Many companies in Japan’s famously traditional business culture have been slow to embrace digitisation, but the pandemic is changing their minds.

Digitisation accelerated worldwide during the pandemic, yet despite being highly advanced technologically, Japan has clung to traditional business practices far longer than most rich countries. Face-to-face meetings, physical presence in the office, and the use of paper remain fairly commonplace, and Japanese companies have largely under-invested in IT relative to their peers. When new technology is adopted, it is usually for the purpose of marketing and selling products, not for bringing operational efficiencies.

Japanese technology firms naturally stand in stark contrast to companies in other industries. Size also plays a role. The vast majority of firms in Japan – 99% – are SMEs and microbusinesses, which tend to lag both in adopting new technologies and in changing long-held business practices. Tellingly they account for only 5% of spending on research and development, compared with an average of 30% in other OECD countries.

Japan’s belated push towards digitisation can be traced to the unexpected resignation of Prime Minister Shinzo Abe in August 2020. This created the need to elect not only a new prime minister, but first, a new president of the ruling Liberal Democratic Party. Three candidates vied for the job. Remarkably, the dominant theme of all three campaigns was digitisation, specifically as a means to improve the efficiency of business practices. The winning candidate, Suga Yoshihide, has prioritised digitising government services in order to lighten the burden on businesses and individuals.

The Economist cites a pre-pandemic government study which found that “firms which allowed teleworking were 60% more productive than those that did not”. Causation is not established, and the results may have been skewed by the tech sector. Still, these findings and others like them have helped convince more companies of the potential of digitisation to improve productivity. Companies that sell the requisite technologies, such as computer programs for secure electronic signatures, converting paper to digital or opening online stores, have prospered of late.

One by one, major Japanese companies across sectors are making the digital transition, and some have raced to the forefront. Mizuho Financial Group eliminated paper documents at its bank branches. Komatsu, the world’s second-largest heavy equipment manufacturer, has been investing in its smart-construction business. Chikashi Shike, President of Komatsu’s Smart Construction Promotion Division, pointed out that COVID-19 brought “a rapid decline in resistance” to digital innovation. Given the necessities of the pandemic, and the evidence of business gains, it could be said that in the digital age resistance is futile.

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