2020 RRI International Symposium, Germany-Japan Experts Meeting“Manufacturing policy in the world of post COVID-19”

Transformation to new digital business model

October 13 , 2020
Koichi Iwamoto
RIETI/JPC
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Examples of markets with rapid increase in demand in a short period oftime, after Covid-19⚫ Service to help daily life for indoors
Watch streaming video
Online purchases and delivery services (ex. Uber eats)
Buying daily food online
Supplies for indoor exercise⚫ Services to help working from home
Video conference software Zoom, etc.
Remote work equipment and network
Security enhance⚫ Countermeasures for Covid-19
Ventilator
Ekmo
Protective clothing
Face shield
Face mask2Article quoted from Nihon Keizai Shimbun 2020
Sep. 7thTitle "Robot collaboration with people demand through corona measures, FANUC triple
production"
Overview: As the risk of infection at factories increases, the demand for robots that canwork near humans on the production line increases, and FANUC's production will triple in
2021 from 2020. Mitsubishi Electric and Toshiba Machine will also enter the market.
Sep. 8thTitle "Dramatic change in global earnings, under corona, IT company breakthrough"Overview: The net profit of about 44,000 listed companies in the world was ranked. The
target is the settlement of accounts for the March-May period, April-June period, andMay-July period of 2020. IT and semiconductor-related company breakthroughs led to adrop in rankings for finance, energy and automobiles. Digitization and decarbonization
are accelerating due to the influence of the new corona.
Sep. 9th
Title "Production return for corona measures, flooded with applications for 160 billion yen, subsidy competition rate 11 times“
Overview: Overwhelming application for government subsidies to support the return ofproduction to Japan. The competition rate of 160 billion yen, which is scheduled to beadopted in October, has increased 11 times. The application deadline was July, but there
were 1670 applications (1.764 trillion yen).

Article quoted from Nikkei Sangyo Shimbun 2020
Sep.18th
Title "Urban redevelopment, Corona correspondence of Yaesu building, thorough"without touching ""Overview; Mitsui Fudosan and Tokyo Tatemono are working on what the office should bein the with Corona era. The building to be built in Yaesu will be equipped with abundantmeasures to prevent infection and to work flexibly. In Marunouchi and Yurakucho, thetown will be converted to DX. Corona and DX are the keys to urban redevelopment.

4Normally, markets change slowly, leaving
manufacturers enough time to respond to change
the products to those that sell better.
However, major social shocks can cause sudden
and massive market changes.

But even in such cases, the basic flow of
responding to market demand is essentially thesame.
Specifically, stopping production of products forwhich there is no longer demand, and developing
and increasing production of products for which
new demand has been created is essentially thesame.
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The image of changing market
Market change by social shock

declining

no change

old market

developing

new market

The structure of market change by social shock, ie Covid-19
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The development of products show “hysteresis curve“
Supply side; New technology and products emerge
Demand side; Developing market

interaction

Washing
machineColor television
Passenger
vehicleRoom airconditioner
Microwave oven

Refrigerator

Vacuumcleaner

Personalcomputer7

According to the textbook in Economics, he, who gets the big share at
the beginning of the developing market , will get big money in thefuture. The winner of the game is decided at the beginning.

Marketsize

Market maturetime

8The new digital business models of themanufacturing company, I expect will expand to alarge market as well as maintain for a long time, arethe following three markets.
1 Maintenance market
2 Customization market
3 Remote work market

9Maintenance market
In recent years, the importance of maintenance service has risen greatly. Thereare two main backgrounds.

First, environment surrounding the manufacturing industry is changing rapidly.
Until now, the business style of the manufacturing industry has basically been“sold out,“ getting main profit by selling things.
However, as this market became saturated, this business style could no longer
be expected.
The maintenance service has come to be seen as a new second source of huge
profit .
Second, the technical environment has been set up so that maintenanceservice can be seen as a big source of profit.
AI, IoT, 5G... By utilizing these technologies, a method has been establishedthat provides new value to customers.

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As maintenance service, some people still have the old image of rushing over
to a machine when it machine is broken, and replacing parts. However thismodel is hard to profit from.
For example, "e-F@ctory" from Mitsubishi Electric is the most profitable
service. Hitachi also makes “Lumada” that makes use of IoT and big data asa pillar for the future.

These systems are in some ways maintenance service. It can be installed in
an existing production line or machine to improve the operation rate or keepthe machine non-stop.
From the sales, we can see strong demand for services that realize “non-stopmachine."
Deliver machines, get real-time big data on their operating status, analyze thedata by AI, and provide services to customers.

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Many manufacturing companies have already deployed such services, but
this style does not expand business.
The important thing in data collection is the total quantity and quality varianceof the data. The more big and various data you collect, the more sophisticatedand multi services you can create.

By collecting big data from all products of the corporate group, as well asproducts outside the group and foreign products, and analyzing them with AI,
we can create extremely high quality services.
Such kind of companies have already been established in the US, Germany,and other countries.
It will be a subcontract for Japanese manufacturing company only to provide
data to foreign companies. By this the most delicious merit may be brought toforeign companies.

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IoT Platformer

Use of products Collection of data

USER

Supply ofproductspresentfuture

Manufacturingcompany
Provideservice
Provideservice

Dataanalysis

Dataanalysis

Service provider

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Customization market
Sensors, semiconductors, memories, communication capacities, etc. are
rapidly increasing in speed, size, and mass. It will be possible to understandthe needs of each individual, and "customization" will be promoted to provide
products and services that meet the needs of each individual.

Remote Work market
The remote work business operations in companies will accelerate.
The remote business that meets the needs is expected to grow rapidly as alarge market.
After Covid-19, companies will recover their performance, so the above flow
will accelerate.

14The Third Survey of Emergency Survey on the Impact of Covid19 on Teleworkers
National workers, male and female, 20-59 years old, 10 or more employees atwork
Regular employment n=20,000 Non-regular employment n=1000
In order to make a comparison with the first and second survey, we analyzed
mainly the figures for regular employees.
The survey results are weighted back from the 2015 Census data according
to the composition ratio of regular employees and employees of different
sexes (in five-year increments.)
The number of samples in the graph is the number of samples after weighted
back.
May 29, 2020 - June 2, 2020

Internet quantitative research using survey monitors
Source ; PERSOL RESEARCH AND CONSULTING CO., LTD.
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After the convergence of Covid-19, the percentage of people wanting tocontinue working from home was 69.4%, up significantly from 53.2% in April.
The rate of those in the "younger age group" and "women" was high, with
79.3% of women in their 20s wanting to continue working from home.

Desire to continue working from home
Source: PERSOL RESEARCH AND CONSULTING CO., LTD.
"Third Survey: Emergency Survey on the Impact of Covid-19 on Teleworkers"

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The percentage of respondents wishing to continue working fromhome was high in Corporate Planning (85.3%) and General Affairs andHuman Resources (77.5%). The rate is low for jobs with on-site
workplaces, such as customer service, drivers and medical professionals.
The desire to continue working from home is also high in occupations thatcurrently have high rates of telecommuting, and this trend of differentiation
by occupation is also evident here.

Desire to continue working from home by occupation
Source: PERSOL RESEARCH AND CONSULTING CO., LTD.
"Third Survey: Emergency Survey on the Impact of Covid-19 on Teleworkers"

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2020 Capital Investment Survey (conducted by Nikkei Inc.)
Target948 companies (listed companies with capital of
100 million yen or more)
Planned capital investment for all industries
19,239.5 billion yen, down 1.2% from the previousyear
IT Investment
47.8 billion yen, up +15.8% from the previous year
Manufacturing: +20.3% (record high)18Conclusion
When the behavior of humans and companies
change drastically, some markets will be lost,while others will be newly born anddeveloping.
The new market is arguably a huge market,
and digital technology determines thesuperiority.
Thank you for your attention.
Thank you for Research Assistants; Miss Aratame
Quotation allowed, Specify the source
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