that Japan's DX is relatively lagging behind global trends. For example, one of the governmental white paper said: “From a global viewpoint it is advancing in some ways. One example of Japan’s progress is the development of digital infrastructure (development of communications systems, and how ICT is used in our daily lives). However, overall it is a long way behind the rest of the world” (Ministry of Internal Affairs and Communications, “Information and Communications in Japan: White Paper 2021”).

The following points have been shown as the main reasons for Japan’s slow progress in DX.

First, investment in ICT has almost stopped. Since reaching 20 trillion yen in 2000, Japanese investment in ICT has not changed much each year since then. In fact, it decreased to 17.6 trillion yen in 2020 (a 2.4 trillion yen or 12% fall compared to 2000). In addition, if we look at the situation more closely, we can see that ICT investment by Japanese companies is mainly for improving work efficiency. This means companies are changing their business models so they can grow or enter new fields, but they are very slow to digitalize (digital transformation = DX) at the same time, or they are not digitalizing at all.

Second, there are not enough people who are skilled in ICT. In fact, the number of people who are skilled in ICT prefer to work at companies that specialize in ICT. This makes it difficult for non-ICT companies to recruit their own ICT experts who can introduce and carry out DX.

Third, there are strong feelings of fear about digitalization, so many companies do not want to introduce it. For example, the Ministry of Internal Affairs and Communications did a survey about users’ opinions of DX. The results showed that the most common reason digitalization was not progressing was “fear about information security and privacy leaks” (52.2%).

Fourth, most people do not clearly understand the digital world. For example, when the Ministry of Internal Affairs and Communications tested first-year high school students about online risks and threats, the average score was only 60 to 70%. This problem was also noticed in the OECD Programme for International Student Assessment (PISA) results. In fact, Japan invests much less money and time than other countries to educate people about DX. As of 2015, Japan’s total governmental spending on investment in education and training was only 0.15% of its GDP. This is far below the OECD average of 0.52%.

It is clear that Japan’s slowness to introduce DX is damaging its ability to compete with other countries. For instance, in the International Institute for Management Development’s (IMD) digital competitiveness ranking, Japan’s position has been dropping for the past few years. In 2020, it ranked 27th out of 63 countries and regions, which is a large drop from 20th place in 2013. Looking at the reasons why Japan’s rank is falling, among the items that relate to “knowledge,” the fall in Japan’s rank for “human resources” is frightening. It was 46th in 2020.

Nowadays in developed countries, capitalism is changing from making and using products to making and using information and services. This change is happening very fast. It means digital competitiveness is now an extremely important part of industrial competitiveness. This will be easy to see in trends at the national and international level. Some people also think Japan should become a “social investment-oriented nation.” That means Japan, which is an industrialized nation, should set the goal of investing in people, welfare, and the environment in the post-industrial era.

For this country to be a prosperous and free society over the next 100 years, Japan will need to make wise decisions about its DX policy. Japan will also need to work fast on DX to catch up with other advanced countries. Fortunately, its digital infrastructure is progressing. The problem is that it is not being used well. Catching up to other countries will not be easy, but it will open up possibilities for the future. But an old saying is that crisis creates opportunity. When Japan was modernizing and industrializing in the past and it fell behind other countries, the Japanese people used this as motivation for more progress. So in Japan’s efforts to pursue DX, it should look to these past experiences for inspiration.