Tokyo l February 2022

DIGITAL
TRANSFORMATIONIN JAPAN
Assessing business opportunities for EU SMEs

Lena Broeckaert0About the EU-Japan Center for Industrial Cooperation
The EU-Japan Centre for Industrial Cooperation is a joint venture established in 1987 by theEuropean Commission (DG GROW) and the Japanese Government (METI) for promoting all
forms of industrial, trade and investment cooperation between the EU and Japan. It is jointly
funded and managed by both sides, with offices in both Tokyo and Brussels.

About the author
Lena Broeckaert is a digital transformation market and policy analyst based on Tokyo, Japan. Prior tojoining the Centre, she worked in Brussels as a technology advisor where she provided advices incorporate digital risk management, supporting companies from a variety of industries in their digitaltransition. She can be contacted via LinkedIn.

Acknowledgments
The author would like to express her gratitude to the members of the EU-Japan Center for Industrial
Cooperation for providing their dedicated support, guidance and for sharing their extensive knowledgeof the EU-Japan trade and policy environment. The author would also like to thank the representativesof the European Trade Promotion Organizations located in Japan for providing their valuable insights,
which greatly contributed to the outcome of this report. Finally, she would like to share her sincere
appreciation to all participants that contributed to the study and that enabled this research to bepossible.

©EUJP 2022
Photos: Shutterstock
Published by: EU-Japan Center for Industrial Cooperation, Tokyo
All reasonable efforts have been undertaken by the author to ensure the reliability and accuracy of the material in thisreport. The author and the EU-Japan Centre for Industrial Cooperation accept no responsibility for any errors. The
information contained herein does not necessarily represent the views of the EU-Japan Centre for Industrial Cooperationor other parties. The report is subject to correction without notice. Neither the author nor the EU-Japan Centre forIndustrial Cooperation is responsible for any consequences that may arise from the use by third parties of the information
contained in this paper.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

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Executive summary
Digital transformation (DX) has been a key and a
growing topic over the past years, where Japanis no exception.
This report aims to provide a holistic overview of
the current state of the digital transition in Japan,
with a focus on the initiatives undertaken by theprivate sector and assess the way it has
transformed its business and operating models.
On this basis, it aims to identify potential
opportunities for European companies to enter
the Japanese market in the digital domains.

Japan shows room for progress. The 2025
digital cliff, the COVID-19 pandemic as themomentum for change
The 2025 digital cliff, the ageing workforce andthe COVID-19 pandemic have been the
momentum for the private as well as the public
sector to undertake actions and accelerate thetransition toward digital.
Despite positive signals and the promotion ofdigital concepts such as artificial intelligence (AI),the Internet of Things (IoT) or the cloud, facts
and figures reveal that Japan still shows greatroom for progress both in the digitalization of its
public administration and services, as well as ofits corporate landscape.
In response, the Government of Japan (GoJ) set
up ambitious goals by envisioning the creation ofSociety 5.0, described as the convergence
between the cyber space and the physical world.
Over the past few years, it has accelerated
initiatives through the review and the
publication of multiple policies. Moreover, itestablished the Digital Agency to centralize
decisions in relation to digital measures anddrive the transformation of the country.

A slow transition of the private sector
Firms are still operating for a vast majority on old
legacy systems, inhibiting the transition to cloudand its related benefits, while digital marketing
practices, the digitalization of the supply chain
and the implementation of advanced
manufacturing are still far from becoming thecorporate norm. This lack of corporate digitalmaturity is reflected in firms’ next priorities forinvestmentindigital,indicatingtheimprovement of business process operations is
the main focus area for the years to come. The
situation is also fragmented when comparing
SMEs and large corporations. Whereas the firsts
are still catching up by starting the transition to
cloud and adopting standard practices such asdata analytics, the seconds are starting to look
into more advanced solutions powered by AI or
IoT.
On the other hand, Japanese firms struggle toleverage value creation from digital innovation in
products and services in comparison to global
peers, suggesting firms are not able to fullymaterialize digital solutions into revenues yet.
Business model disruption in traditional
industries such as the automotive, healthcare,retail and financial sectors is currently taking aturn and is led by long established industries’
leaders, which are very often cooperating withstartups to leverage their solutions and innovate.

An undeveloped startup ecosystem,
hindering domestic innovation anddisruption
Innovation in Japan relied for a long time on large
established companies, which had the tendency
to promote internal development andexperiment targeting domestic market. The
startup community, which is recognized to play a
key role in bringing disruption in the digitaldomain, has finally started to grow, although it
remains small when compared to otheradvanced countries. Similarly, venture capital
markets, which are key for startups to strive, are

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 20222

growing but still insufficient to competeinternationally.

Promising opportunities for EU SMEs inJapan
In this context, what are the opportunities for
European firms in the digital domains to expand
their activities to Japan? The environment
suggests opportunities are multiple and concern
all industries, where particular needs areobserved in BtoB markets, with a focus on
software solutions. First, the digitalization andthe need of Japanese firms to improve businessprocess and operations increases the demand
for trust services, secure data exchange
platforms but also for SaaS solutions supportingback office operations. Then, disruption in
traditional industries and the development oftechnology enabled products have raised thedemand for industry specific solutions leveraging
AI, IoT, network and sensor technologies, butalso solutions to improve user interfaces anduser experience.
The opportunities for EU companies arepromising, as those have the potential to fill thedomestic gaps resulting from the lack of local
digital talents, as well as the lack of disruptive
innovation, which is eventually the consequenceof the small domestic startup ecosystem.
Moreover, several European countries arerecognized for their digital branding andexpertise in specific domains, as well as in niche
solutions, suggesting that the continent holds acompetitive position in the international market
that deserves to be further explored.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

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Contents
Executive summary ................................................................................................................................. 2
Figures .................................................................................................................................................... 6
Use cases ................................................................................................................................................ 7
Abbreviations and acronyms................................................................................................................... 8
INTRODUCTION....................................................................................................................................... 9Context and purpose of the report .................................................................................................... 10
Methodology and limitations of the report ....................................................................................... 12
Definitions .......................................................................................................................................... 12
01 JAPAN DIGITAL POLICY BACKGROUND ............................................................................................. 14
1.1 Digital policy background ............................................................................................................. 15
1.1.1 Society 5.0 ............................................................................................................................ 15
1.1.2 Digital strategies – Policies and measures ........................................................................... 16
1.1.3 Government led R&D programs ........................................................................................... 17
1.2 Materializing Society 5.0 – Digital Agency, smart cities and support of the private sector ......... 19
1.2.1 Digital Agency ....................................................................................................................... 19
1.2.2 Smart cities........................................................................................................................... 19
1.2.3 Diffusion of digitalization across the private sector ............................................................. 20
02 CURRENT SCENE OF DX IN JAPAN..................................................................................................... 222.1. Snapshot of the digital scene in Japan ........................................................................................ 23
2.2 DX promotion and adoption ........................................................................................................ 25
2.3 Measuring key technologies adoption trends .............................................................................. 27
2.3.1 Overview of key technology metrics .................................................................................... 27
2.3.2 COVID-19 effect ................................................................................................................... 31
2.3.3 Popular technology solutions ............................................................................................... 32
2.3.4 Growing technology solutions .............................................................................................. 34
2.3.5 Promising technology solutions ........................................................................................... 37
2.3.6 Untapped technology solutions ........................................................................................... 41
03 DX IN BUSINESS OPERATIONS AND PROCESSES................................................................................ 45
3.1 Back office and digital tools ......................................................................................................... 46
3.2 Digital marketing .......................................................................................................................... 50
3.3 Next generation of supply chain and logistic ............................................................................... 52
3.4 Smart factories, Connected Industries and Industry 4.0 .............................................................. 57
04 DX IN BUSINESS PRODUCTS AND SERVICES ...................................................................................... 61
4.1 The state of digital innovation in Japan ....................................................................................... 62
4.2 Digitally enhanced products and new revenue streams .............................................................. 67
4.2.1 Next generation automobile – E-car autonomous driving and smart mobility .................... 68

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

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4.2.2 Digital healthcare - Personalized and remote solutions ....................................................... 70
4.2.3 Fintech and techinsurance – Cashless and automated decisions ........................................ 72
4.2.4 Retail and e-commerce - Upgrading online and offline experience ..................................... 74
4.2.5 Platform economy for consumer services............................................................................ 76
05 OPPORTUNITIES FOR EUROPEAN SMEs IN JAPAN ............................................................................ 78
5.1 Business opportunities for EU SMEs in Japan .............................................................................. 79
5.2 Recommendations for market entry and practical tips ............................................................... 98
5.3 Insights from Trade Promotion Organizations ........................................................................... 101
5.3.1 Insights from EU Trade Promotion Organizations (TPOs) in Japan .................................... 101
5.3.2 Recommendations to the EU-Japan Center ....................................................................... 102
CONCLUSION ...................................................................................................................................... 103
Related readings ................................................................................................................................. 106
References .......................................................................................................................................... 107
Appendices ......................................................................................................................................... 113

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

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Figures
Figure 1 - 6th STI plan targets .............................................................................................................. 15
Figure 2 - Japan Digital Score Card 2021 .............................................................................................. 23
Figure 3 - Comparison of global workforce productivity (2020) ........................................................... 24
Figure 4 - Gartner 2021: CIO Agenda on Digital Transformation ......................................................... 24
Figure 5 - IPA DX self-evaluation - 2020 ............................................................................................... 25
Figure 6 - Next priorities for corporate technology investment (%) .................................................... 28
Figure 7 - Key technology trend in Japanese corporate landscape (2020) ........................................... 29
Figure 8 - COVID-19 effect on digital technology adoption .................................................................. 31
Figure 9 - Corporate adoption of cloud solutions ................................................................................ 32
Figure 10 - Corporate adoption of RPA ................................................................................................ 33
Figure 11 - Corporate adoption of AI and IoT ....................................................................................... 34
Figure 12 - Forecast of the economic impact of AI on Japanese SMEs - By 2025 ................................ 35
Figure 13 - Analysis of data generated by connected devices ............................................................. 36
Figure 14 - Corporate adoption of data management practices .......................................................... 37
Figure 15 - Data Analytics Methodology (2020) ................................................................................... 38
Figure 16 - Data Analytics implementation - per country (2020) ......................................................... 38
Figure 17 - Corporate adoption of robots ............................................................................................ 41
Figure 18 - Corporate adoption of drones............................................................................................ 42
Figure 19 - Corporate adoption of blockchain...................................................................................... 43
Figure 20 - Corporate adoption of enterprise architecture .................................................................. 44
Figure 21 - Corporate adoption of 5G .................................................................................................. 44
Figure 22 - Legacy System vs Cloud ...................................................................................................... 46
Figure 23 - IT tools in use and cloud penetration in SMEs ................................................................... 47
Figure 24 - Digital transformation of the Supply Chain ........................................................................ 53
Figure 25 - Warehouse inspection method (2020) .............................................................................. 54
Figure 26 - Development stage of advanced robotics in warehousing ................................................ 54
Figure 27 - Digitalization of the Engineering Chain .............................................................................. 58
Figure 28 - Product/Service innovation and impact on sales revenues................................................ 62
Figure 29 - SMEs/Large companies' investments in new products and services (%) ........................... 63
Figure 30 - Startup landscape in Japan (2020) ..................................................................................... 64
Figure 31 - Top 3 Japanese startups in funding received (H1 2021) .................................................... 64
Figure 32 - Comparison of global VC markets evolution (2005-2018) ................................................. 65
Figure 33 - Intensity of Unicorns by GDP, Across Select Countries ...................................................... 65
Figure 34 - Number of university affiliated startups (2017) ................................................................. 66
Figure 35 - Sharing economy map ........................................................................................................ 77

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Use cases
Box 1 – Use case: Cloud and digital tools……………………………………………………………………………………..…….48
Box 2 – Use case: Marketing automation……………………………………………………………………………………..……51
Box 3 – Use case: Smart Inventory and warehousing management……………………………………………..…….56
Box 4 – Use case: Sensors monitoring temperature…………………………………………………………………….…….60
Box 5 – Use case: European data platforms and security solutions in Japan……………………………….…….81
Box 6 – Use case: European SaaS for back office solutions in Japan…………………………………………….…….83
Box 7 – Use case: European solutions for e-government in Japan………………………………………….…….…….85
Box 8 – Use case: European solutions for smart manufacturing in Japan……………………………….…….…….87
Box 9 – Use case: European solutions for L4AV and connected cars in Japan……………………….…….……..89
Box 10 – Use case: European solutions for healthtech in Japan…………………………………………….….……….91
Box 11 – Use case: European solutions for fintech and insurtech in Japan…………………………….………….93
Box 12 – Use case: European solutions for retailtech in Japan……………………………….……………….…………95

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Abbreviations and acronyms
AI
API
AR
AWS
BtoB
BtoC
CPS
CX
CtoC
CVC
DA
D&A
DX
ERP
EU
FA
GoJ
HR
IaaS
IoT
IT
L4 AD
L4 AV
MaaS
METI
MES
MIC
MLIT
MoU
MtoM
OEM
PaaS
PoC
PRISM
RFID
RPA
R&D
SBIR
SIP
SME
SaaS
SEO
SNS
STI
TPO
UAV
UX
VPN
VC
VR
XR

Artificial Intelligence
Application Programming Interface
Augmented Reality
Amazon Web Services
Business to BusinessBusiness to Consumer
Cyber Physical System
Customer Experience
Consumer to Consumer
Corporate Venture Capital
Digital Agency
Data and Analytics
Digital Transformation
Enterprise Resource Planning
European Union
Factory Automation
Government of Japan
Human Resources
Infrastructure as a Service
Internet of Things
Information Technology
Level 4 of automated driving
Level 4 of automated vehicle
Mobility as a Service
Ministry of Economy Trade and Industry
Manufacturing Execution System
Ministry of Information and Communication
Ministry of Land, Infrastructure, Transport and Tourism
Memorandum of Understanding
Machine to Machine
Original Equipment Manufacturer
Platform as a Service
Proof of Concept
Public/Private R&D Investment Strategic Expansion Program
Radio-frequency Identification
Robotic Process Automation
Research and Development
Small Business Innovation Research
Cross Ministerial Strategic Innovation Program
Small and Medium Enterprise
Software-as-a-Service
Search Engine Optimization
Simple Notification Services
Secretariat for the Promotion of Science, Technology and Innovation
Trade Promotion Organization
Unmanned automated vehicle
User Experience
Virtual Private Network
Venture Capital
Virtual Reality
Extended Reality

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

8

INTRODUCTION

Highlights
1/ “DX” buzzword. Digital transformation (DX) has been a growing topic over the past years in Japan, whereas all
indicators show the country still shows room for progress.

2/ 2025 digital cliff and the COVID-19 pandemic accelerating the digital transition. The 2025 digital cliff and
the COVID-19 pandemic have shown the weaknesses resulting from the overall poor adoption of DX in the
country, urging the need for the government and the private sector to undertake actions toward digital transition.

3/ Purpose of the report. This report aims to provide a holistic overview of the current state of digitaltransformation of Japanese firms, both from the perspective of business operating models and product/service
offering, with the purpose of identifying business opportunities for EU SMEs.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

9

Context and purpose of the report
Digital Transformation, alternatively referred to as “DX”, has been a one of the many tech terms
buzzword of the last decade, where Japan is no exception. It is described as the cultural, organizationaland operational change of an organization, an industry or an ecosystem by leveraging digitaltechnologies, processes and competencies across all function levels. Whereas companies around theworld have been working on scaling DX, many Japanese firms have only started the process and aresaid to be lagging far behind their global peers.

2025 digital cliff, the COVID-19 and thegovernment transition to digital as themomentum for change for Japanese firms
In 2018, the METI has pointed out the “Digital
Cliff” as a key challenge that companies will need
to overcome by 2025, which is described as a
combination of human resource andtechnological risks foreseen to be an obstacle to
the growth of Japanese firms. Fujitsu ResearchInstitute estimates that shortage of humanresources in IT will double to about 430 000,
while more than 60% of core IT systems will havebeen in operation for more than 21 years1. If leftunchecked, the impact is measured to lead to aloss in the economy of 12 trillion yen annually by2030, urging the need for change.

In this context, the Japanese government has
undertaken multiple initiatives to lead the pathforward and encourage the corporate landscape
toward its digital transition. Solutions for
digitalization, high-tech and deep-tech havebeen at the center of concerns for the public
sector to develop appropriate policies,
infrastructure and e-government services. On
the other hand, it is the momentum for theprivate sector to take actions, cross-industries
and cross-company sizes, to maintain its
competitiveness in a rapidly changing society.

Provide a holistic understanding of thecurrent DX situation in Japanese firms andevaluate market opportunities for European
SMEs

Moreover, the COVID-19 has been a tremendous
catalyst for the business and the government tomove forward to DX. The pandemic has
dramatically exposed Japan’s delay in digitaltransformation, starting from the government
response in fighting the crisis. Japan’s healthministry faced difficulties collecting accurate,
reliable and real-time data, while local
governments spent weeks for delivering grants
to their citizens. On the corporate side, whereas
companies around the world were rapidly
adjusting their operations and services to
respond to restriction measures and the need tooffer remote alternatives, Japanese firms havecomparatively struggled to swiftly adapt anddeploy appropriate measures and changes byleveraging technological solutions2.

The purpose of this report is to provide a holistic
view and a snapshot of the current state of DX
adoption in Japanese firms and to assess the way
it has transformed their business and operating
models, including the impacts of the COVID-19.
It further aims to measure disparities according
to company sizes and industries, as well as
identify the main trends when it comes to thetype of digital technologies and high-tech/deeptech solutions. On this basis, it aims to outline
market opportunities for entrepreneurial
innovation arising from digital transformation,
evaluate the synergies and complementarities
with Europe, and ultimately identify theopportunities for European SMEs to enter theJapanese market.

Ministry of Economy, Trade and Industry, DX レポート IT システム
「2025 年の崖」の克服と DX の本格的な展開, [DX Report :https://www.meti.go.jp/press/2018/09/20180907010/201809070103.pdf
2
McKinsey Digital Japan, デジタル革命の本質:日本のリーダーへのメッセージ [The essence of the digital revolution: a message toJapanese leaders], September 2020.

1

Overcoming of « 2025 Digital Cliff Involving IT Systems and Full-fledged
Development of Efforts for DX»], published on 07/09/2018, Accessible
at :DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

10

The approach of the report is on two folds. First,
it analyses how the introduction of digitaltechnologies has changed the way firms operate,evaluating the impact and the main trends
considering back office activities, the supply
chain, logistics as well as the impact on

manufacturing practices. On the other side, it
provides an overview of the emergence of new
business models, evaluating how it has
transformed
traditional
products
aby
introducing new value offering and revenue
streams in leading industries.

Methodology and limitations of the report
The research was carried out through theprovision of deskwork from secondary resources
includingqualitative
information
andquantitative data from existing literature
available in English and Japanese. Resources
include reports, surveys, press releases, public
interventions,
as
well
as
websites.
Complementary to the deskwork, short casestudies of digitalization in business and operating
models were included to illustrate practicalexamples. Last but not least, a set of interviews
were conducted with European Trade Promotion
Organizations (TPO) located in Japan to further
collect information about recent trade activities
and gather opinions on identified opportunities.
It is important to note the following limitations
when it comes to the statements and statisticalobservations provided throughout the report.

First, the research includes multiple references
to data regarding the adoption of technologies
by the corporate landscape, usually measured
through surveys conducted by domestic public
or private organizations. Results slightly differ
from different sources according to the sample
size, industry grouping method as well as thedefinition of “technology adoption”, which has
the tendency to vary according to the
respondents’ interpretation and to the survey
approach. As such it is important to refer to thesurveys’ methodology for an accurateinterpretation of the results.
Figures originally available in Japanese havebeen translated into English by the author of thisreport. These constitute provisional andunofficial translations.

Definitions
Key definitions of terms used in this report are listed below.
Digital transformation (hereinafter referred to as DX): according to the METI, it is the process bywhich companies respond to rapid changes in business, using data and digital technology totransform their products, services, and business models based on the needs of customers andsociety, as well as to transform the business itself, the organization, processes, and corporate
culture to establish a competitive advantage.



Digitalization: Digitalization refers to enabling or improving processes by leveraging digitaltechnologies and digitized data.



Digitization: Digitization refers to creating a digital representation of physical objects or attributes.
In other words, it is about converting something non-digital into a digital representation or artifact.

Digital technology is an umbrella term for computer-based products and solutions. Those include
devices, methods, systems, which deal with the creation and the practical use of digital orcomputerization.



SMEs in Japan are subject to a different definition from the European Commission, as highlighted
in the tables below. It should be stressed that observations and statistics collected from Japanese

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202212sources referred in this report are subject to different definitions of SMEs compared to European
standards.
o SME definition according to the European Commission3:
Company Category
Medium-sized
Small
Micro

Staff headcount
< 250
< 50
< 10

Turnover≤ € 50 m≤ € 10 m≤€2m

OrBalance sheet total≤ € 43 m≤ € 10 m≤€2m

o SME definition according to the Japanese Ministry of Trade and Industries (METI)4:
Company
Category
Medium-sizedStaff
headcount
≤ 300

Or

Total capital orinvest. amount≤ ¥ 300 m

Small

≤ 100
≤ 100
≤ 50
≤ 20

≤ ¥ 100 m≤ ¥ 50 m≤ ¥ 50 m
Na

≤5

Na

Main industry

Manufacturing, Construction,
Transportation and otherthan (a),(b),(c).
(a) Wholesale trade(b) Services(c) Retail trade
Other than Commerce andService industries
Commerce, Services

3 European Commission (2012), SME Definition, Available at https://ec.europa.eu/growth/smes/sme-definition_en, Accessed

24/08/2021.
4 Ministry of Trade and Industries Small and Medium Enterprise Agency, Chapter 1 General Provisions Art.2, Available
at https://www.chusho.meti.go.jp/sme_english/outline/08/01_01.html, Accessed on 24/08/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

13

01 JAPAN DIGITAL POLICY BACKGROUND
The IT Basic Law enacted in 2000 has driven Japan’s IT strategy over the past 20 years. It has helped
the country building strong infrastructures supporting the use of the internet, however it has also
shown weaknesses in the development of the “uses and applications”. To address the stagnant
situation, the Government of Japan (GoJ) enacted several reforms over the past years and has
initiated the “Basic Act on Forming a Digital Society” in September 2021, implementing new policies
and measures with the aim to unleash digitalization in the country.

Highlights
1/ Establishment of the Digital Agency. The GoJ inaugurated the Digital Agency in September 2021. The newly
established entity centralizes the government’s budget for IT and takes the lead on policies initiatives related tothe strategy for the digitalization of the country.

2/ Society 5.0. Ambitious policies were published over the past 5 years to encourage the shift toward “Society
5.0”, which draws a society that leverages technologies such as AI, the cloud and the IoT to support theconvergence of the cyber and physical spaces, as the government envisions.

3/ Next priorities in smart cities, disaster prevention and data platform. Main priorities of the 5 years
Science, Technology and Innovation plan (STI) include the development of a strong platform to support
collaborative data, the creation of smart cities and the development of solutions for disaster prevention.

4/ Set of policy measures for the realization of digital transformation. Main policy measures include
investments in disruptive R&D programs, the creation of digital talents and appropriate IT infrastructures, thedevelopment of the startup ecosystem, as well as the provision of support and guidelines to encourage theprivate sector to adopt cutting edge technologies. In parallel, measures to materialize the digitalization of
government services are implemented to evolve toward a strong e-government.

141.1 Digital Policy Background1.1.1 Society 5.0“Society 5.0” conceptualizes the vision and theaspiration of the country to leverage continuous
technological transformation along all levels of
the society and evolve toward a super smart
society. The concept was first introduced in 2016as part of the 5th Science and Technology andInnovation (STI) Basic Plan.
The plan describes the ambition of thegovernment to create a society with a highdegree of convergence between cyber space(virtual space) and physical space (real space).
This includes the integration of digitaltechnologies such as artificial intelligence (AI),Internet of Things (IoT) and robotics, which aremeant to be at the service of economic growth
and the realization of a human-centric society
addressing social problems.
The 6th STI plan (FY 2021 – 2025) further
elaborates on the upcoming priorities in line with
the Japanese social and economic challenges,
along with technology and innovation as major
topics. Moreover, the plan recognizes that the

pandemic brought to light the fact that Japanwas unable to fully benefit from digitalization in
key areas, precisely administration, educationand medical care, and further stresses theimportance to gain maturity in these domains.
In this context, the government urges the needs
to develop key digital technology areas tosupport the materialization of Society 5.0. Maintargets as stated in the plan include thedevelopment of (1) collaborative data; (2)disaster prevention fields and (3) smart cities.
Measures to realize the plan emphasizes theimportance of investing in R&D for next
generation infrastructure, the development of a
resilient data governance, the creation of atrustworthy and secure data distribution
environment and the increase in digital talents.
Moreover it highlights the need to ensure
continuous review and issue of digital policies, aswell as the contribution and collaboration with
the international community.

6th STI PLAN MAIN TARGETS
Collaborative Data

Disaster Prevention

Strategies andorganizations forbuilding Cyber Space

Data Platforms (standards, baseregistry, centralization,interconnection)

Human Resources
development(education system)

R&D in next generation
infrastructure (5G, HPC, quantum
technology, semi-conductors andpost 5G).

Smart Cities

Reliable data distribution
environment (cyber security
and data managament)
Contribution tointernational
communityNew
policies
issue

Figure 1 - 6th STI plan targets

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

15

1.1.2 Digital Strategies – Policies and measures
In the context of a rapidly changing society with the development of technologies constantly bringing
disruptive challenges, the 6th STI plan aims to continuously review and reevaluate measuressurrounding digitalization in order to support and build appropriate framework to create a safe space
for the business and the society to strive and take initiatives to innovate. For this purpose, working
groups and collection of experts’ feedbacks are organized by ministries on a continuous basis to feed
into political decisions, activate the vision of Society 5.0 and adapt policies, guidance and regulations
accordingly.

Integrated innovation Strategy outlining next
priorities in digital innovation
A notable policy that was compiled in June 2021
is the Integrated Innovation Strategy, drafted by
the Cabinet Office, which outlines key measures
for the coming year in the domain of digitization.
The strategy incorporates new elements added
to the 6th STI plan, including the promotion of theplacement of next generation data centers, thedevelopment of manufacturing for advanced
semiconductor technologies, R&D investment inquantum technology, the promotion ofuniversities as regional cores and the review of
the AI and biotechnology strategies to align withrecent developments. Identified strategic
sectors include safety and security (natural
disaster, infectious diseases, and global
outbreaks), environment and energy, health andmedical care, space, oceans, as well as food andagriculture, leveraged by technologies such as
robotics, AI, IoT or UAVs5.

A human-centric approach to AI
In the key area of Artificial Intelligence, the AI
strategy, initially drafted in 2017 and amended in
2021, outlines the upcoming initiatives andpriorities when it comes to the domestic
development of AI-based solutions. The strategy
indicates measures to promote the educationand the creation of digital talents, the support ofthe creation of AI R&D network and programs
implementation to develop solutions forindustries and the society. Key industry areas
concern the development of AI solutions forhealthcare, agriculture, national resilience for
infrastructure and natural disasters, transport
and infrastructure, regional revitalization
through smart cities, as well as manufacturing.
Moreover, the “Social principles for humancentric AI”, published in 2021, establishes nonbinding AI R&D and utilization principles topromote the development of human-centric
solutions that are accepted and properly used by
the society.

Toward the development of next generation
ICT infrastructure
Another strategic domain is the development ofappropriate ICT infrastructures that will support
the digital transition. On top of theaforementioned STI plan and Integrated
Innovation strategy, notable policies include the“Beyond 5G Promotion Strategy―Roadmap
towards 6G” compiled in 2020 by the MIC, which
outlines the strategy and the roadmap for the
coming years. It establishes specific measures
focusing on R&D, IP & standardization, as well as
the deployment of faster communication
infrastructures that will support the advanced
synchronization of Cyber Physical Spaces. The
strategy describes the objective to develop
secure, accurate and energy efficient ICT
infrastructure solutions that would rely on the
deployment of optical networks and the cloud,5

UAVs: Unmanned aerial vehicles, or commonly called
drones.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

16

on the development of terahertz waves andquantum technologies, as well as through theupgrade of 5Gs characteristics features including
super eMBB, super URLLC and super mMTC6.
Moreover, given the strategic role of quantum
technologies and to pursue a leadership positionin this domain, the Quantum Technology
Innovation strategy was announced in 2020,
initiating the creation of the national Quantum
Security Hub, which conducts cutting edge R&D
related to quantum networks and establishes acooperation center for industries, academia andgovernment entities.

Cybersecurity “for all”, in response to aninterconnected society
The security domain is also considered as a key
component of the digital transition. The Cyber
Security Strategy, issued in September 2021 by
the NISC (National Center of Incident Readinessand Strategy for Cybersecurity), highlights theimplementation policies and measures that will
be undertaken in the coming three years. It aims
to reinforce the overall literacy and awarenessaround cyber security, including governmental
institutions, industries and SMEs. It further
promotes efforts to strengthen the security of
government agencies’ IT systems andadministrative areas, as well as ensures thesafety of critical infrastructure operators. R&D in
the security domain is also advocated to takemeasures against new threats emerging fromthe progress of AI, IoT and 5G, to conduct
research on cryptography in relation to quantum
computing solutions, as well as to develop
sophisticated solutions that monitor and analyze
cyberattacks.
Moreover,international
cooperation is also considered in order to shareexpertise, coordinate on policies and strengthen
collaboration for incident response.

1.1.3 Government led R&D programs
R&D is highlighted as a key policy measure in the various strategies and plans promoting the digitaltransition of the government, the society and industries. The following lists the three main crossministerial and cross-sector strategic R&D programs, namely the SIP, the Moonshot Program and the
PRISM, initiated under the supervision of the Government Office.

Cross Ministerial Strategic Innovation
Program (SIP) to support industry innovationand early social implementation
SIP is a national project created by the Council
for Science, Technology and Innovation of the
Cabinet Office to realize science and technology
innovation through the promotion of R&D
around 12 key issues (for the 5 years term plan
initiated in 2018), including a wide range ofdomains from cyber space infrastructure,
security for IoT society, autonomous driving,
6

Super eMBB (Enhanced mobile broadband), Super
URLLC (ultra-reliable and low latency communications)and super mMTC,(massive Machine Typequantum technologies, and many more 7 . It
allocates its own budget beyond the boundaries
of ministries and fields and promotes theindustry,
academia
andgovernment
collaboration to conduct research with theultimate goal to implement its practicalapplication and commercialization.

Moonshot Research and Development
Program to lead disruptive innovation
The Moonshot R&D Program aims to create
disruptive innovation originating in Japan andCommunications), which are the 3 mains characteristics
and main pillars of 5G.
7
Refer to “Appendix 1 – SIP R&D themes (2018)” for thecomplete list of the covered domains.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202217

promotes high-risk, high-impact R&D to solve
issues facing future society such as super-aging
populations and global warming. The objectivesof the program are long term and aim for therealization of a society by 2040-2050, where AI,
robots and technologies would coexist withhuman in harmony; medical and nursing would
prevent diseases; resources and food supply
would be sustainable and ensure global
environment restauration; and where advanced
IT infrastructures would ensure efficiency,
security and reliability. Multiple ministries suchas the MEXT, the METI, the MAFF, as well as
government agencies, such as the JST or the
AMED are participating to the development of
the Moonshot program. Ongoing R&D projects
include the development of intelligent humanrobots, cybernetic avatars or solutions forquantum computing8.

Public/Private R&D Investment Strategic
Expansion PrograM (PRISM) to
guide ministries’ investments in key
strategic areas
Established in 2018, the PRISM’s objective is toincrease public-private R&D investment andimprove the efficiency of fiscal expenditure by
guiding the R&D policies of each government
ministry and agency to areas where high private
R&D investment inducement effects are
expected. Target areas include R&D projects inrelation to infrastructures management andinnovative technologies for disaster prevention
andmitigation,AI
basedsolutions,biotechnology domain, as well as quantum
technology areas.

8

Refer to “Appendix 2 – Moonshot R&D Program” for thecomplete list of ongoing projects.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202218

1.2 Materializing Society 5.0 – Digital Agency, Smart cities and support ofthe private sector
1.2.1 Digital Agency
In response to the failure of building a digitallyadvanced public sector and in line with theobjective of the 6th STI plan to setup anorganization that would support thedevelopment of the cyber physical space, thegovernment has inaugurated in September 2021
its new Digital Agency (DA).
The DA benefits from enhanced authority andcentralizes Japan’s governmental decisions inrelation to digitalization. It takes the role ofoverall coordinator of digital policies and has thepower to advise heads of related agencies, whilemost of the governmental IT budget is now
controlled by the agency, instead of individual
ministries. The DA announced its plan FY2022
supported by a budget of ¥ 472 billion (€3.6
billion) 9 , identifying the following priorities inline with the STI plan as described earlier.
[1] The development of centralized data platform
through the standardization and unification ofadmin services by 2025. A centralized cloud

platform will be in implemented to replace thecurrent local and scattered digital landscape.
Concrete initiatives include the centralization of
the MyNumber system (citizens ID), as well as
the development of data base registries
standards by 2030.
[2] The digitalization of public services related to
medical care, education and disaster prevention,with the aim to implement the “cloud by default”
principle.
[3] The provision of support and infrastructure forthe digital transition of all industries including 5G,
optimal data center, improved administration
for corporate services and the increase of digitaltalents.
Given its recent inauguration, the role andresponsibilities of the DA are still being discussed
and negotiated. It is certain that it has become akey national reference for international
discussions and the window for futurecooperation around digital domain.

1.2.2 Smart Cities
A key initiative undertaken by the GoJ toward therealization of Society 5.0 are Smart Cities. The 6th
STI plan established the target of implementing
100 initiatives10 by 2025, with the contribution of
1 000 or more organizations involved from thelocal government, regional organizations andprivate enterprises.
In order to facilitate public-private partnerships
and the development of regional projects, the"Smart city public-private partnership platform"
9 Digital Agency, デジタル社会の形成に関する重点計画・情報システム整備計画・官民データ活用推進基本計画について, [Priority Plan for the Formation of a Digital Society,
Information System Improvement, and Basic Plan for thewas initiated in 2019, gathering members suchas companies, research institutes, related
ministries and agencies. This platform aims tocreate a common place for the public and private
sectors to work together and promote initiatives
across the country through the provision ofbusiness and matching support, as well as
through dissemination promotion activities.
To further support implementation, the cabinet
office published in 2021 the “Smart city

Promotion of Public-Private Data Utilization], published on
24/12/2021.
10 Number of local governments and regional organizations that
implement technologies, link and connect data between fields.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

19

guidebook” with the aim to provide examples
and advices based on success and failurescollected from use cases. Moreover, through theprovision of the “Smart city referencearchitecture guidelines”, it encourages theregions to promote local adoption of standard
systems that have an interoperable function

with other regions, in order to maintain national
connectivity.
Currently ongoing and future projects in relation
to smart cities give priority to implementation
programs for mobility, healthcare andgovernment administrative services.

1.2.3 Diffusion of digitalization across the private sector.
Guidelines and helpdesks
corporate digital transition

tosupport

The GoJ has started publishing guidelines overthe past 3 years to promote the digital transitionof the private sector and provide practicalsupport, in particular to onboard SMEs.
Examples include guidelines published under the
initiative of the METI and the MIC to promote
digital transformation within organizations, withguidance specifically targeting SMEs. Similarly
guidelines for AI, cybersecurity and for secure
cloud services implementation were published in
2021. Other examples include the publication ofsimilar documentation by the MIC to facilitate
the implementation of local 5G, as well as a setof guidelines for UAV applications in plants andin the domain of delivery of luggage.
On top of practical guidance, ministries and local
prefectures launched various helpdesks
contributing to the support for SMEs to takeinitiatives to digitalize:[1] Telework helpdesk. The Ministry of Health,
Labor and Welfare has introduced a telework
helpdesk center, which provides support,
guidance and consultations in relation to labor
management issues when introducing andimplementing telework.
[2] The digitalization support initiative from the
METI provides financial support and network of
IT professionals for SMEs looking into solutions
to initiate their digital transition. Activities
include support for creating EC website,

advices for implementing online meetings, RPAor telework, as well as the provision ofmaterials and guidebooks to leverage IT tools.
[3] In the manufacturing domain, Public
Industrial Technology Research Institutes
support SMEs with a range of services including
technology guidance, technical assistance andtrainings. The institutes are operated under theguidance of the METI and in general, funded
and managed by local prefectures. Activities of
the centers include R&D projects, provision ofequipment for prototyping and industrial
production trial incorporating advanced
technologies (e.g. sensor- enabled devices,
embedded intelligence, 3D printing, and manyothers).

Governmental initiatives for promoting
innovation and the startup ecosystem
Multiple initiatives are undertaken at central
government, ministries and regional levels toactively promote innovation in the startups andSMEs’ ecosystems. The strategy “Beyond Limits.
Unlock Our Potential” published by the METI in
2019 highlights the government’s approach toexpand the startup ecosystem, relying on 7 key
pillars.
[1] the creation of a city startup ecosystem, byintroducing cross-ministerial support throughthe provision of appropriate human resources,
infrastructure, funding and community, as wellas through the collaboration with global

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

20

startup bases and the organization of startup
events.
[2] the empowerment of universities, throughthe enhancement of entrepreneurshipeducation in schools, the development ofcapacities in universities and the enhancementof activities for innovation such as hackathonsand boot camps.
[3] the set-up of acceleration programs, byinitiating collaboration with global top
accelerators and with the creation of domestic
acceleration programs in specific fields such asAI, bio and space. Recent examples include theIntellectual Property Acceleration Program(IPAS2021) undertaken by the Japan Patent
Office, aiming to support 20 startups indeveloping an IP strategy FY 2022. Other
programs run by the NEDO include theTechnology Commercialization Program (TCP)or the NEDO Entrepreneurs Program (NEP).
[4] the gap funding for tech startup, for example,
through the Small Business Innovation
Research (SBIR) system, supervised by the SME
agency. The system aims to strengthen the

management of SMEs through the promotionof new business activities by providing
subsidies for R&D. Since 2020, in line with the
new STI plan and the growing importance ofdigitalization, the purpose of the program is
now focusing on R&D contributing to thecreation of innovation by start-up and SMEs,
accompanying them from early stage
technology seeds to their commercialization.
[5] the public procurement for startups, withthe organization of Open Innovation
Challenges and through the activation of
procurement programs at local government
levels.
[6] the enhancement of networks through thepromotion of open innovation amongindustries, universities, governments andstartups. The NEDO, J-startup, JETRO, as well as
the Japan Science and Technology Agency areamong the key governmental organizations
supporting the development of such network.
[7] the increased mobility of human resources
with the mobilization of human resources for
R&D.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

21

02 CURRENT SCENE OF DX IN JAPANFor both the public and the private sectors, DX implementation and the adoption of advanced
technologies are expected to contribute to respond to structural challenges such as the ageing
workforce and the comparatively low productivity, but also revitalizing the country’s economy throughentrepreneurial innovation.
Based on facts and figures, this chapter provides an overview of the current state of DX in the businesslandscape and trends in digital technologies adoption, with a focus on disparities according tocompany sizes and industries.

Highlights
1/ The private and public sectors show low maturity in DX. Although general awareness has been risingaround DX, Japan lags behind its country peers – e-government and corporate digital transitions are showing
comparatively low maturity. DX in Japan corporate landscape is led by large corporations, while SMEs show
weaknesses in the adoption of most of technology solutions areas.

2/ Improvement of Business Process Operations as the main priority. When it comes to DX, main priorities
for the business concern digital transformation to improve business process operations. Adoption oftechnologies to develop new products/services remains low among established companies.

3/ Fragmented adoption of technologies according to industries. Overall, the financial and social
infrastructure sectors show the highest technology adoption, in particular for back office solutions, RPA and AI.
Connected devices and IoT are striving in the manufacturing and construction sectors, while advanced solutions
such as the blockchain, drones and robotics show low corporate adoption rate and strive in niche industries.

4/ Priorities for future investments differ according to company sizes. Large organizations with higher revenues
indicate a priority for future investments in advanced technologies such as AI, big data and IoT, with an increased
concern on cybersecurity and data visualization. In contrast, companies with lower revenues prioritize investments
in back office supporting tools such as electronic approval and contracts, stamping systems or the implementationof public cloud solutions.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

22

2.1 Snapshot of the digital scene in Japan
Ranking as #28 in the IMD Digital Competitiveness metric in 2021, it is no longer a choice for Japan todigitalize but rather an imperative to maintain its top 3 economy position in the near future. Moreover,Japan’s index has not progressed in 5 years, while other Asian nations such as China, South Korea andHong Kong have been working hard to effectively scale their digital learning curve 11.
Digital and Global
Competitiveness#28

Digital Technology andleadership
Digital Industry

3%

6.76%

Digital Talent
1%

Public cloud spent (% ITspent)

ecommerce penetration(BtoC retail)of workforce as digital talent

5%

6%Global AI Conference papers

Telemedecine Penetration

Digital Government
Infrastructure

6.9%

#84
(Tokyo) in IMD Smart City Ranking

Mobile banking Penetration

7.5%

Startup Economy

11 unicorn startups
in 2021

Citizens using digital gov. apps

Figure 2 - Japan Digital Score Card 2021
Japan is characterized by the stability of its
business environment and society as well as by ageneral high quality of infrastructure andservices,
including
ICT
infrastructures,
communication technologies, education andhealthcare. This steady environment led to little
urgency for change, including the need to shift todigital. The effects can be observed on thescorecard highlighting gaps in multiple key areas.
The low rate of digital talents, who mastertechnologies and transformation expertise, isreflected in the poor adoption of digital within
industries - where ecommerce, telemedicine,
mobile banking and manufacturing indicate asingle digit penetration level.
The limited digitalization is also reflected in thedigital maturity of the government, where Tokyois ranked #84 in the IMD Smart city ranking in
2021, positioning last among the OECD countries
for digital procedures, while digital government
apps adoption rate is at a mere level of 7.5%.
Finally, Japan’s startup economy is showing
relatively poor results in comparison to its peerswith 11 startups reaching the status of unicorns
in 2020, where the US and China haverespectively counted 400 and 150 the sameyear12.

Japan has faced low and decreasing
productivity over the past ten years
Japan has been facing a decrease in laborproductivity over the past ten years, where thegaps with peer countries has grown significantly.

11 In 2017-2021 period, China climbed from 31st to 15th, South Korea from 29th to 23th and Hong Kong from 7th to 2nd.

12

World bank (2021), Tokyo Start-up Ecosystem, published on September 2021

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

23

In the context of low birth rate and aging society,
it is crucial for Japan to improve its productivity
metrics, where digitalization is expected to playa key role and help restoring its competitiveness.
A report from 2020 McKinsey Global instituteanalysis estimated that AI, and more precisely
machine learning, will contribute to theautomation of about 19 million jobs between
2018 and 2030, with a major impact on discrete
repetitive tasks.
On the other hand, the demand for new
occupations and functions in areas such as cloudengineering or machine learning is expected to
grow to 15.6 million, urging the need for Japanto prepare and create digital talents withappropriate skills to respond to those positions

and secure the country toward its digitaltransition.

Japanese companies are 2 years late incomparison to global average when it comesto DX.
From an industry point of view, Gartner Japanrevealed through its annual CIO survey thatJapanese companies are accelerating theirdigitization efforts. This is illustrated in figure 4
by an increased maturity in digital business
transformation from 33% in 2018 to 48% in 2020.
However, in comparison to global peers, Japan
corporation landscape remains 2 years behind
the global trend line, positioning 10 points
behind on average.

Figure 3 - Comparison of global workforce
productivity (2020)
14

Figure 4 - Gartner 2021: CIO Agenda on Digital
Transformation

13.3

12
10
8

9.8

9.1

9

8.5

8.4

7.6

6
4
2
0

Source : Cabinet Office, 企業活動のおけるデジタルトラ
ンスフォーメーションの現状と課題 (2021)

Source : Gartner Press release, ガートナー、日本企業のデジタル化は加速しているが、世界のトレンド・ラインより約 2 年の後れを取っている、との見解を発表

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202224

2.2 DX promotion and adoption
Since 2018, the private sector has shown an
increasing recognition of DX and has
demonstrated efforts to integrate the concept,
cross sector and cross company size 13. Surveys
conducted by the METI14 and FUJITSU15 in 2020
indicated that almost half of the SMEs wereactively promoting DX companywide, while large
companies with more than 5.000 employees
indicate an adoption rate close to 80%.

their maturity from the absence of digitalization
strategy (score equal to zero) to the level ofglobally competitive digital company (scoreequal to five). The governmental target is toencourage firms to reach at least level 3, whichcharacterizes firms that have achieved crossdepartmental DX. The results from end 2020highlight that only 5% of the surveyed firms haveachieved the target level (see. figure 5).

Although these results are rather positive at firstglance, the IPA self-evaluation survey, launchedunder the initiative of the Japanese government,
helps providing further nuance to theaforementioned adoption rates through ananalysis of DX per maturity level. The survey
collects
cross-sector/cross-company
size
information about firms’ initiative in DX, scaling

This demonstrates that although most of thecompanies have effectively undertaken
initiatives toward DX, the maturity level of theimplementation remains poor in most of thecases, characterized by isolated implementations
within organizations with a lack of companywide
strategic vision.

Figure 5 - IPA DX self-evaluation - 2020

Source: METI, DX レポート２, [DX report 2], December 2020

13 Ministry of Economy, Trade and Industry, DX レポート IT シ

ステム「2025 年の崖」の克服と DX の本格的な展開, [DXReport : Overcoming of « 2025 Digital Cliff Involving IT Systems
and Full-fledged Development of Efforts for DX»], published on
07/09/2018, Accessible at :https://www.meti.go.jp/press/2018/09/20180907010/2018090
7010-3.pdf.
14 Ministry of Economy, Trade and Industry, 令和２年度中小企業のデジタル化に関する調査に係る委託事業 報告書,

[2020, Report on SMEs Digital transformation], published on
03/03/2021, Accessible athttps://www.meti.go.jp/meti_lib/report/2020FY/000260.pdf.
15 Fujitsu, 日本の DX は本当に遅れているのか？「 DX サーベイ」から見る 900 社の実態, [Is Japan DX late ? Observed
from 900 companies in the ‘DX Survey’], published on
17/04/2020, accessible athttps://blog.global.fujitsu.com/jp/2020-04-17/01/ , accessed on
06/09/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

25

Improvement of business processes and cost reduction remains the priority on digital agendas
A survey conducted by Accenture16 provides further insights about DX areas where digital initiatives
were particularly undeveloped in Japanese established firms:
Lack of partnership with digital players and poor ecosystem: Particular weaknesses are observedin the ability of organizations to collaborate and create partnership with digital players (suchas ventures or digital vendors) to set up an effective digital ecosystem. This is also true for largeorganizations, which already benefit from a wide network, however struggle to find the best
and most suitable partners.



A positive evolution is observed in the creation of new products and services leveraging DX,
however is still at a premature stage: As an illustration, only 13% of established SMEs consider
the creation of new products and services as their number one priority when undertaking DX
initiatives, although it is worth mentioning that those considerations evolved positively with
the impact of the COVID-1917, demonstrating the slow but growing interest of organizations intransforming their business model.



Digitalization of user experience remains immature: Digitalization of user experience including- omni-channel approach, dynamic pricing practices, development of innovative andpersonalized products/services – remains in overall underdeveloped across all sectors.

Insufficient digitalization of operations: When it comes to the digitalization of operations,
important gaps are observed in the digitalization of R&D activities. Moreover, manufacturing
and logistic processes also appear to show room for progress, while agile project management
remains under promoted.

When it comes to organizations’ next priorities for strategic digitalization, companies are considering
the improvement of business processes - including the streamline of business processes, theimprovement of production processes, as well as the transformation of companies’ ways of working(ref. Appendix 3). Those areas were also the ones that were the most reconsidered in response to the
COVID-19 pandemic.

16 Accenture, 業種別・企業規模別の DX の状況と課題が明らかに 〜 DX サーベイの調査・分析結果から見る日本企業の現状 ,[DX survey, analysis of state of Japanese firms, Insight on DX adoption based on industry and company size], published on 22/06/2021,
Accessible at: https://www.accenture.com/jp-ja/insights/local/dxsurvey, accessed on 06/09/2021.
17 Ministry of Economy, Trade and Industry, 令和２年度中小企業のデジタル化に関する調査に係る委託事業 報告書 , [2020,

Report on SMEs Digital transformation], published on 03/03/2021, Accessible athttps://www.meti.go.jp/meti_lib/report/2020FY/000260.pdf.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

26

2.3 Measuring key technologies adoption trends
The previous section provided an overview of the general strategic positioning and vision of Japanesefirms toward DX. This section aims to deep dive into key technologies adoption metrics to better
understand upcoming trends and disparities according to company sizes and industries.

2.3.1 Overview of key technology metrics
Technology adoption rate - per industry

Digital technology

12.6

18.1

12.4

14.6

10.6

10.9

39.6

4.3

29.8

21.8

28.5

31.4

25

30.9

22.2

58.5

18.4

11.9

10.2

11.9

11.9

16.7

17

8.7

45.3

2.5

Private cloud

35.7

39.3

40.4

35.7

56.3

52.1

34.8

84.9

23

Public cloud (IaaS,
PaaS)

45.2

46.6

52.2

44.8

58.3

58.5

56.1

90.6

33.3

Public Cloud (SaaS)

59.5

60.7

65.2

58.6

60.4

69.1

61.7

94.3

47.9

Advancedsolutions

IoT

20.2

21.4

26.3

13.8

6.3

23.4

8.7

58.5

6.7

AI

16.7

14.6

15.9

9.5

33.3

19.1

15.2

66

5.7

Blockchain

2.4

2.4

1.9

1

6.3

0

0.9

11.3

1.4

AR/VR

20.2

3.4

7.4

2.4

0

11.7

7.8

30.2

3.5

Wearable Devices

14.3

4.4

8.5

3.3

4.2

12.8

5.2

26.4

1.8

Robots

9.5

18

28.9

8.1

6.3

17

9.6

Drones

38.1

7.8

6.7

2.4

4.2

16

7.4

39.6
34

6.4
3.9

Business Chat

51.2

41.3

51.1

42.4

43.8

50

54.3

86.8

37.9

Electronic approval,
stamping, contract syst.

41.7

26.7

32.6

25.2

45.8

34

32.2

54.7

19.9

RPA

47.6

44.2

50

40

77.1

56.4

40

92.5

20.6

Mobile Device
Management

57.1

46.6

54.8

41.4

50

53.2

44.8

84.9

30.9

Mobile Application

48.8

28.2

41.5

32.9

66.7

48.9

39.6

83

24.1

Enterprise architecture

6

3.4

8.1

4.8

16.7

9.6

4.8

30.2

1.1

VPN

78.6

78.6

87.4

71.9

72.9

76.6

70.9

96.2

67

5G

0

0.5

0

0

0

2.1

0.9

3.8

0

Zero Trust Security

2.4

4.9

4.4

1.9

12.5

2.1

3.9

9.4

3.9

IT infrastructure

Cloud

Data
Analytics

9.5

Intelligent
devices

SocialMaterial Machinery
Retail and
Financial
Construction
infrastructure
manufacture
manufacture
wholesales

Back Office

Management
Dashboard
Master data
Management
Big Data- per size

Table 1 - Overview of key technology metrics (technology adoption rate in %)Cross industry adoption rate

Source: JUAS, 企業 IT 動向調査報告書 2021, [Corporate IT Trends Survey Report 2021]
Online questionnaire and interviews took place from Sept-Oct 2020, N=1146
Methodology: For more information about the survey methodology refer to Appendix 4.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

LowestHighest27

The financial, social infrastructure and manufacturing industries are leading in corporate
digital technologies adoption
The Table 1 - Overview of key technology metrics 18 provides further information about technology
adoption per industry, classified into seven categories. Results indicate the social infrastructure (incl.
energy, ICT, distribution and communication sectors), financial industries and machinery
manufacturing sectors show overall higher technology adoption rate in comparison to other industries.
While the financial sector seems to have relatively more maturity in the digitalization of back officeprocesses and data analytics, it also shows a strong adoption of AI. On the other hand, the social
infrastructure industry also shows a relatively high adoption when looking at the technology categories
as a whole. The construction sector shows higher Figure 6 - Next priorities for corporate technology
adoption rate in connected devices, including AR/VR,
investment (%)
wearable devices, as well as drones. Finally, themachinery manufacturing industry seems to lead in Firms with revenues under ¥ 10 billion
the adoption of IoT solutions and in robotics.
Digital contracts/
Those figures show the complexity of the DX
ecosystem and demonstrate that there is a strong
industry factor when it comes to measuring the impact
of digital technologies on the business environment.

Large corporations show higher adoption rate in alltechnologies, while next priorities in technology
adoption differ according to company sizes
When it comes to technology adoption according tocompany size, large companies’ adoption rates are
significantly higher than the ones of the SMEs for any
type of technology (Refer to Table 1). Thosedifferences in digital maturity are reflected bydisparities in next priorities for corporate technology
investment.
For SMEs, main technologies of interest for the years
to come concern back office supporting tools such as
electronic approval and contracts, stamping systems
or the implementation of public cloud solutions suchas SaaS19, IaaS or PaaS. This highlights that SMEs arestill in the process of improving the digitalization of thesystems and infrastructures to support their business
operations. It is also worth noting that interest in moreadvanced solutions such as IoT and AI solutions is also
relatively high.
In contrast, the next top priorities for largeorganizations with higher revenues indicate a focus on

13.8

signature/ stamps
Public Cloud (SaaS)

8.5

RPA

7.4

IoT

7.1

AI

7.1

Public Cloud (IaaS, PaaS)

7.1

VPN

7.1
0

5

10

15

20

Firms with revenues above ¥ 1 trillion
AI

17

Big Data

17

Zero Trust Security

15.1

IoT

9.4

Public Cloud (SaaS)

7.5

Public Cloud (IaaS, PaaS)

5.7

Management Dashboard

5.7
0

5

10

15

20

Source: JUAS, 企業 IT 動向調査報告書 2021,
Corporate IT Trends Survey Report 2021

18 Refer to Appendix 4 for more details about the survey methodology and composition of survey respondents.
19 Software-as-a-service (SaaS) is a kind of cloud computing in which a third-party provider manages applications and makes themaccessible to consumers over the internet. It removes the need for organizations to install and run applications on their computers orin their data centers, which eliminates the cost of hardware acquisition, provisioning and maintenance as well as software licensing,installation and support.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

28

advanced technologies such as AI, big data and IoT, with an increased concern on cybersecurity anddata visualization. This suggests large corporations are moving toward the integration of moreinnovative technologies into their business and operating models. Cloud adoption also remains among
the top ranking of the next technologies to invest in.
These observations are in line with the earlier conclusion that digital transition of the establishedcorporate landscape is led by large corporations, whereas smaller firms characterized by lower
revenues are positioning as later adopters for any type of technology.

Trends suggest IoT and AI as high in importance degree for future corporate investments cloud and RPA to be the future norm - while growing interest is observed in data analytics
and zero trust security
The figure below helps to better understand the upcoming technology trends in the Japanese businessecosystem. Based on the survey conducted by JUAS 20 , it takes into consideration the current
implementation rate, as well as the degree to which the technology is perceived as promising forinvestment by the Japanese firms. The arrows indicate the comparison with the results from 2019.
Figure 7 - Key technology trend in Japanese corporate landscape (2020)

Source: JUAS - Corporate IT Trends Survey Report 2021
N=1146, based on an online survey conducted from 9/11/2020 to 27/10/2020. For more details about the methodology
and the sample, refer to Appendix 4.

20 JUAS, 企業 IT 動向調査報告書

2021, [Corporate IT Trends Survey Report 2021], 2021, Accessible athttps://juas.or.jp/cms/media/2021/04/JUAS_IT2021.pdf.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

29

The graph highlights 5 trends that can be divided into the following groups:
COVID-19 effect: technologies which have benefited from growth in adoption in response to
COVID-19.
Popular technology solutions: technologies that have comparatively higher adoption rate andwhich are also perceived as important for future investments.
Growing technology solutions: technologies which currently indicate a low adoption rate, however
are perceived as highly important for future investments.
Promising technology solutions: technologies that have a low adoption rate, which have seen agrowing interest in future investments over the past year.
Untapped technology solutions: technologies which show low adoption rate, as well as low
interest for future corporate investments.
It is worth considering that the graph reflects the trends for the corporate ecosystem as a whole (crosssector, cross company size) and is very likely to vary based on the assessed industry, as highlighted by
the Table 1- Overview of key technology metrics. The following sections deep dive into each trend inorder to capture the industry effect.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202230

2.3.2 COVID-19 effect
The figure 7 showed that a set of digital solutions have benefited from an increase in adoption in 2020,very likely in response to the pandemic.

COVID-19 as a momentum to adopt business chat and back office solutions
Business chat, mobile device management, public cloud SaaS solutions and digital signatures systems
have seen an important increase in adoption from the period 2019-2020, cross-sectors and crosscompany sizes. Those are very likely linked to the effect of the COVID-19 and the need for firms to findsolutions in response to the transition to remote working. The pandemic has pushed companies toimplement telework, which requires supporting IT infrastructure such as cloud solutions and mobile
applications, as well as communication tools such as software solutions for business chat.
On the other hand, the adoption of digital signature, electronic stamping and contract has shown
growing interest to facilitate business exchange and contractual management, suggesting business
operations and administration is increasingly relying on digital solutions. This represents an importantchange in Japan, which is particularly known for its paper based administration.
Figure 8 - COVID-19 effect on digital technology adoption

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT Trends Survey Report 2021
“Large” refers to companies with revenues greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202231

2.3.3 Popular technology solutions
Cloud solutions as well as Robotic Process Automation (RPA) are classified among technologies that are
already normalized with a comparatively higher adoption rate and which degree of importance for
future investments remains high.

Cloud Computing
Rapid increase in the adoption of cloud solution, however room for progress remains
Japan’s public spending on cloud services is classified
among the lowest, while Gartner estimated the country is
lagging 7 or more years behind the US 21 . Despitecomparatively low penetration, it appears that corporate
adoption is progressing quickly, as the penetration rate
raised by 16 points for SaaS and 14 points for IaaS and PaaSin 5 years, supported by a rapid growth in back office use.
Unsurprisingly, cloud adoption rate has a positive
relationship with the company size, where at least 9 large
companies out of 10 have adopted it, whereas smaller
companies indicate an adoption rate more than twice
lower.
Among the type of available cloud computing services,
firms have shown particular interest in SaaS solutions,largely benefiting from a rapid growth directly resulting
from the effect of the COVID-19, as well as the increase in
induction of web conference solutions22.

Figure 9 - Corporate adoption of cloud solutions

%

%
%

%
%
%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT
Trends Survey Report 2021
“Large” refers to companies with revenues greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

Robotic Process Automation

High adoption of RPA in large corporations, smaller organizations are catching up – financial
industry is leading
RPA solutions have revolutionized back office
repetitive tasks, automating and performing
rapidly business process of yesteryear
completed by humans using high performancecognitive technologies such as rule engine, AI
and machine learning. In a context of low
productivity and ageing population, thetechnology is very popular as indicated by thevery rapid increase in corporate adoption,
which rose by 43.1 points from the period
2017-2020.
While it has become the new norm for largest
companies to have such technology in place,smaller organizations still indicate room forfurther adoption, as only 1 company out of 5
implemented such solution in 2020.

21 Gartner, Cloud Adoption: Where does your country rank?, Published on 19/08/2019, Accessible at:https://www.gartner.com/smarterwithgartner/cloud-adoption-where-does-your-country-rank/ , Accessed on 08/09/2021.
22
Gartner, 日本企業のクラウド・コンピューティングに関する調査結果を発表 , [Presentation of survey results on cloudcomputing adoption of Japanese firms], published on 14/06/2021, Accessible at: https://www.gartner.co.jp/ja/newsroom/pressreleases/pr-20210614 , Accessed on 07/09/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

32

RPA practices are particularly common in the banking andfinancial industry. Indeed, as the industry deals with atremendous amount of data due to the nature of its
activities (e.g. financial, market transactions), RPA
solutions allow to automate a large amount of repetitive
back-office tasks such as generating financial reporting or
performing customer background screening, for example
for loan processing or Know Your Customer (KYC)
processes. Alternative use cases exist in fraud detection
and more commonly in other sectors for automatingtasks to manage accounts payable.

%

%

%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT
Trends Survey Report 2021
“Large” refers to companies with revenues greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

Interest for future investment in RPA remains high, in particular for SMEs which are expected
to catchup
RPA is expected to continue growing in the near future as it shows particularly high interest from smallorganizations, which classified it as the third priority in technology investment, as shown earlier infigure 6. Expected benefits are particularly high as, if properly implemented, RPA solutions lower costsof workforce, free up time for skilled employees to focus on primary tasks and streamline enterprise
operations, resulting in an overall increase in productivity.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

33

2.3.4 Growing technology solutions
Among technologies growing and promising for the near future, Artificial Intelligence (AI) and theInternet-of-Things (IoT) attract attention from the business, as those indicate a relatively low adoption
rate but a high interest for future investment.

Artificial Intelligence and the Internet-of-Things
Corporate adoption of AI and IoT remains low in Japan but is progressing positively
Cross sector and cross company size, AI and IoT
indicated a respective average adoption rate of 15.2%
and 18% in 2020, as measured by JUAS’s survey23.
The average adoption is evolving positively and fast for
AI, as companies which were conducting proof ofconcept are progressively adopting the technology,
while the interest of firms which have not induced it
yet is growing. The trend is further encouraged by thefact that early implementers are starting to observe
positive return on investment, in particular when it
comes to increase in productivity, reduction of costs
and innovation in products & services24.

AI and IoT are mostly adopted for the purpose of
improving business efficiency and cost reduction
Regardless of company sizes and industries, AI and IoT
mostly find their usage for the purpose of improving
business efficiency.

Figure 11 - Corporate adoption of AI and IoT

%

%

%

%
%

%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT
Trends Survey Report 2021
“Large” refers to companies with revenues greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

Currently, AI integration is led by the financial industry showing implementation level twice larger thanthe other industries25. Financial and banking sectors are favorable for AI integration as they generatea large amount of information, such as payment or financial trade data. Use cases of AI integration
include automated credit risk assessment, fraud detection, financial advisement to customers andanalysis of trading trends. The use of AI for market expansion, raise of competitiveness or products &services upgrade remains rather limited in established firms and is not common in practice26, despite
growing positive returns on investment observed by early adopters.
On the other hand, IoT is led by the manufacturing sector in machinery and equipment, which
represents the largest penetration rate with a quarter of the companies that have introduced thetechnology, followed by the manufacturing industry in raw material (21.4%) and the construction
23 JUAS, 企業 IT 動向調査報告書 2021, [Corporate IT Trends Survey Report 2021], 2021, Accessible athttps://juas.or.jp/cms/media/2021/04/JUAS_IT2021.pdf.
24 PWC, 2021 年 AI 予測調査 (日本 ), [2021, AI predictions], published on April 2021, Accessible at:https://www.pwc.com/jp/ja/knowledge/thoughtleadership/2021/assets/pdf/2021-ai-predictions.pdf.
25 JUAS, 企業 IT 動向調査報告書 2021, [Corporate IT Trends Survey Report 2021], 2021, Accessible athttps://juas.or.jp/cms/media/2021/04/JUAS_IT2021.pdf.
26 Cabinet Office, Information and Communication White Paper; Current Status and Issues of Digital Data Utilization (2020)

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

34

industry (20.2%). Half the companies use IoT for business improvement (increase in productivity,
reduction of costs), while almost 4 out of 10 are using it for the purpose of visualizing live situations.
In contrast, the proportion of established firms using IoT for the creation of new business is rare andrepresents only 15% of the cases.

Forecasts predict AI and IoT will create tremendous value in the manufacturing and retailindustry
According to a report published by the METI27 analyzing the impact of AI on SMEs, it is foreseen thatthe technology will generate large value particularly for the manufacturing, retail, service andconstruction sectors in the coming years. This, through the development of predictive maintenanceand demand forecasts, as well as through improved accounting operations and marketing practices.
Figure 12 - Forecast of the economic impact of AI on Japanese SMEs - By 2025

Source: METI, Strategic basic technology advancement / cooperation support project - Survey project on promotion of AI utilization by
SMEs (2020)

Use cases which are expected to create high benefits include:(1) Minimization of lost profits and maintenance costs through predictive maintenance byinstalling sensors on machines and facilities;(2) Demand forecasting by analyzing internal data such as sales performance and external datasuch as climate,(3) Improvement of operational efficiency through inventory optimization;(4) Improvement of procurement efficiency through effective accounting related operations suchas billing and payment;
27 Ministry of Economy, trade and industry, 戦略的基盤技術高度化・連携支援事業 (中小企業の AI 活用促進に関する調査事業 ),[Strategic basic technology advancement / cooperation support project (Survey project on promotion of AI utilization by SMEs)],
published on 27/03/2020, Accessible at: https://www.meti.go.jp/meti_lib/report/2019FY/000825.pdf

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202235

(5) Reduced marketing costs and increase in sales through data marketing.
The estimated impact on value creation reaches 11 trillion yen led by the 4 main sectors by 2025.

Connected devices and IoT are expected to create value in construction, medical sectors andin logistics
Connected devices and IoT are expected tohighly contribute to the construction sector,
where important value creation is foreseenthrough increased labor safety with the
installment of sensor points (e.g. temperatures,vibrations, voltages). RFID and location sensors
data is also expected to contribute largely towarehousing and logistic improvement throughasset tracking and real time inventory overlook.
As indicated by the figure 13, analysis of data
generated by such connected devices has been
growing very fast over the past 5 years in theareas of Machine-to-Machine data, however itstill shows room for progress as adoption rates
remain lower than 10%.

evolved as fast since 2015, suggesting thisdomain presents good opportunity for further
development.

Promising use cases are also discussed in the
medical sector, with wearable connected
devices allowing the tracking of patient’s healthdata, or alternatively the real time tracking of
medical equipment. However figures show thatanalytics of connected medical data has not

Source: Cabinet Office, Information and Communication White
Paper; Current Status and Issues of Digital Data Utilization (2020)

The COVID-19 has a polarized effect on corporate adoption of IoT and AI
Although categorized as future promising investment areas, IoT and AI have faced important decline
in perceived degree of importance when compared to 2019. Moreover, their overall adoption rate has
not changed significantly from the period 2019 to 2020 (see figure 7). Those results demonstrate thatfirms’ awareness about the technologies is high, however those seems to be less prioritized in timesof the pandemic. As an illustration, a domestic survey conducted by PWC 28 indicated 32% of the
respondents implemented AI in response to COVID-19, promoting new initiatives such as advanced
analytics in marketing or human flows analysis. In contrast, 27% delayed the induction of AI, as well as
digital initiatives as a whole, as organizations had to devote their management resources to measurescompensating the effects of the pandemic.

28

PWC, 2021 年 AI 予測調査 (日本), [2021, AI predictions], published on April 2021, Accessible at:https://www.pwc.com/jp/ja/knowledge/thoughtleadership/2021/assets/pdf/2021-ai-predictions.pdf

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

36

2.3.5 Promising technology solutions
Data analytics domains such as master data management, big data and dashboard visualization, as
well as zero trust cyber security show low adoption rate in the Japanese corporate landscape. However,those have attracted increased interest from the business over the past year as indicated by a growing
intention for investment (ref. figure 7).

Data Management and Analytics
In an era where data is flowing from all over the places, data management and analytics sits at thecenter of companies’ competitiveness. It provides insights about business operations and helps
improving effectiveness and reduce costs, as well as helps to better understand customer behavior
and preferences. When properly governed and managed, data offers tremendous business value,
which is further leveraged if combined with other advanced technologies such as IoT or AI.

Japanese firms have not achieved full potential when it comes to data analytics yet,indicating low adoption rate in SMEs and overall low
Figure 14 - Corporate adoption of data
management practices
maturity in analytics capabilities
Data management and analytics are common practices withinlarge companies, as 90 % of the companies specify data analytics
is performed in at least one of their department. Master data
management (MDM) 29 is the norm, while big data and data
dashboards30 are implemented in almost 1 company out of 2. In
contrast, small companies’ implementation of data analytics drops
to 56%, whereas MDM, dashboard visualization and big data are
still rarely used. However, it is worth noting that data analytics
trend has been evolving positively over the past years,
demonstrating increasing awareness around the benefits ofmanaging properly data into insights.

%
%
%

%

%

%

The financial sector tends to have higher penetration rate than theother sectors when it comes to data management and analytics inoverall, mainly explained by the nature of its activities generating
tremendous amount of data, such as payment transactions.
The figure 15 further shows the maturity level of data analytics perindustry size, starting from simple “data reading” approach to“predictive analytics using deep learning and AI”. The tablesuggests the majority of the companies read available data,
however few are the ones that perform advanced analytics or have

%

%

%

%
Source: JUAS, 企業 IT 動向調査報告書 2021,
Corporate IT Trends Survey Report 2021
“Large” refers to firms with revenues greater than ¥1 trillion.
“SME” refers to firms with revenues below ¥10 billion.

29 Master Data Management (MDM) involves creating a single master record for each person, place, or element in a business, from acrossinternal and external data sources and applications. It is key for companies to build a resilient baseline across organization and optimize
the way generated data is used and interpreted.
30 Big Data consists in deriving information and insights from the collection of huge amount of data.

Dashboarding consists in transforming data into visual information (such as graphs) to help track, analyze and display data. It helps
gaining deeper insights about organizations’ performances or status.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

37

implemented deep learning and machine learning solutions. Moreover large disparities are observed
between large and small companies.
Figure 15- Data Analytics Methodology (2020)

Source: Cabinet Office, Information and Communication White Paper; Current Status and Issues of Digital Data Utilization (2020)

Japan is lagging behind in data analytics when compared to its American and European peers
While it is clear that Japanese corporations are progressing in data analytics, important gaps werehighlighted when conducting similar survey with American and German companies. As shown in the
figure below, Japan lags behind in all the covered domains including implementation of data analytics
and analytics for product/service development when compared to its peers. It is worth mentioningthat the gap is quite large, as observed implementation rates are twice lower than Germany in all the
domains. Additional efforts are required to encourage firms towards digital transformation, inparticular the SMEs, as data analytics is a key practice for business to improve their productivity andsales performances.
Figure 16 - Data Analytics implementation - per country (2020)

Source: Cabinet Office, Information and Communication White Paper; Current Status and Issues of Digital Data Utilization (2020)

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

38

Cyber Security
The digitalization journey has raised new challenges for firms as multiple cases of stolen data,
ransomwares and unauthorized access were reported both by the government and the business. In
this context, it has become a strategic decision for entities to secure citizens and clients’ trust throughthe implementation of appropriate cyber security measures.

Perceived cyber threat has increased since
COVID-19, while 4 companies out of 10 are
not sure to have all necessary security
measures in place
According to a domestic survey conducted by
Sonpo in 2020 31 , 4 companies out of 10 havementioned that their perceived threat ofcyberattacks has increased since the pandemic.
Moreover, 15% of the respondents indicatedthey have implemented measures within 2020,
suggesting an increased awareness around cyberrisk, cross-company sizes and cross-sectors.
Overall, main reported attacks by the corporate
sector consist in malwares, ransomwares, as wellas fishing mails. In response, 90% of thecompanies have measures in place to countercyberattacks, of which main initiatives are thetraditional implementation of antivirus andvulnerability management software, as well as
the setup of access logs.
Despite high implementation rate of security
measures, 40% of the organizations are still notconfident in having all the necessary measures inplace, as risk is perceived as growing andbecoming more sophisticated along withdigitalization.

The future of cybersecurity - AI to automate
security systems and moving toward “zerotrust security” model

The current environment creates diversified
exposures to cyber threats and opportunities todevelop advanced security solutions. Indeed,digitalization involves the collection, processing
and exchange of tremendous amount of data.
Typical examples in the corporate environment
include the remote connection through VPN,
which allows access to information stored on thecloud or the adoption of numerous connected
devices, which collect and share data throughthe online network. Those create vulnerabilities
in many places for organizations. In response toincreasing risk, sophisticated cybersecurity
practices are emerging, as for example, with thedevelopment of AI solutions that automate
security systems and help analyzing massive
quantity of risk data.
Moreover, the necessity to increase security
encourages corporations to move toward the“zero trust security” model. It is centered on the
beliefthatorganizations
shouldnotautomatically trust anything inside or outside
their perimeters and instead, must verify
anything trying to connect to their systems
before granting access. It requires firms to put inplace governance model, authentication androbust technical cybersecurity solutions.
Security is therefore to be considered in any
digital component and is a key element ofcompanies’ DX journey.

SONPO, 国内企業のサイバーリスク意識・対策実態調査 2020, [Survey on Cyber Risk Awareness andCountermeasures among Japanese Companies 2020], December 2020, Accessible at: https://www.sonpo.or.jp/cyberhoken/data/2020-01/pdf/cyber_report2020.pdf
31

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

39

While the maturity of SMEs is far from implementing such an advanced security model, JUAS survey32
highlighted that large corporations are shifting toward this approach, indicating 6 companies out of
10 are investigating to adopt zero trust security in the near future.

For more information about Cyber Security in Japan, refer to the past Minerva reports:
Opportunities for venture firms, universities, and research institutes in the EU to conduct knowledge transfer with Japanesecounterparts in nine digital technology areas (2018)– by Toru Kodama.

JUAS, 企業 IT 動向調査報告書 2021, [Corporate IT Trends Survey Report 2021], 2021, Accessible athttps://juas.or.jp/cms/media/2021/04/JUAS_IT2021.pdf.
32

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202240

2.3.6 Untapped Technology Solutions
5G, enterprise architecture, intelligent and connected devices, as well as blockchain solutions seem toremain as untapped areas when compared to other technologies, as those indicate low adoption rateand low degree of importance for future corporate investments (refer to figure 7).

Intelligence Devices (Robotics, Drones)
Robotics mainly used for industrial manufacturing – COVID-19 as a momentum for thedevelopment of service robots
When looking at the area of robotics, Japan ispositioned among the world’s top leaders, witha density of 364 robots per 10.000 employees
and representing 47% of the global robot
production in 202033.
Unsurprisingly, the use of industrial robot is led
by the manufacturing sector, representing 60%of the industry usage. Industrial manufacturing
remains therefore the main purpose of robots
usage, where fundamental functions consists inperforming simple jobs such as assembling partsand physically dangerous tasks such astransporting heavy items.
On the other hand, robots adoption to serve
service industry accounted for 28.5% of the casesin 2018. Those are for the majority used for client
reception, guidance, customer service, but also
for transport, information collection andresearch. As the COVID-19 emergency exploded
into a full-blown pandemic, many robot-making
companies saw a surge in orders, together with
the need for “non-contact” solutions,contributing to the acceleration of the use of
remote control and service robots. TIS, aJapanese firm offering services for service robot

development, has seen its demand for service
robots multiplied by 5 during the first year of thepandemic.34
Although robotics for services still represents
comparatively lower share in value and use whencompared to industrial robotics, the pandemic
has been a major accelerator to its development,
strengthening knowledge and experience ofrobot making companies. According to theWorld Robotics report from 2020, main areas ofdevelopment of service robots serve medical
purposes, as well as logistic activities, which
particularly grew in market demand in responseto the COVID-1935.
Figure 17 - Corporate adoption of robots%%%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT
Trends Survey Report 2021
“Large” refers to companies with a revenue greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

33 IFR, World Robotics 2021 report, October 2021.

35 Japan Robot Association, サービスロボット調査結果：世34 Robotstart, コロナ禍でロボットの問合わせが 5 倍に ! ],界の業務用サービスロボットの売上高が 32％増加, [Survey[Inquiries about robots are quintupled due to corona damage!
"], published on 13/10/2020, accessible at:https://robotstart.info/2020/10/13/tis-strtgy2020.html ,accessed on 25/01/2022.

on service robot world business service robot sales increased by32%],
https://www.jara.jp/various/ifr/pressrelease/pr20201112/index.html

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

41

Progress in robotics have introduced advanced
technologies and allowed conventional robots,
which require human detailed instructions tofunction, to embrace intelligence and toindependently make calculation to evaluate andmake optimal movements and decisions.
According to a survey conducted by NTT data in
201836, technologies that are the most deficient
to support the development of next generation

robotics are AI, data mining, big data and IoT.
The survey further highlighted that the domain isparticularly in shortage of human resources
robotics engineers, software engineers but alsoof AI, data analyst/scientists experts. To maintainits competitive advantage in robotics, Japanneeds to ensure the software layer, in otherword the “intelligence component”, is fulfilled.

For more information about robotics in Japan, refer to the past Minerva reports:
Analysis of opportunities for EU SMEs in Japan’s Data Economy and Artificial Intelligence in connection with
Robotics (2019)– by Agnieszka Kuczynska

Drones corporate adoption is led by large firms and is mainly used in the construction sector
with opportunities in niche industries
The use of drones mainly takes place within theconstruction industry (38% of penetration rate)
as well as in social infrastructure (16%) and is led
by large companies’ adoption. The technology
has gained popularity relatively fast over the past
5 years. Drones indicate a high penetration ratein those sectors as they cover use cases in allphases of a building’s/infrastructures lifecyclefrom surveying a new jobsite to assisting inongoing maintenance of older buildings.
Moreover, drones can enhance safety
throughout a building’s lifecycle. In niche
industries, they are also used in military andspace related solutions through outdoor andindoor inspection, surveillance, as well as aerial
photography or videography.
Advanced innovation integrates AI to give thedevice the ability to function in situations where
human cannot, contributing to the developmentof unmanned aircraft solutions. It also provides
the possibility to analyze real time data andNTT data, 企業におけるロボットのビジネス活用動向調査, [Survey on corporate business use of robotics],
36

adjust upon obstacles and terrains. Forecasts
suggest that industry and commercial use cases
will further develop with technology advance inmultiple areas including delivery, surveying,
agriculture and many more. On the other hand,
there is a strong need to build appropriate
infrastructure and regulation to further
encourage its dissemination.

%

%

%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT Trends
Survey Report 2021
“Large” refers to companies with a revenue greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

https://www.nttdatastrategy.com/archives/survey/goo/pdf/20180202.pdf.

published on 02/02/2018, Accessible at:

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

42

Blockchain
Blockchain technology is a shared, immutableledger that facilitates the process of recordingtransactions and tracking assets in a businessnetwork. Over the past years, it has been widely
known for offering disruptive solutions such as
cryptocurrencies and smart contracts, delivering
multiple business benefits by improving
traceability, transparency and tradability.

Blockchain indicates among the lowest
corporate adoption rate in comparison toother key technologies, led by large
industries in the financial sector
Although the technology has been very popularand much mediatized over the past years,
business reality shows that only few companies
have adopted the blockchain. Indeed, only 1.7%
of firms had it implemented cross-sectors, while
13% were considering it or were in the processof adopting it in 202037. Moreover its effective
adoption and intended implementation ranked
among the lowest when compared to other key
technologies such as AI or IoT, suggesting it is nota priority for the majority of establishedcompanies. Despite these observations, it isworth noting the adoption trend accelerated

over the past years, as implementation rate grew
more than 7 times from 2017 to 2020.
Looking at industry trends, adopters areconcentrated in a limited number of sectors,
where, unsurprisingly, the financial industry
indicates the highest adoption rate (6.3%),
followed by the construction and material
manufacturing sectors (2.4%). Main practicaluses include the development of the popular
cryptocurrencies, as multiple initiatives areundertaken by large banks, as well as with the
emergence of fintech companies. However it isworth considering that the practical use ofblockchain solutions is led by forerunners and is
not widely used among industries yet.
Figure 19 - Corporate adoption of blockchain

%

%

%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT Trends
Survey Report 2021
“Large” refers to companies with a revenue greater than ¥1 trillion.
“SME” refers to companies with revenues below ¥10 billion.

For more information about blockchain in Japan, refer to the past Minerva reports:
Blockchain in Japan (2019)– by Marta Gonzàles

Advanced IT systems and infrastructure
While the cloud and VPN have seen great progression over the past years, companies that haveadopted more advanced solutions to develop digitally mature IT systems and infrastructure are limited
and led by large corporations. Indeed, looking into 5G or Enterprise Architecture (EA), implementation
remains low and not considered as a main priority for future investment in comparison to othertechnologies.
JUAS, 企業 IT 動向調査報告書 2021, [Corporate IT Trends Survey
Report 2021], 2021, Accessible athttps://juas.or.jp/cms/media/2021/04/JUAS_IT2021.pdf.
37

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

43

Undeveloped Enterprise Architecture showing slow progression
Enterprise architecture is a discipline that defines,
organizes and documents the architecture and key
elements of an organization. It covers relevant domains
such as business, digital, physical or organization andidentify the interaction between those elements
including processes, applications, data or technologies.
It is a key approach to help businesses going throughDX, since it focuses on bringing both legacy applications
and processes together in an attempt to form aseamless environment.

Figure 20 - Corporate adoption of enterprisearchitecture

%

%

%

Source: JUAS, 企業 IT 動向調査報告書 2021, Corporate IT
Trends Survey Report 2021

“Large” refers to companies with revenues greater than ¥1 trillion.
JUAS’s survey highlights that large companies are“SME” refers to companies with revenues below ¥10 billion.
undertaking such process, also showing interest for
future implementation, while smaller companies are lagging far behind. Industries showing thehighest penetration of such practices are the financial and banking sectors.

5G adoption remains in early stage adoption, led by large corporations, which stand a highconsideration for future implementation
5G is expected to support critical services of next generation of wireless technologies including
connected devices, big data, as well as AI, requiring networks that provide high speed connectivity.
Despite its important media exposure, the effective corporate
adoption is in fact particularly low and only in early stage, as only 3.8%of large organizations had it in place in 2020, while none of thesurveyed SMEs had implemented 5G infrastructure. It is however
worth mentioning that forerunners have started their path towards
5G, while consideration for future implementation among large
corporations is relatively high.
Industries leading the trend are the manufacturing sector as well as
the social infrastructure sectors, which is very likely to be linked withthe development of IoT and machine-to-machine (MtoM) solutions.
Source: JUAS, 企業 IT 動向調査報告書
2021, Corporate IT Trends Survey Report 2021
“Large” refers to companies with revenues greaterthan ¥1 trillion and “SME” refers to companies withrevenues below ¥10 billion.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

44

03 DX IN BUSINESS OPERATIONS AND PROCESSES
Digital solutions bring a variety of opportunities for organizations to increase productivity and reduce
costs by streamlining processes, by properly using and managing data or by automating redundanttasks.
This section brings to light the way main business functions and operations are disrupted bytechnologies, evaluates the extent to which Japanese firms enabled them to gain efficiency andassesses industries’ specifics.

Highlights
1/ Back office and digital tools characterized by old legacy systems. A large proportion of IT systems running inJapanese established firms are so old that they prevent them to benefit from the cloud computing and its related
services SaaS, PaaS and IaaS. The COVID-19 and the need to implement telework have accelerated the trend toward
cloud adoption.

2/ Digital marketing led by large industry players. SMEs are mainly focusing on the maintenance of their
homepages, whereas rare are the ones that exploit the benefits of online marketing. In contrast, digital marketing is acommon practice among large organizations, where forerunners start looking into more advanced technologies using
biometrics.

3/ Supply chain and logistics showing low progress in digital transition. The COVID-19 had an important impact
on the supply chain, increasing awareness around the need to digitalize related processes. In particular, industry
voices indicate the need for real time data visualization across the network. However in practice, facts and figures
reveal that the digital transition of the supply chain and logistics remains an area which is particularly immature andshows room for progress.

4/ Connected Industries is seen as valuable, however practical implementation remains limited. Industrial
manufacturing highly recognizes the benefits of implementing advanced technologies such as AI and IoT or
augmented reality into the engineering chain. However in practice, the implementation of such solutions is led bylarge corporations while small manufacturers lag behind.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202245

3.1 Back office and digital tools
One of the key elements that have revolutionized the way companies operate are IT business systems
and digital tools. To define it simply, those are programs, software, website, or online resources thatmake tasks easier to complete. While conventional approach was to have customized in-housesystems hosted on local IT infrastructures, hereinafter referred as “legacy systems”, modern IT tools
are nowadays running on the cloud and offer standardized high performance solutions by
incorporating advanced technologies such as big data or AI.
Figure 22 - Legacy System vs Cloud

System legacy and vendor lock-in prevent
Japanese firms to fully benefit from
opportunities offered by cloud computing
Japan is characterized by a high level of legacy
systems, where mission critical IT systems older
than 20 years are expected to represent 60% of
the systems by 2025 38 . The accumulation oflimited IT investments over the past decades has
led to large maintenance costs of thosecustomized
andlocallyhostedoldinfrastructures, very often provided andmaintained by external vendors. This creates a“vendor lock” situation, which makes it difficult
for companies to update or replace theirsoftware in a short period of time, in contrast

with modern software solutions running on thecloud, which tend to promote standardization
incorporating best practices and regular
maintenance.
Moreover, this hinders companies’ abilities tocommit to digital transition, as many of them
allocate resources and budget for costly systems’maintenance preventing them to invest in otheradvanced and modern technological solutions.
The figure 23 highlights the phenomenon, where
it is shown that a large proportion of the digital
tools currently running in Japanese companies
does not rely on the cloud, nor use the SaaS typeof solutions.

38 Ministry of Economy, Trade and Industry, Overcoming the IT

system “2025 cliff” and full-scale deployment of DX, March2019.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

46

Figure 23 - IT tools in use and cloud penetration in SMEs

Source: Ministry of Economy, Trade and Industry, 2020, Report on SMEs Digital transformation (2021)

By shifting to cloud, enterprises would benefit
from online data storage and applications to
support remote work, as well as to a wide rangeof SaaS solutions that support back office tasks
and streamline processes. Those remove theneed for organizations to install and run
applications on their devices or in their data
centers and give the benefit of eliminating thecost of hardware acquisition, provisioning,
maintenance, as well as software licensing,installation and support. Those also offer very
often more affordable solutions for SMEs.

Communication, HR and accounting tools
among the most popular solutions
When it comes to the IT tools in use, with nosurprise, communication tools are the most
adopted among all the others since thepandemic (see figure 23). Disregarding the effectof the COVID-19, most commonly implemented
tools are serving horizontal back office purposes
including HR management, accounting business,
as well as sales and procurement supporting
activities.

39 Tokyo Chamber of Commerce (2021), 中小企業のテレワー

ク実施状況に関する調査, [Report on telework adoption in

On top of horizontal solutions, vertical SaaS
solutions are also a growing segment. These
consist in a set of software that create solutions
catered to niche industries. They support specificneeds of industries from end-to-end for example,
with the provision of contract, invoice, andelectronic signature supporting systems incompliance with the industry standards. The
global vertical SaaS market is forecasted toregister a 9% CAGR these next years to worth$60 billion by 2023, although the market seems
to be relatively small in Japan and is yet tomature. Key industries which have shown
interest in investing in vertical SaaS solutions are
the medical, wholesales and construction
sectors.

Telework as a new working norm andrising needs for digital tools
With no surprise, the pandemic has been a major
accelerator of teleworking in Japan. According toa survey conducted by the Tokyo Chamber ofCommerce39, nearly 4 SMEs out of 10 in Tokyo
had implemented remote work by May 2021.

SMEs], published on 16/06/2021, Accessible athttps://www.tokyo-cci.or.jp/file.jsp?id=1025070 , Accessed on
30/08/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

47

Results are positively related to company sizes,
as firms with more than 300 employees adopted
teleworking twice more than the ones counting
less than 50, while the effect is more or less thesame when it comes to disparities according toindustries.
More than half of the organizations that haveintroduced telework in response to COVID-19
have seen positive effect on productivity by theintermediary of digital tools adoption. Althoughmost of the current initiatives to implement
telework were first undertaken in response to
the pandemic, the purposes of implementing
remote work have been slightly shifting from “aresponse to COVID-19” to “a consideration of
the transformation of the way of working”. Thissuggests companies are starting to observe thebenefits of such practices and are reevaluating
their approach for the long term.
This further leads to new priorities andchallenges, in particular regarding information
security, as well as the need to consider the

integration of other digital tools running on thecloud. 40

COVID-19 and the government moving tocloud as a momentum for Japanese firms
Japan’s private sector needs to overcome thelegacy systems that are currently widely infunction across the country to benefit fromcloud advantages and to properly leverage andcapitalize on advanced technologies. Those cansignificantly improve productivity, quality andefficiency in back office operations. Positive
progress is expected as the government
announcement to move to the cloud made astrong statement and signal for the future.
Moreover, plans to build public online
applications to digitize administrative processes
should encourage the private sector toward thispath. Combined with the consequences of thepandemic and the need to introduce teleworking,the current environment creates a favorable
baseline for more extensive adoption of cloudcomputing based software solutions.

BOX 1 - Use Case: Cloud and Digital Tools
Cloud and SaaS solution to manage remote work
Work Smile labo is a Japanese SME employing 35 workers selling office supplies, furniture andoffice automation equipment.
Challenge
The company was looking for a solution to provide more flexibility to employees raising young
children, as there were times when there was no choice but to take a leave due to unforeseen
circumstances.
Measures
In response, Work Smile labo considered remote work as a solution. Undertaken measures tosupport the transition include the centralization of activities on shared server, enhanced
security and the provision of remote access. Systems to support labor management andemployees clock in and out were implemented and attendance data was moved to the cloud.

Digital Shift, 「テレワークとデジタルツールに関する調査」が実施 約 4 割が今後も「テレワークの継続を検討」, [Survey on Digital work and Digital tools.
40

About 4 out of 10 consider the continuation of telework],
published on 20/07/2020, accessible at: https://digitalshift.jp/flash_news/FN200720_6, accessed on
02/09/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

48

Moreover, the company set up tools for web conferencing and introduced new approach andrules for employee evaluation systems.
Outcome
The introduction of remote work supported by the transition to cloud and the adoption of
supporting IT tools helped reducing overtime by 40% and increased profit and productivity.
Source: Worker’s resort

Vertical SaaS – App solution to support operations in construction industry
Okada Construction is engaged in the housing and general construction business since its
establishment in 1957. The company handles in-house the whole process from planning toconstruction and sales of condominiums.
Challenge
As a general construction company, Okada construction had already introduced advanced
technologies such as 3D design data creation, drones and ICT construction, and the management
was looking for a solution to digitalize processes for its housing business. The site supervisor in
charge of multiple sites spent a long time moving across the various construction sites, while theprovision of instructions, documentation and paper based reporting process were time
consuming. At that point, improving work efficiency was an issue.
MeasuresOkada construction looked for a solution that would respond to the need to digitalize operations,compared various options and ended up selecting Andpad’s application. It is a cloud-based
project management solution focusing on construction industry, which supports thecentralization of management activities from site efficiency to operations improvement.
Outcome
The Andpad app has facilitated the housing processes by centralizing and smoothing reporting,
instructions and documentation processes. Among the key benefits, sites pictures are now takenwith workers’ mobile phone and directly stored on the app, reducing the time to manage
construction sites photos. On-site carpenters can directly draw on pictures stored in the cloudand provide quickly instructions, instead of sending it via email or fax. Quality control also
improved thanks to real-time check relying on information centralized on the app and throughchat communication, increasing the overall transparency and replacing the previously
implemented daily reporting system.
Source: Andpad

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202249

3.2 Digital Marketing
Digitalization has brought disruptive changes in marketing practices in multiple ways. The introductionof ecommerce, new channels and touchpoints, combined with advanced analytics generate new
insights and help companies on two folds: it reduces costs as well as provide opportunities to increase
sales through more precise, aware and effective Business-to-Consumer (BtoC) and Business-toBusiness (BtoB) customer targeting.

Enhanced online marketing with the rise of
online touchpoint and customer data
Online activities have created new customer
touchpoints through the introduction of online
home pages, SNS presence, content publicationsof articles, videos or podcasts, as well as throughdirect communication via emails.
Those touchpoints are enhancing marketing
practices as they generate tremendous amountof data about BtoC and BtoB customers’
behavior (e.g. number of clicks, user profiles,
conversion rate, etc.). The collected data isfurther leveraged by combining digital
capabilities such as advanced analytics, datavisualization or AI, often supported by digital
tools and software, helping companies to gain
insights and conduct more precise marketing.
Enhanced customer targeting allows companies
to generate advertisement through the various
digital touchpoints to relevant targets only,
reducing advertisement costs and increasing
engagement and conversion rate. It uses
technologies such as SEO, advanced analytics, AI
as well as data visualization.
Marketing automation is based on pieces ofsoftware that automatically perform repetitive
tasks such as email marketing, ad campaigns or
profiling to identify leads and maintain customer
loyalty. An example of a functionality is to send

email based on user’s web activity, for instance,by automatically reminding the visitor via email
in case of abandoned shopping cart.
With the increase of internet traffic and data
generated from it, analytics and marketing
automation tools have been growing at a rapid
pace and are expected to further evolve in the
coming years.

Important gaps in digital marketing
adoption between large corporations and
SMEs
When it comes to the adoption of digitalmarketing by Japanese firms, multiple surveys
conducted by RICOH, the METI 41 and Fujitsu 42
suggest that there are important disparities
when comparing SMEs and large firms. When it
comes to SMEs with less than 500 employees,
results indicate that the COVID-19 had a positive
impact on the use of SNS and digital marketingfor promoting sales, however the proportion offirms that have adopted such practices remains
very low.
Indeed, statistics indicate that approximately
60% of SMEs have a web portal, while only 1company out of 5 is doing promotion on social
media or performing online advertisement. On
the other hand, adoption of marketing
automation tools concerns only 15% of the cases.

41 RICOH, 中小企業のデジタルマーケティング実態調査資42 Fujitsu, 大企業のデジタルマーケティング取り組み実態

料, [Survey on SMEs digital marketing implementation], March

調査, [Survey on marketing initiatives in large enterprises],

2018, Accessed on 21/10/2021.

October 2019, Accessible at:https://www.fujitsu.com/jp/solutions/industry/manufacturing/c
ontents/fi2019-5gad/fujitsu_theme04_report01.pdf , Accessedon 21/10/2021.

Ministry of Economy, Trade and Industry, 令和２年度中小企業のデジタル化に関する調査に係る委託事業 報告書, [2020,
Report on SMEs Digital transformation], published on
03/03/2021, on 03/09/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

50

This suggests low maturity of Japanese SMEs
when it comes to performing online
advertisement and prospection, while the main
practice of going online consists in maintaining
the brand’s homepage. Overall, the general poor
adoption across SMEs is mainly due to the lack ofavailable resources and knowledge, the low
budget allocation to marketing, as well as thedifficulty to recognize and measure the benefit
of implementing digital marketing.
In contrast, large corporations (characterized byannual sales greater than ¥ 1 billion) seem toreach higher maturity. Indeed, almost 70% ofthem have implemented internet advertisement,
website SEO/SEM, SNS communications andcontent marketing.
Main benefits indicated by the market leaders
are increased competitiveness and successful
approach to customers who were previously
unreached.

Forerunners investing in next generation ofadvanced marketing using biometric data.
On top of digital marketing emerging from online
data, recent technologies have opened
opportunities to further leverage marketing
using biometric data combined with AI, as
highlighted by the report published by the EUJapan center on “Opportunities for venture firms,
universities, and research institutes in the EU to
conduct knowledge transfer with Japanesecounterparts in nine digital technology areas”.
The report elaborates on the development ofemotion analysis, as well as eye tracking
technologies by large Japanese advertisementcompanies such as Dentsu and Hakuhodo, whichcollaborate with universities and martech startups to acquire those capabilities. While thosepractices sounds very promising, it is worth
mentioning that effective adoption remains
limited and solely used by industries’
forerunners.

BOX 2 - Use Case: Marketing Automation

Source : Boxil (2021)

Maxhills (マックスヒルズ) provides services for the planning, production, implementation andsales promotion for advertising services.

Pardot is a cloud based BtoB business MA tool provided as part of Salesforce portfolio. It offers
automated solutions for e-mail newsletter creation/ distribution as well as behavior data tracking. It
provides visualization as well as reporting functions to maximize cost-effectiveness of marketing
activities.

Challenge

Measures and outcome

Maxhills was struggling to manage theleads acquired in seminars and e-mailmagazines to attract customers to sports
facilities, which were ultimately not tied
into contracts.

Maxhills implemented Pardot to do lead management
and lead generation in real time. Customized email
delivery and the flow of handing over to sales at the
optimal timing have tripled the number of inquiries andcontributed to increasing the accuracy of contracts.

For more information about martech in Japan, refer to past Minerva report:
Opportunities for venture firms, universities, and research institutes in the EU to conduct knowledge transfer with Japanesecounterparts in nine digital technology areas (2018)– by Toru Kodama

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

51

3.3 Next generation of supply chain and logistic
Awareness around DX implementation isrising in response to COVID-19 to ensure
supply chain resilience

The METI describes and categorizes thedigitalization of the supply chain in multiple
stages:Hit by the impact of the COVID-19, industries
were confronted with extreme supply chain
conditions and were forced into exceptional
measures to protect their people and maintaintheir operations. Some struggled to keep theiroperations running facing shortage of raw
materials, supply and workers, while others werechallenged with drastic spike in demand. The
crisis has put in light the need to increase agility
and flexibility of operations.

[1] The first stage requires organizations to grasp
the manufacturing process in real time. Thisrelies on technologies such as cloud computing
or ERP/MES 43 to access data instantly andvisualize accurate status of ordering or
inventories.

Technologies enabling remote working,collaboration and visibility across the end-to-end
supply chain are referred as strategic priorities,
highlighting the call for more effective
management of volatile and disrupted supply
network. This is not limited to the company level,
as the need to cooperate and comprehensively
grasp business partners along the supply chain isalso expected to increase in the near future.
Moreover, on top of the “defensive” approach ofdigitalization, which consists in strengthening
existing business processes, it has become
increasingly important to engage in more
“offensive” approach to provide a variety of
products that meet the needs of individual
consumers and to build a supply chain that can
respond to shortened product cycles.
In this context, the digital transition has become
an indispensable technology for the realizationand the support of complex production,
inventory and distribution management.

43 ERP (Enterprise resource planning) refers to a type of softwarethat organizations use to manage day-to-day business activities
such as accounting, procurement, project management, risk
management and compliance, and supply chain operations.
MES (Manufacturing Execution System : Manufacturingexecution systems are computerized systems used in[2] The second stage consists in pushing further
visualization and transparency by including
business partners and linking data bases. Data
collected using wireless communication
technology, such as IoT, is shared between
organizations based on, for example, blockchain
technologies and used as big data to grasp realtime situation through the supply chain,supporting end-to-end optimization.
[3] Finally, the last stage envisions predictive
analysis of supply chain risk and planning basedon AI and digital twins technologies. According toa cross-industry survey conducted by Keidanren
in 202044, 6 companies out of 10 have reviewed
or planned to review their supply chain resilience
in response to the pandemic. As part of theundertaken initiatives to strengthen theirbusiness continuity, the diversification of
suppliers is positioned first, followed by thereview of business processes and theimplementation of digital transformation, whichis considered by almost one company out of two.
When it comes to concrete actions andinitiatives, the survey highlighted DX
implementation was mostly related to better
visualization of real time data, as well as
manufacturing to track and document the transformation of raw
materials to finished goods.
44 Keidanren, 第２回 企業行動憲章 に関するアンケート調査

結 果 , [Results of the 2nd survey on the Charter of Corporate
Behavior],
Accessibleat:https://www.keidanren.or.jp/policy/2020/098_honbun.pdf.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202252

information gathering and sharing with business
partners using IoT and digital tags, suggesting

there is a strong incentives for companies to
evolve toward stage 1 and stage 2.

Figure 24 - Digital transformation of the Supply Chain

Source: METI, 2021 White Paper on International Economy and Trade [Towards the construction of a resilient supply chain] (2021)

Smart warehousing and logistics are in need for real-time data and predictive analytics
Despite the benefits of integrating data between
internal departments and with business partners,
in practice, industries face great barriers toachieve information sharing across the supply
chain. Stage 1 requires to set in place sufficienttechnology that helps capturing real time
information, however facts indicate there is stillroom for Japanese firms to gain maturity in thisdomain.
Smart warehouses are inventory systems where
all of the inventory processes are automated,interconnected with technologies such as
robotics, IoT or AI, allowing more efficientinventory management and product location.
Using similar technologies, smart and connectedlogistics offers near real-time tracking of
movement and delivery of goods and services.
According to a cross-industries survey conductedby NEC solution in 2021 45 , main issue when it

45

NEC Solution Innovator, 物流や配送、物流システム(TMS/WMS)に関するリサーチ結果 2021, [Research results

comes to warehouse/inventory management
system is the need to have access to inventory
real time data, as well as access to detailed
information about products, quantities and lots,
as indicated by half of the survey respondents.
One of the growing technology solutioncommonly used to collect real time data inwarehousing and logistics is Radio Frequency
Identification (RFID) tagging, which is a type of
tracking system that uses radio frequency tosearch, identify, track and communicate withitems and people. RFID readers can be placed at
entrances and exits of facilities, allowing realtime tracking of inventory as it moves in and outof the warehouse. It helps optimizing warehousefloor layout, as opposite to bar codes, which
need to be scanned and are limited to theprovision of inventory status for a specific given
time.

2021, Accessible at: https://www.necsolutioninnovators.co.jp/ss/logistics/pdf/research2021.pdf.

on logistics, delivery, and logistics systems (TMS/WMS) 2021],

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

53

Figure 25 - Warehouse inspection method (2020)

Inpractice,
warehouse
andlogistics
managements are still heavily relying on visualchecks, as well as barcodes (see figure 25) where
RFID is characterized by low implementation
rates. While the technology is well known in thelogistic industry, awareness about benefits andfunctions remains particularly low in the
manufacturing, wholesale and retail industries.
Moreover, when it comes to the main barrier for
adopting RFID, reports indicate costs ofimplementation is the main issue for allindustries.

Advanced robotics and automated systems
for logistics and warehousing are still indevelopment
Other technologies that are expected to createhigh value and increase efficiency along the
supply chain with advanced logistics andwarehousing are intelligent robotics, providing
potential solutions to fill the gaps in labor
shortage and assist human in warehouses.
Currently, the introduction of advanced robots is
beginning to spread mainly in large distribution
warehouses for storage, packing, and sorting
work. Future development is expected for

Source: MUFG, 令和２年度流通・物流の効率化・付加価値創出に係る基盤構築事業, 2020

picking, loading, delivery and further automatedsolutions. As indicated by the figure below, theintroduction of advanced and intelligent
solutions in logistics and inventory management
are not a market norm yet. Innovative solutions
are arising from the R&D initiatives undertaken
by large companies active in the logistic industry,
such as Amazon, as well as by venture companies
specialized in robotics and IT.

Figure 26 - Development stage of advanced robotics in warehousing

Source: Mitsubishi research Institute (2021)

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

54

Supply chain visibility and EPCIS – Japanremains analog when it comes to data
sharing and system integrations between
business partners.
As described earlier, a key element when looking
at the digitalization of the supply chain is the
procurement process and the information
sharing with business partners, classified as“stage 2” of the digitalization of the supply chain(refer to figure 24). While it seems that scope forprogress remains to make “stage 1” as a newnorm, the next stage also shows important
challenges to be successfully implemented.
When it comes to sharing information withbusiness partners, the strong sense of resistanceto the disclosure of trade secrets appears to be amajor barrier, in particular from SMEs. In thecontext where information such as the cost of
products to be traded, the place of origin, andthe overall picture of business partners including
other suppliers represents the competitivenessof a company, unnecessary disclosure may
directly lead to changes in the power balance intransactions. On top of reluctance to share tradedata, there is a lack of common understanding as
to which data should be shared with which
department or business partner, suggesting a
gap in available standards when it comes to this
topic.
From a technical point of view, the multiple
stakeholders participating to the supply chain
need to integrate and connect their individual
systems to share and see data along the value
chain. For this purpose, a common language
needs to be set up to allow the systems tocommunicate together, whereas typical global
standard technical framework is the Electronic
Product Code Information Services (EPCIS).
According to a report published by the NEDO 46,
46

Ministry of Economy Trade and Industry, 令和２年度産業標
準化推進事業委託費, [Industrial Standardization Promotion

Japan is lagging behind global peers when it
comes to the adoption of EPCIS by the corporate
ecosystem. Although industry voice indicate aclear need for data sharing and data linkage, thishas not been materialized yet.
In order to cover uncertainties and support
players toward their supply chain integration, it
is necessary to build an information sharing
system based on a common standards. As it isassumed that it will be difficult forsubcontractors or SMEs to request large
companies to introduce the scholarship, largeorganizations or the government are expected toplay major role in setting technical standards, aswell as frameworks to facilitate data sharing andencourage the business ecosystem to movetoward a more integrated supply chain.

Use cases of blockchain based supply chain
traceability are rare and undertaken byforerunners.
A technology that has attracted a lot of attention
over the past years in the area of supply chain is
the blockchain, which manages encrypted dataon multiple distributers and has the tamper
resistance to improve product traceability andensure reliability of information sharing between
companies. Blockchain based solutions likesmart contract, crypto assets and trade arealternative solutions which are expected tocontribute to various needs in the supply chain,such as improving supply chain efficiency
through facilitation of procedures.
As an example, Nutrisafe initiative, originatingfrom Germany and Austria, is an effort toimprove food traceability by the government,
universities and companies. The initiative fulfill
the purpose of improving information disclosure
to consumers, the perspective of resilience such

Project Consignment Expenses], published on 3/12/2021,
accessible at:https://www.meti.go.jp/meti_lib/report/2020FY/000231.pdf

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202255

as the safe supply of food in the face of risks suchas disasters and food poisoning.
Similarly in the pharmaceutical industry,
blockchain is used for the purpose of realizing
drug traceability. As an example of domestic use
case, Nippon Express from Japan has announced
in 2020 that it would invest 100 billion yen inblockchain technology to build a transport
network for pharmaceuticals by the end of 2021,

with the purpose of introducing quality control
to prevent the contamination of counterfeit
drugs.
Although the technology has attracted a lot of
attention and is widely shared on media, it isworth mentioning the solution is rarely
implemented in practice for traceability purpose
and if so, it is led by large corporations, often
supported by governmental initiatives.

BOX 3 - Use Case: Smart inventory and warehousing management
RFID and real time data in automotive manufacturing

Source : Toyota Tsusho (2019)

Toyota Tsusho established in 1948, is a trading company part of the Toyota Group. It has grown
mainly in the automobile-related business and has a presence in multiple countries overseas.
Challenge
The logistic industry presents major issues in labor shortages and is facing aging workforce. Also,from the perspective of Business Continuity Plan in the event of a disaster, visualization of luggage
and global supply chain management are a key element. In the context of Toyota Tsusho, whichis expanding its business in 28 countries around the world, building an optimal supply chain forparts and conducting stable supply and inventory management operations was a strategic
decision.
MeasureRFID tags were implemented to replace the previous bar codes system. The tags were attachedto each packing box when parts were brought into the warehouse, while the reading results of
the RFID tags were collated with the warehousing schedule list, inventory list and shipping
schedule list for each work process in order to improve work efficiency and accuracy.
OutcomeAn example of a key benefit include the process of inventory inspection of products stored in highpositions on the warehouse shelves, which had to be taken down to the floor with a fork lift andthen returned to the shelves. The newly implemented "AGV system for inventory" canautomatically read tags on the warehouse shelf with a height of 6m, so inventory work can becompleted without dropping the inventory on the floor, saving a consequent amount of time.
Moreover, given the global activity of Toyota Tsusho, it requires connecting domestic andoverseas logistics bases. The RFID solution allows the visualization of the number of automobile
parts real time in stock in the supply chain, contributing to the sophistication of ordering andinventory management, as well as logistics functions. By visualizing the logistics on the supply
chain in real time, the organization is encouraged to leverage other logistics services to further
improve efficiency in the future.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

56

3.4 Smart factories, Connected Industries and Industry 4.0
Industrial manufacturing is the largest sector in Japan’s economy, valued at ¥ 114 trillion in 201947 andit goes without saying that the digitalization of its value chain plays a key role in the digitaltransformation of the country.

Industry 4.0 and Connected Enterprises
The concept of Industry 4.0 was first introducedin Germany, where the term finds its origin fromthe “fourth industrial revolution” and involves
technical introduction of advanced technologies
for industrial production. Other similar initiatives
are undertaken by European countries, such as“Industrie du future” in France and “Industria 4.0”
in Italy. AI, the cloud, big data, cyber physicalsystems and IoT form the main technologies of
the concept.
The vision suggests that, as a result of fast andconnected technologies, large amount of data iscollected from various sources like the internet,
social media, production systems, and so forth.
The gathered data is raw and its processing
through AI allows its accurate manipulation. Thisultimately takes form in efficiency increase forexample, through better insights in production
errors, customer behaviors and accurate
demand forecasts. Cloud computing is requiredin order to store big data and conduct instantanalysis, which connection to the data is ensured
by the IoT, providing internet connection
perceiving the real world, allowing devices tocommunicate with each other.
In 2017, the METI shared the concept ofConnected Industries to realize its vision ofSociety 5.0. While industry 4.0 advocates anincrease in efficiency and optimization of allprocesses in manufacturing industry - fromdesign, manufacture to maintenance - theJapanese concept goes one step beyond andaims to connect manufacturing industries witheach other.
The vision is ambitious and promises
tremendous benefits both for companies andthe society. However when it comes to facts, theJapanese manufacturing industry has not quiteachieved digital maturity yet and rare are thefirms that have adopted the aforementioned
technologies.

DX in manufacturing is owned by large companies, while IT investment remains poor intransformative digital areas
As already observed multiple times in this report,
the manufacturing industry makes no exception
when it comes to the digital maturity gap
between large and small companies. Disparities
are observed in all areas, from the adoption of
wireless network, extended reality, as well as
data
collection/analytics
throughthemanufacturing process.

It is very unlikely to change in the short term as
IT investments are giving priority to increase inbusiness efficiency and in reduction of costs, aswell as to the maintenance and improvement ofexisting systems. Facts and figures highlight thelack of investment in transformative areas,indicating poor vision and adoption of DX acrossthe sector.

47

Statista, Value added to the gross domestic product (GDP) at current prices in Japan in 2019, by industry, June 2021, accessible at:https://www.statista.com/statistics/1244047/japan-nominal-gdp-value-by-industry/, accessed on 26/01/2022.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

57

Engineering chain stands analog, nevertheless awareness on benefits of digitalization is
growing
The engineering chain is a key concept specific to
the manufacturing sector and refers to the seriesof business processes from planning to productdesign, process & equipment design,
manufacturing production preparation and after
sales services.
According to a survey conducted by Mitsubushi
UFJ, current digitalization rate is very low for allprocesses, where product design is the mostadvanced and maintenance indicates the lowest
adoption rate (refer to figure 27).
It is however worth noting that firms have shared
their intentions to increase efforts for digitaltransition, where digitalization of the
manufacturing
production,
maintenance,industrial process design and procurement isunder consideration by more than half of thesurveyed respondents, demonstrating an
increased awareness of the benefits ofincorporating advanced technologies as part ofthe end-to-end manufacturing journey.

Moreover, it is worth mentioning that datatransmission and integration across the various
processes is still immature, where datacollection and outputs remain in silos for eachprocess. Plants are still far from integrating andconnecting data across the whole engineering
chain, suggesting there is still a long way to go toreach the vision of connected industries asenvisioned by the GoJ.
Main incentives toward DX of the manufacturing
processes lie in cost reduction, shortened leadtime to delivery and transmission of technicalskills. Despite strong incentives to move forward,
the main barrier to the digital transition is thelack of human resources with the appropriate
capabilities or the difficulty to allocate a person
in charge. On the other hand, unavailability offinancial resources is concerning one third of theindustry.

Figure 27 – Digitalization of the Engineering Chain

Source: METI – Mitsubishi UFJ consulting report on manufacturing sector March 2021

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202258

Half of the manufacturers collect data along
the production line, nevertheless data usage
is not optimized and leaves huge
opportunity gaps
As regard to integrating data collection andanalytics, 1 company out of 2 is collecting data
along the manufacturing production line. When it
comes to large organizations (>300 employees),
it concerns 75% of them. However, it appears
that firms still struggle to fully leverage value
from data collection, as almost half of them havenot seen any progression by introducing thepractice. Moreover only 4 out of 10 specified
that the data is effectively used by thedepartments or the manufacturing plants.48

have the technology in place, as less than 16%
implemented instant visualization 49 of
production line, machinery and personnel
operation status. Moreover, fewer are the ones
that use that data for automation and process
digitalization purposes.
Despite very low
adoption rate, it is worth mentioning that 1
organization out of 2 would be favorable of
implementing such practices if it were possible,
suggesting growing interest and awarenesstoward those technologies.

Wireless communications, human/machineto-machine communications remain
exceptions
Few manufacturers have implemented IoTwith IT sensors and visualization along the
production line despite high recognition of
the added value.
A popular technology related to smart
manufacturing are sensors dispatched along the
manufacturing line. Those are used to monitor
the performances of process and aspects ofmachine operations, collect data to assessbenchmark level of operations while also
detecting small fluctuation of performances.
Combined with AI, this allows for example theprediction of equipment failures and triggeringof maintenance, the monitoring of production
quality. Those ultimately ensure moretransparency and better quality throughvisualization and support more efficientdecisions and operations. In reality, few plants
Mitsubishi UFJ Research and Consulting, 我が国ものづくり産業の課題と対応の方向性に関する調査, [Domestic survey on challenges
48

and initiatives undertaken by the manufacturing industry], March 2021,
Accessible athttps://www.meti.go.jp/meti_lib/report/2020FY/000066.pdf.

Industrial
wireless
networking
allowsoperational convenience by connecting
machines to machines and machines to humans.
For example, wearable wireless devices fittedwith smart sensors connected through theinternet can give instructions and improve
worker safety and productivity. Plant managers
can track workers exposure to toxic gases orradiations, or similarly avoid human collision
with machines or robots. When it comes tomachines, wireless controlled robots can be
guided with limited human intervention andperform automatic assembly lines, packing andlabeling or inspect products.
While it appears that more than half of theorganizations have a great interest in wirelesscommunication systems (including 5G), only
1.8% of the companies have it implemented. 50

49

Ibid
Mitsubishi UFJ Research and Consulting, 我が国ものづくり産業の課題と対応の方向性に関する調査, [Domestic survey on challenges
and initiatives undertaken by the manufacturing industry], March 2021.
50

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

59

Currently, main implemented use cases ofwireless communication systems in production
line are to reduce the programing time of themachines, ensure their maintenance andimplement prediction of malfunctions.

[1] Increase in production efficiency and quality:
for example engineers wearing AR glasses
benefit from displayed instructions duringassembly process, resulting in increases accuracy
and speed.

Use of Extended Reality (XR) is close toinexistent in manufacturing processes[2] Product design: creation of interactive virtual
models for prototyping, reducing development
time and allowing more 3D representations in
the evaluation stages.

When it comes to XR, which encapsulatesAugmented Reality (AR), Virtual Reality (VR) and
Mixed Reality (MR), the adoption rate is at a merelevel of 1.4%51, while 1 organization out of 10 isconsidering its implementation. Similarly to theother observations, large companies (>300
employees) are leading the practice, while thetechnology is almost inexistent in companies
counting less than 50 employees. For existinguse cases, those technologies are mostly used
for the following purposes illustrated byexamples:[3] Training: use of gamification and storytellingto navigate the trainee through various modules
as s/he walks through rooms, identify problems
and make repairs.

BOX 4 - Use Case: Sensors monitoring temperature
Ohno Seisakusho manufactures industrial valves with complex shapes and prototype parts related toautomobiles. Taking advantage of the small turnaround of 10 employees, the manufacturer has
achieved short delivery times, high quality, and low prices.

Challenge

OutcomeFor metal cutting, "cutting oil" is used to suppress
friction and cool, but it is essential to control thetemperature and concentration of oil in order toimprove processing accuracy and prevent wear andtear of the equipment. Until now, measurements
were taken manually, but the company's issues
were labor saving and prevention of rough handsby employees due to oil.

Utilizing the subsidy for the introduction of IT /IoT in Yokohama City, the system andconcentration sensors were introduced andcombined with the existing machine tools. As aresult, the oil condition could be automaticallymonitored at all times, and the data could be
confirmed on the monitor without humanintervention.
Source : IToP Yokohama (2021)

51

Mitsubishi UFJ Research and Consulting, 我が国ものづくり産業の課題と対応の方向性に関する調査, [Domestic survey on challenges
and initiatives undertaken by the manufacturing industry], March 2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

60

04 DX IN BUSINESS PRODUCTS AND SERVICES
The age of digital has changed in many ways traditional products and services. It has not only
introduced new channels to sell, but it also encourages companies to innovate to launch digitallyenabled products and evaluate the best ways of enhancing customer experience.
This chapter assesses the way digitalization and new technologies have changed value propositions inestablished industries and analyses the emergence of disruptive business models generating newrevenue streams. Moreover, it investigates the source of innovation in Japan and measures thecontribution of the startup ecosystem.

Highlights
1/ Japanese established firms struggle to optimize sales revenues generated from DX. Figures show thatJapanese firms that have introduced digital technologies to innovate on products or services have not generated
as much revenue as their global peers.

2/ Low risk R&D and intrapreneurship hindering disruptive innovation. R&D investment in Japan is high involume, however is still focusing on low risk investments for market development of existing products andtechnologies, hindering Japan’s capabilities to generate disruption. Moreover, innovation relies on large
established companies that promote internal development and experiment targeting domestic market, whichtends to limit innovations to be scaled at industry or global level.

3/ Undeveloped startup and VC ecosystems. The startup ecosystem and VC markets are growing but remain
relatively small when compared to peer countries. Looking at the VC markets in volume, growth and investments
are targeting startups delivering SaaS, AI and IoT solutions.

4/ Startups driving innovation in established industries. The transformation of products and services in key
industries is driven by the startup ecosystem. Large established companies and system integrators collaborate andinvest in domestic and foreign startups to drive innovation and change.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

61

4.1 The state of digital innovation in JapanThe section 2.2 highlighted that efforts of established firms to embed digitalization for market
expansion, product improvement or new product creation remain comparatively low when
considering organizations’ priorities. This represents an important loss in value, as multiple reports
have demonstrated that companies characterized by a higher maturity in DX and embedding digitalsolutions into their value propositions (product or service) have shown better results in sales andgenerated growth in revenues52.

Japanese firms’ ability to generate revenues
from DX lags behind global peers

Figure 28 - Product/Service innovation and impact on sales
revenues

When it comes to the creation of new products
or services by incorporating digital solutions, itappears that Japanese firms struggle to fully
benefit from sales increase when compared to
global peers. The phenomenon is illustrated on
the figure 28, showing the effects of DX on sales
revenues, categorized by maturity levels (1 to 3).
Important disparities are observed between
Japan, Germany and the US. It suggests that DX
generates negative effect in sales for an
important proportion of Japanese firms,
regardless of their transition maturity level,
while the US and Germany indicate more
optimistic results. This demonstrates thatJapanese firms still have scope for improvement
to optimize their digital transition and to ensure
it is properly materialized into revenues.

Product/Service innovation and impact on sales revenues

The GoJ further conducted a simulation
evaluating the revenue effect of Japanese firms
reaching the DX maturity level of the UnitedStates for the manufacturing and the nonmanufacturing industry. The estimated impacts
were respectively an increase in sales revenues of
5.7% and 4.2%, equivalent to 23 and 45 trillion
yen 53 . This quantifies the potential revenue
growth that Japan could expect if its corporate
ecosystem succeeds to better manage its digitaltransition.

20% increase
No difference
More than 20% loss

1%-20% Increase
1%-20 loss
Un-measured

Japan
Lvl1 2.8

28.5

18.3

Lvl2 3.1

25.4

18.8

Lvl3 5.6

19.1
28.7

37.6

0%

13.7
19.8

17.4

20%

40%

31

23.1
60%

13.2
6.6 9.6

80%

100%

40

0

USA
Lvl1 0

40

20

Lvl2

15

40

Lvl3

13.9

50.8

0%

20%

40%

17.5

22.5

5
0
2.2
14.2 2.2

16.8
60%

80%

100%

Germany
Lvl1

7.7

Lvl2 5.3
Lvl3

23.1
37.3

8.2
0%

15.4 7.7
0
22.7

45.7
20%

46.2

20
40%

4 6.7

24

60%

2.7
20.4 3.1
80%

Source: Government of Japan, 令和 3 年版 情報通信白52

Valoir, The state of digital transformation, September 2021, Accessible at:https://static1.squarespace.com/static/5db8a4995630c6238cbb4c26/t/6140cb8c9f2e0c5aa9ea1c86/1631636365566/Valoir+Report++State+of+digital+transfomation.pdf
53
Government of Japan, 企業活動におけるデジタル・トランスフォーメーションの現状と課題, [Current state and challenges of corporate
initiatives towards digital transformation], 2021, Accessible at : https://www.soumu.go.jp/johotsusintokei/whitepaper/ja/r03/pdf/n1200000.pdf

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

100%

62

Corporate innovation is led by large
corporations, characterized by inward R&D
promoting ‘intrapreneurship’
Japan is characterized by an economic
environment largely influenced by large
companies. Indeed, while those represent 0.3%of the firms in numbers, they produced 51% of
the total value added in 201354. In this context,
Japan’s innovation has mainly been led by big
conglomerates, while the firm entry rate has
stayed low over the past two decades.
Looking at corporate investments in R&D
innovation, Japan positions relatively high (seefigure 29). However, the nature of investment
tends towards low risk R&D mostly covering
existing technologies and market development,
indicating a low percentage of efforts to create
new innovative products and services whencompared to other countries55.
This phenomenon can be explained by theJapanese business culture. Group harmony,communications and consensus are favored overmaking rapid decisions and changes, which aresource of disruption in the working environment.
Moreover, trust is a concept put at the center ofdecisions-making, which creates an inherent
resistance in taking risks. These elements do notcontribute to create a system encouraging
digitalization, requiring risk taking, test mindset
and fails approach.

can significantly reduce costs and increase
competitiveness. These circumstances do notfacilitate putting digitalization on priority
agendas.
As such, the Japanese culture startup styleventure relies on large established companies
that promote internal development andexperimenttargetingdomestic
market,alternatively referred as “intrapreneurship”. This
tends to limit innovations to be scaled at industry
or global level, curbing the opportunity to fully
explore value creation and growth. This is also
reflected by the fact that open innovation is notcommonly implemented in Japanese firms incomparison to western practices, while
acquisitions of startups are not a standardpractice either56.
Furthermore, a report published by McKinsey57
stressed the importance of the role of thegovernment in order to help the corporate
environment toward its DX transition. Based onconversations with executives across industries,
SMEs/Large
companies
investmentsinFigure29 - SMEs/Large
companies'
investments
innewproducts
andservices(%)(%)
new
products
andservices
100
80

SMEs

Large Companies
62.8

60

59
24.6

40
31.6

20

0

Moreover Japanese companies have on averagea longer lifespan than their global peers.
Companies with longevity tend to prioritize
increased
profitability
andglobalcompetitiveness at the expense of growth. In thiscontext, digital transformation agendas areoften considered to go against the status quo,
although it has shown over the past years that it

12.8
7.7

31.7

26.2

33

13.8

Japan

USA

EnglandFranceGermany

34%

50%

Perform R&D for
improvement of existing
business

Perform R&D
for market expansion

16%
Perform R&D for
innovative solutions

Source: Nedo, オープンイノベーション白書 第三版日本におけるイノベーション創出の現状と未来への提言

Ministry of Economy, Trade and Industry (2013), 通商白書, [White
paper on Trade].
55
Joic, Nedo, オープンイノベーション白書 第三版日本におけるイ
ノベーション創出の現状と未来への提言, accessible at :https://www.nedo.go.jp/content/100918465.pdf.
56
Ibid
54

57

McKinsey & Company and ACCJ, Japan Digital Agenda 2030, February
2021, Available at https://ceaa17af-1e95-46ee-9cbffff62ee679ca.filesusr.com/ugd/c01657_e32b2f3f71974adcb0d0aba480
59b852.pdf.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

63the report revealed that companies tend to wait
for the government to endorse digitalization toalign and foster DX within their organizations. It
further noted that the private sector expects thegovernment to trace the path, to showcase
successful cases, as well as to put systems inplace to ease adoption.

Figure 31 - Top 3 Japanese startups in funding
received (H1 2021)

Figure 30 - Startup landscape in Japan (2020)

SmartHR
SmartNews

SaaS

Application

#2

Paidy

#1

Fintech#3

Source: INITIAL, Japan Startup Funding 2021

Source : Deloitte - Online survey on domestic startups (Oct2020)
N = 308

Startup ecosystem has gained maturity over the past years. However, the VC market remains
low in comparison to global peers
Therefore, expectations are particularly high for startups as they play a vital role in creating innovativetechnologies and generate growth. A paper published by Washimi K.58 highlighted the role of startups
when it comes to innovation using the number of patent applications as a proxy, suggesting startups
have a substantial role in innovation process in Japan as their patent rate is far higher than existing
firms.
Looking at current industry trends in the startup ecosystem, top 20 funded Japanese startups59 (seeappendix 6) indicate that online tools boosting business efficiency continue to strive prominently, withthe example of “SmartHR” ranking consistently in the top ranking. Unsurprisingly, firms providing
solutions leveraging digital technologies are striving, with the examples of Fintech and AI-powered
solutions also classified as top ranked firms. Looking at the startup ecosystem in overall, highproportion of startups are active in SaaS, AI or IoT related activities, as indicated by a domestic survey
conducted by Deloitte in 2020 (see figure 31).
In order to evaluate the size and importance of the startup ecosystem, Venture Capital (VC) is often
used as a reference, as funds play a key role in financing startups along their growth journey from earlystage to the support of their expansion. The paper published by Washimi K. reveals that positive
relationship exists with patent applications from startups and the level of VC investments, suggesting
the significance of the VC market to support domestic innovation.

58

WASHIMI K. , Venture capital and startup innovation – big data
analysis of patent data, Financial markets department, Bank of Japan,
March 2021, accessible at:https://www.boj.or.jp/en/research/brp/ron_2021/data/ron210312a.pdf

59 INITIAL, Japan Startup Funding 2021: Mid-Term Summary, publishedon 20/08/2021, accessible at: https://initial.inc/articles/japan-startupfunding-2021-H1-en , accessed on 31/01/2022.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

64

From 2010 to 2019, the investment volume in Japanese startups raised five folds from a totalcommitment volume rising from $ 800 million to $ 4 billion, supported by a slow emergence ofindependent VC firms60.
Despite those positive trends, thecountry still has a relatively small
VC market size in comparison to
OECD members and partnercountries, as indicated per figure
32.
Moreover, looking into the numberof Unicorns in 2020, the Japanesestartup ecosystem recorded 11 ofthem, positioning far behind the US
counting more than 400, whereas
China recorded 150 the same
year 61 . Looking at the intensity of
unicorns per GDP ù(see figure 33),
it appears that Japan has the lowest
number of all countries that havecreated such companies.
Figure 33 - Intensity of Unicorns byGDP, Across Select Countries

Figure 32 - Comparison of global VC markets evolution(2005-2018)(Billion Yen)

Japan
USA

EuropeChina

Source: Mitsubishi Research Institute – White paper on Venture (2019)

Role of Academia and R&D institute has been increasing overthe past years
Another important source of innovation are academics and publicresearch institutes. The country counts numerous researchlaboratories, which are expected to be important starting points fortechnological innovation discovery. Universities are now expanding
the scope of their involvement to focus on engineering
technological breakthroughs and commercialization together with
the involvement of VC firms. Those provide R&D commercialization
programs including talent matching for founders and theacceleration of connections for VC funds. These efforts greatly
contribute to the rise of the startup ecosystem, particularly in thearea of deep-tech, where startups tend to find their root inadvanced academic research62.
As an illustration, the number of university-launched startups has
been increasing in recent years, and according to a report published60

INITIAL, Japan Startup Funding 2021: Mid-Term Summary, published on 20/08/2021, accessible at: https://initial.inc/articles/japan-startup-funding2021-H1-en , accessed on 31/01/2022.
61
Mulas, Victor; Astudillo, Pablo; Riku, Takashi; Wyne, Jamil; Zhang, Xin. 2021. Tokyo Start-Up Ecosystem. World Bank, Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/36462 License: CC BY 3.0 IGO
62
Ibid.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

65

by the METI63, it has been increasing continuously since 2014, with 2.278 companies announced in
2018.
Figure 34- Number of university affiliated startups (2017)

Source: METI, 2017 年度大学発ベンチャー調査, [2017 Survey of University-Based Ventures], March 2017

調査結果概要63 Ministry of Economy, Trade and Industry, 2018 Industrial Technology Survey, March 2019.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

66

4.2 Digitally enhanced products and new revenue streams
Digital transformation and advanced technologies provide tremendous possibilities to disrupt existing
business models, develop innovative value propositions and create new revenue streams. The
following list categorizes the key trends in new business models which emerged with the introductionof advanced digital technologies.
Ecommerce and marketplace model
Bring opportunities for firms to exploit new sales channels through the internet and online
sales platforms. These practices generate tremendous amount of data, which processed
and analyzed offer new opportunities for marketing and product innovation.
Digitally enhanced products
Leverage value by incorporating advanced technologies as a feature to traditional
products. Typical technology is to connect existing devices to the internet (IoT), which
create business opportunities and revenue streams through newly collected andprocessed data, for example through advanced analytics or AI.
Platform economyo Free model provides service for free, while the user becomes the product that isbeing sold. The best examples are Google and Facebook, where every user who isusing the services is giving valuable behavioral or preference information while
using the platforms, which is then translated into revenues through ads services.
o Freemium, subscription and on-demand models are virtual products or services
provided through a monthly/yearly subscription to a platform, or through ondemand purchase via online stores. Those can potentially offer free limited
services, which require subscription to unblock additional features.
o Sharing model which allows the customer to use a service or a products for a given
amount of time without owning it.
o Ecosystem model offers a unified and easy to use system through a variety ofservices and products. This allows platforms to grow exponentially by
understanding the customer better, leveraging insights and valuable data collected
through the multiple channels.
The following sections analyze how new business models and technology enabled products havedisrupted the Japanese corporate ecosystem and what the opportunities are for future development,with a focus on the following industries:-

Automotive
Healthcare
RetailFinancial
Platform economy for services

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

67

4.2.1 Next generation automobile – E-car autonomous driving and smart
mobility
The automotive sector is a major pillar of Japan’s economy, as the country represents the third biggest
market in the world, counting 78 factories employing over 5.5 million people in 201764. Technologicaladvancement has driven important disruption in the industry, bringing additional opportunities toenhance traditional cars. While the automotive manufacturing process and supply chain are heavily
transformed by the Industry 4.0, on the product side, evolving digital ecosystems and the emergenceof smart mobility is pushing the automotive industry to incorporate connectivity features and solutions
for autonomous driving, opening the door for the development of innovative products and new
business models.

AI, IoT as key technologies to support thedevelopment of next generation vehicles
Technologies such as electric, autonomous
driving and connected cars require a massive
restructuring of the existing product range.
Modern vehicles are software-driven, collect andprocess massive amount of data and create
opportunities to offer new features. Key trendsin automotive product innovation involve
technologies such as AI, IoT, which require thedevelopment of supporting infrastructures andhardware such as cloud, 5G and next generationof semi-conductors.
[1] Connected cars and services requireconnectivity embedded in the car to support
end-to-end software platforms, linking all thesystems in the car. This is supported by Wi-Fi
hotspot placed in the vehicle offering features
such as integrated routing, infotainment, butalso more advanced solutions such as in-vehicle
e-commerce
services,
predictivecarmaintenance or real-time emergency response.
Connecting cars to the network open further
opportunities for creating new revenue streams,
for example, by enabling subscription models or
by monetizing data generated by the car.

[2] Autonomous driving relies on technologies
such as camera sensors, deep learningalgorithms and models that help recognizing
objects and location, as well as edge processing
performing prediction to take avoiding actions.
Moreover it requires high performing hardwarethat is embedded into the vehicle to enable onboard edge processing65.
[3] The needs for vehicle safety are evolving
together with the integration of advanced
technologies, as cars process large amount ofdata that need to be protected, whileautonomous driving must ensure the safety ofpassengers. Cybersecurity, geo fencing solutions
and predictive models are key areas ofdevelopment to ensure the safety of the car.

Major automotive companies teaming up
with domestic and foreign startups
To achieve and maintain those competencies,
the automotive industry needs to forge newalliance and invest in digital solutions. As an
illustration, Toyota established Woven Planet in
January 2021 to invest and develop mobility with
AI. It acquired within the same year Renovo, asilicon valley based startup operating systems
that integrate all the software needed to run

64 Japan Automobile Manufacturing Industry, The motor industry of Japan 2017, 2017, accessible at: http://www.jama-

english.jp/publications/MIJ2017.pdf
65 Edge computing: Edge computing works by capturing and processing information as close to the source of the data or desired eventas possible. It relies on sensors, computing devices and machinery to collect data and feed it to edge servers or the cloud.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202268

fleets of autonomous vehicles. Camera was alsoacquired and supplies real-time, high definition
maps and data for driverless vehicles. Toyota isalso in partnership with Apex.AI, a California
based company which develops software formobility systems, as well as with AWS tocollaborate on its mobility service platform
supporting cloud-connected fleet services.

Government initiatives toward MaaS andLevel 4 of autonomous driving
The current Japanese regulation covers Level 3of automated driving (L3AD) 66 . The Ministry ofLand, Infrastructure and Transport (MLIT)
amended in 2020 the Road to Vehicle Act toinclude equipment part of L3AD in the list of
motor vehicle equipment subject to safety
standards.
Further progress are observed since 2021, as the
MLIT announced its plans for the developmentof Level 4 Autonomous Driving (L4AD). 67 This ismaterialized through the “RoAD to the

L4Project”, which was initiated by the METI thesame year. The purpose is to develop necessary
standardization rules, as well as to constructbusiness models and industrial ecosystems on
top of technical aspects. The project plans toperform multiple tests with the ambition todemonstrate L4AD cars in mixed spaces by 2025,
including multiple vehicles, infrastructure andpedestrians. Similar initiatives are taken at global
level, where Tesla, Waymo and European OEMs
such as Mercedes are moving toward L4 and L5
development.
Moreover, the L4AD project goes hand in handwith the development of MaaS solutions as partof the government support for smart cities
projects, which are undertaken at municipality
level. Projects selected for government
subvention for year 2021 include a great
proportion of MaaS solutions, highlighting theimportance of the topic for the public sector
agenda and suggesting great progress in thisdomain in the near future.

For more information about opportunities in automated driving, refer to the past Minerva report:
Opportunities for venture firms, universities, and research institutes in the EU to conduct knowledge transfer with Japanesecounterparts in nine digital technology areas (2018)– by Toru Kodama

66 Level 3 autonomous driving can be described as a conditional

67 Level 4 autonomous driving can be described as highautomation, where the car is in full control in some situations
and inform the driver when he or she must take the control,
ensuring limited self-driving.

autonomous driving, where the car can handle the majority ofthe driving situation independently, ensuring full self-driving
under certain conditions.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

69

4.2.2 Digital healthcare - Personalized and remote solutions
The medical sector offers numerous opportunities in incorporating technologies to improve patients’experience and provide safer, as well as more accurate results. Particularly in the context of Japan’s
aging population, digitalization is expected to reduce the burden of the domestic healthcare system
and improve health services outcomes. When it comes to current digital penetration in the industry,
only 5% of the Japanese population was using telemedicine services in 2018 68, suggesting important
opportunities for further development in this area.

AI and IoT as key technologies to disrupt
the healthcare sector
The promising trends for product innovation in
healthcare include the development of wearable
devices, telemedicine, as well as innovation indiagnosis and surgery practices through theincorporation of technologies such as AI and IoT.
[1] Drug development and discovery are areasfrom the healthcare sector which largely benefit
from AI technologies through the application ofmachine learning. It allows the analysis ofmultiple data sources in a reduced time and canhelp predicting biomarkers in therapeutic
response. An example of domestic success inJapan is the development of the drug DSP-1181
treating obsessive compulsive disorders, which
managed to reduce the exploratory researchphase to less than a year by leveraging AI.
[2] Telemedicine can be described as remote
medical care provided to a patient who is not inphysical contact with the doctor. Successful
cases require connectivity and supporting
technologies such as 5G enabling smoothinteraction and efficient data sharing between
the doctor and the patient. Near real-time datatransfer and syncing also makes possible the useof AR and VR to carry out physical therapy. A key
example is the case of the telemedicine project
undertaken in Nagasaki in 2016, using real-timetransmission of imaging and diagnosis data
between Nagasaki University Hospital and theremote island of Kamigoto.

[3] Internet of Medical Things (IoMT) consists inwearable devices and other connected devices
which can provide reminders, tracking andpatient support when combined with apps. Usecases include smart pillboxes, equipped withsensors targeting medication adherence, helping
patient to organize their medication withreminders and feedback. Another good example
is the disease tracking app installed on mobile
phones, which emerged in response to the
COVID-19 pandemic.
[4] Advanced technologies can further help
doctors to perform disease diagnosis and assist
surgeries. For example deep learning can provide
support in interpreting X-ray results orphotographs faster and more precisely thanhuman. On the other hand, robots can provide
surgical assistance, as several use cases
demonstrated they can complete operations
successfully. Robotic-assisted surgery market is
expected to grow further in the future
domestically as well as globally, where Japan
could potentially position itself as a leader
considering its strength in robotics.

Major tech companies and startup
ecosystem as main accelerators
Currently, AI and telemedicine solutions in thehealthcare industry are developed by startup
companies, as well as by major technology
companies such as NEC and Fujitsu. R&D is also
taking place in universities and public research
institutes, while collaboration with the private

68

IPSOS, Global views on healthcare 2018, Accessible at: https://www.ipsos.com/sites/default/files/ct/news/documents/201807/Global%20Views%20on%20Healthcare%202018%20Graphic%20Report.pdf

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202270

sector is growing, as indicated by the report published by the EU-Japan Center on “Artificial intelligencein the Japanese medical sector”.

For more information about opportunities in digital healthcare, refer to the publication of the EU Japan Center:
E-Health and Telemedicine in Japan (2021) – by Sven Eriksson
Artificial Intelligence in the Japanese Medical Sector (2020) – by Maths Lundin

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202271

4.2.3 Fintech and techinsurance – Cashless and automated decisions
Well-known industries for their transformation due to digitalization are the financial and insurance
sectors. As highlighted in section 2.3.3, the financial industry has largely benefited from digitaltechnologies to reduce cost by reducing paper work and human efforts in various processes, with animportant contribution of AI. On the other hand, the sector offers tremendous opportunities indeveloping new revenue streams and business models through the development of mobile platforms
or through the integration of technologies such as the blokchain, IoT and AI. The transition is key asJapanese banks have entered an era where maintaining the status quo is not a viable option. Indeed,
the sector has been struggling over the past years as it has shown an annual decrease in profitabilityof 4.4% between 2014 and 201869.

Online platforms, mobile apps andcryptocurrency to support establishment ofdigital wallets and cashless payment
systems[1] In Japan, the cost of maintaining current cashbased infrastructure was estimated to ¥1.6
trillion yen annually, mostly supported by banks
ensuring cash transport and ATM operations.
Domestically, various well-established digitalwallets systems such as PayPay, LINEPay or cardless online payment solutions like Paidy havegained popularity over the past years. Theirsolutions consists in zero-fee, peer-to-peer andconsumer-to-business payments, easily adopted
by merchants and users. Recent surveys
highlight that the preference to cashless
payment is growing since the pandemic, asnearly one third of respondents reported
reduced usage of cash70. Although the transition
toward cashless society seems to be progressing,the market and service landscapes remain
fragmented with multiple platforms available,
where no clear winner can be pointed out.
[2] Emerging cryptocurrencies are also providing
an alternative to cashless payments. Relying on
the blockchain technology, those do not require
any institutional intermediaries allowing lower
costs than traditional networks and remove theburden of approval processes and business cutoff times. In 2021, the Japanese crypto market isranked as one of the largest in the world,counting 3.5 million users as of 2018, as reportedby the FSA71. The availability of sales offices thatenable users to easily trade crypto assets using
the internet or smartphone apps for low fee hasboosted the increase in the number of crypto
asset exchanges in recent years. Multiple
startups have emerged, offering platforms witha variety of services leveraging cryptocurrencies.
Examples of main cryptocurrency exchange
platforms include bitFlyer from Tokyo, but also
foreign players such as Kraken originating fromthe United-Kingdom, or Binance from China.
[3] Internet based lending is offering alternatives
to traditional lending practices. Based on
analytics of transaction histories, it can
automatically calculates interest rates and otherterms using AI to suggest loans to client.
Alternatively, it creates a place for peer-to-peer(P2P) lending. These offer substitute options for
SMEs to apply for small loans in a more flexible
and convenient manner. Successful examples
include Credit Engine, which was launched inJapan 2017 as an online financing platformtargeting SMEs. It assesses maximum loan
amount eligibility by using data engine collating

69 McKinsey & Company and ACCJ, Japan Digital Agenda 2030, February 2021, Available at https://ceaa17af-1e95-46ee-9cbf-

fff62ee679ca.filesusr.com/ugd/c01657_e32b2f3f71974adcb0d0aba48059b852.pdf
70 Eunjo Chon, John Euart, David Hutchinson, and Sameer Kumar, Financial decision-maker sentiment: Japan, July 2020.
71 Japan Virtual and Crypto assets Exchange Association, Status report on cryptocurrency trading, April 2018, fsa.go.jp.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

72

data from multiple sources. Various P2P lending
platforms have also emerged in recent years
including Maneo, SmartLend and Funds.
[4] Investment advices: The emergence of fintech
startups in investment services have increased
competition toward retail banks traditional
investment
advicepractices.
AI
hasrevolutionized the market, with the emergenceof robo-advisors providing services throughalgorithmic trading or by managing customers’
finance using machine learning. Those newservices make trading available to a wider set ofusers with various levels in experience, who caneasily access the market characterized by lower
fees and providing intuitive dashboards. The
number of startups in this domain has constantly
grown over the past years with major players
such as WealthNavi, while the majority of largebanks have started introducing similar services,such as SMBC Robo Advisor or MUFG’s PortStar.

Insurance services leveraged by AI and IoT
solutions
Based on IoT solutions, insurance companies
have started developing “usage based
insurances”, which consists in setting premiums
and discounts according the customer’s
behavior. Typical examples are automotive
insurances based on users’ driving habits, whichdata is collected from connected car. Domestic
examples include the recent partnerships of Aioi
Nissay Insurance with US-based Cambridge
Mobile Telematics. Their solution offers atelematics automobile user based insurance
program relying on a small sensor device, whichcollects driving behavior and transmits data to
the drivers’ smartphone. Other use cases can befound in the healthcare sector. For example, SBI
Life insurance has developed insurance
premiums based on clients’ lifestyle. The service
offers health-promotion type insurance relying
on a healthcare app delivered by FiNC
Technologies, which collects data on users’
health checkups, lifestyle habits, as well as
genetic tests and calculates personalized
insurance premium accordingly.

Innovation arising from startup ecosystem
while large corporations are keen forpartnerships and investments
It is undeniable that the startup ecosystem plays
a key role in developing fintech solutions,providing disruptive and alternative solutions to
traditional practices of the financial sector. From
the development of digital wallets and wealthmanagement solutions, to alternative lending
solutions including P2P exchanges, it is deeplychanging the landscape of the industry. On theother hand, large corporations are catching up
by developing their in-house solutions throughpartnerships and investments. For example,
large financial groups such as the SMBC or MUFG
are more and more involved in hackathons,
Open Innovation meet-ups, but also in creatingties with companies and institutions outside
Japan72 73.

For more information about opportunities in fintech, refer to the past report from the EU-Japan Center:
The Evolving Fintech Landscape in Japan (2018) – by Max Berre
The Japanese Fintech Sector (2018) – By Nathalie Meyer
Blockchain in Japan (2019) – By Marta Gonzales

72

Sumitomo Mitsui Financial Group, Fintech-promoting innovation with
IT, accessible at:https://www.smfg.co.jp/english/company/initiatives/fintech.html ,accessed on 31/01/2022.

MUFG, 三菱 UFJ イノベーション・パートナーズ 2 号投資事業組合の設立について, [Establishment of Mitsubishi UFJ Innovation
73

Partners No.2 Investment Partnership],https://www.ip.mufg.jp/ja/news/__trashed/, published on 27/07/2021,
accessed on 31/01/2022.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202273

4.2.4 Retail and e-commerce - Upgrading online and offline experience
The retail industry has faced a disruptive change of traditional sales channel with the introduction of
online commerce. The impact was further amplified over the past years with the introduction ofadvanced customer data analytics, which contributes to more efficient targeting approach andleverages the power of e-commerce. On the other hand, offline shopping is also disrupted bytechnologies such as AI, VR and AR, which have created new opportunities to innovate customer
experience.

Japan e-commerce led by Amazon and
Rakuten, while SMEs’ market transition
remains challenging
Business to Consumer (BtoC) e-commercemarket in Japan is positioned as the third largest
market by revenue, behind China and the U.S,
with sales counting for 3.5% of the GDP in 201974.
The domestic market is growing fast, as it
indicated a growth in sales value of 7.65% from2018 to 2019 75 . Although Japan positions very
well when it comes to e-commerce in total sales
value, the conversion rate of BtoC e-commercein sales of good reached 6.76%76 in 2019, lower
than its neighbor countries such as China andSouth-Korea, which are both indicating ecommerce penetration of 24%.
Forecastssuggest the market will continue growing at a
rapid pace, accelerated by the impact of the
COVID-19. As indicated by a survey conducted by
McKinsey in 2020, Japanese consumers
expressed an intent to purchase up to 20% more
online even after the pandemic ended.

to 39% in 2020. For SMEs, it is the technologicalsolution they consider as the most important toimplement as part of their digital transition
journey.
When it comes to the market players, the growthin the domestic e-commerce industry is
spearheaded by the two large-scale online
retailers, namely Amazon and Rakuten, which
generated sales exceeding one trillion Japanese
yen and owned respectively 25.7% and 12.6% of
e-commerce sales in 202078. On the other hand,small retailers have now access to pre-built
platforms to create their homepage to start
online sales without the need to have hardcoding skills. However, digitizing services, going
online and offering delivery options still requires
technical aptitudes (e.g. website design) as wellas manpower (e.g. for delivery), which are notalways equally available to all stores.

Advanced technologies such as AI, VR and
AR disrupting online and offline shopping
experience

On the corporate side, a survey conducted by
Jetro 77 provides insights about the importanceof the e-commerce as part of establishedcompanies’ strategies toward digitalization,
indicating a growth in priority from 31% in 2017

Omni channel is the coordination of the different
online and offline channels through which acustomer can discover, experience, consume
and purchase a product or services. Companies

74

76

UNCTAD, Estimates of global e-commerce 2019, preliminary
assessment of COVID-19 impact on online retail 2020, Published in 2019,
Accessible at https://unctad.org/system/files/officialdocument/tn_unctad_ict4d18_en.pdf.
Ministry of Economy, Trade and Industry, 内外一体の経済成長戦略
構築にかかる国際経済調査事業, [Domestic market research on
75

building an integrated economic growth strategy inside and outside thecountry], published on 02/07/2020, accessible athttps://www.meti.go.jp/press/2020/07/20200722003/202007220031.pdf.

Ibid.
JETRO, 日本企業の海外事業展開に関するアンケート調査,[ Questionnaire survey on overseas business development by Japanesecompanies], February 2020, accessible at:https://www.jetro.go.jp/ext_images/_Reports/01/3f6c5dc298a628be/2
0200024.pdf
77

78

Statista, Most popular e-commerce sites in Japan as of November
2020, published on 16/05/2021, accessible at:https://www.statista.com/statistics/1165994/japan-leading-ecommerce-sites/ , accessed on 06/10/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

74

that have the ability to coordinate seamlessly
their digital and physical assets through thecustomers’ journey stand to gain their loyalty.
Online shopping is optimized through theavailability of integration of e-commerce
platform and mobile application using APIs,
while brands are also spreading information to
the customer through their SNS platforms, aswell as through targeted advertisement. Using
data analytics powered by AI, personalizedrecommendations are made based on customer
data collected through the various online andoffline touchpoints.
Offline shopping is also benefiting from a change
through the introduction of advanced
technologies:[1] The emergence of augmented and virtual
reality (AR and VR), combined withtechnologies such as 3D scanning or mobile
applications offers the possibility for thecustomer to try virtually a product before
buying it. Domestic use cases include Shiseido,
which developed a makeup simulator app thatallows the user to test makeup on their mobile
screen as it was a mirror.

behavior), which can further be leveraged andmonetized.

Major retailers collaborating with domestic
and foreign startups
Retailers collaborate with various technology
companies to incorporate digital solutions into
their traditional model. Examples of partnerships
include Imagr, a New Zealand-based startup,
which developed a solution for connected
trolleys, currently available in Japan’s H2O retailstores 80 . Daiei, part of Aeon, has similarly
teamed up with the Chinese startup Cloudpick,developing AI technology-based smart store
solution, while Kinokuniya and Familymart havecollaborated with Touch-To-Go, an affiliate
startup of East Japan Railway supplying
unmanned shops solutions.

[2] Unmanned stores are starting to pop-up atseveral locations in Japan. Those require onshelf sensors and AI equipped cameras toperform spatial analytics and detect when acustomer takes or replace a product, while thecart is interfaced with a mobile application. For
example the convenience store FamilyMart
announced it prepares 1.000 unmanned storesin the country by 2024, after the completion of
successful pilots 79. This model offers multiple
advantages of reduced costs (e.g. reduced staff
and errors) but also collects a tremendous
amount of data (e.g. instore customer

79 Nikkei Asia, FamilyMart preps 1,000 unmanned stores in Japan by2024, published on 10/09/2021, accessible at:https://asia.nikkei.com/Business/Retail/FamilyMart-preps-1-000unmanned-stores-in-Japan-by-2024, accessed on 19/10/2021.

80

Techcrunch, Bellan R., New Zealand-based Imagr thinks camera-based
AI is the future of shopping trolleys, published on 27/08/2021, accessible
at: https://techcrunch.com/2021/08/27/new-zealand-based-imagrthinks-camera-based-ai-is-the-future-of-shopping-trolleys/, accessed on
29/10/2021.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 202275

4.2.5 Platform economy for consumer services
Platform economy can be described as businesses that create online networks facilitating digitalinteraction between people. High internet penetration rate and increasing use of mobile devices
connected to the network have increased opportunities for the industry over the past decade, withthe emergence of new business models characterized by alternative revenue streams, as describedearlier in this chapter. There is a large variety when it comes to the type of digital platforms available
today, ranging from the ones providing products (e.g. Amazon, Rakuten), to solutions for cashless
payments (e.g. Paidy, LinePay) or online services. While all sectors and industries show room forendless opportunities for disruption, the service sector has shown multiple disruptive use cases acrossindustries over the past years.

Entertainment industry leveraging
subscription and on-demand model
The entertainment and leisure industry has
leveraged new revenue streams through theintroduction of subscription and on-demandmodels. These consist in offering virtual products
or services provided through a monthly/yearlysubscription to a platform, or through ondemand purchases via online stores.
Typical examples include the SVOD 81 market,
which is expanding in the Japanese market,
where main players are US-based Amazon and
Netflix, counting respectively 15 million and 6
million subscribers. In comparison, local players
such as Hulu Japan, DoComo Anime store and UNext approximated each: 2.5 million subscribers
by 2021 82 , suggesting a strong position of USbased first movers in this domain.
Similarly in the music industry, Amazon musicand Spotify are both used by 21.4% of
smartphone users who have a music streaming
app installed, followed by Apple (15.7%) and LineMusic (13.9%)83, indicating a leading presence of
foreign players.
When it comes to an example of domestic
success, Smartnews, recently crowned Japan's
81

SVOD: subscription video on demandMedia Partners Asia, Premium video platforms reached 85 bil. Minutes
streamed in Jan-Aug 2021, led by Prime video, Tver, AbemaTV & Netflix,
published on 04/10/2021, accessible at : https://www.media-partnersasia.com/AMPD/Japan2021/AMPD_Japan_September_PR.pdf
83
Statista – Japan leading music streaming apps smartphone, December
2019, accessible at: https://www.statista.com/statistics/1030164/japan82

latest tech unicorn, runs a wildly successful news
service that is powered by machine learning. It
has expanded its business abroad to the US aswell as in China and counts about 50 million
readers globally by year end 2021.

Product as a service, Uberization andsharing economy transforming establishedindustries
Sharing model allows the customer to use aservice or a product for a given amount of time
without owning it. Multiple industries andsectors were disrupted by this model from thehotel industry to restauration. Similarly toentertainment, US-based companies have a verystrong advantage in offering these type ofsolutions, whereas examples of domestic
companies taking the lead have been growing
over the past years.
An annual survey conducted by PwC 84 on
domestic sharing economy services indicatesthat the overall use of shared services increases
annually, while the most popular domains
concern solutions for goods (including clothes,home appliance, food, and children’s good) andtransports. Moreover, an important increase in
most-used-paid-music-streaming-services-smartphone/ , Accessed on

24/11/2021
84 PwC, 国内シェアリングエコノミーに関する意識調査
2021, [Domestic survey on awareness about sharing economy,
September 2021, available at:https://www.pwc.com/jp/ja/knowledge/thoughtleadership/202
1/assets/pdf/sharing-economy2109.pdf

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

76

awareness was observed in the category of skills
and labor (e.g. housework, help, and sitter) in
2021. In this context, the Japanese sharing
economy association estimates that the market
will grow from about ¥19 billion in 2020 to ¥128
billion in 2030.85
Typical examples include solutions for sharedtaxi mobility, where the most commonly usedshared application is the domestic app GO,
followed by the app DiDi originating from China.
Food delivery services are led by Uber Eats,
followed by the domestic app Demaekan. Morerecently, the US-based giant Doordash hasannounced its investment in the Japanesemarket.
Examples around sharing of goods and spaces are
multiple and include the US-based app Airbnb.

Figure 35 - Sharing economy map
Space

Mobility

Skills

Money

Goods

Source: Japan sharing economy association

Online platforms facilitating Consumer-to-Consumer market
Another key trend in solutions offered by platforms is the peer-to-peer economy. From crowdfunding,to house rental, various are the solutions that have emerged over the past years. One domestic
successful case in Japan is Mercari, which emerged as popular alternatives to Rakuten’s and Yahoo’s
marketplaces. The private venture categorized as a unicorn entered the Japanese CtoC market
successfully through its mobile app in 2017, which recorded millions of monthly active users within
the first years after its launch. The Japanese CtoC e-commerce market is estimated to 1,740.7 billion
yen in 2019, with a registered growth rate of 9.5% from 2018 to 2019 86.

85

Japan sharing economy association, https://sharing-economy.jp/ja/,
accessed on 28/12/2021.

METI, 内外一体の経済成長戦略構築にかかる国際経済調査事業,[Domestic market research on building an integrated economic growthstrategy inside and outside the country].
86

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77

05 OPPORTUNITIES FOR EUROPEAN SMEs IN JAPANJapan has been an attractive market for European companies for many years and represents a fertile
ground for business expansion. It is characterized by a large and highly mature market, with a stableeconomy and untapped development possibilities. It offers an ideal space to deliver high-value,
sophisticated products and services.
This chapter provides an overview of the market opportunities identified for EU companies throughout
the report and highlights market trends, EU strengths, as well as challenges to enter the Japanesemarket.

Highlights
1/ Growing market and lack of domestic innovation. Forecasts suggest positive trends for digital solutions
across all the industries. Japan represents a good opportunity considering the overall gap in digital transformationand the lack of innovation resulting from an undeveloped startup ecosystem. The shortage of domestic digitaltalents and the need for disruptive solutions pushes Japanese firms to look into foreign solutions which cannot befound locally.

2/ EU shows strengths in digital domains. Europe has demonstrated strengths in multiple areas, counting
multiple startup and innovation hubs recognized internationally. It has strong solutions for trusted services andcybersecurity, healthtech services, cloud software for back-office operations, as well as solutions for egovernment, autonomous vehicles and smart factories. Multiple use cases of successful exports of EU companies
offering niche solutions suggest opportunities exist for Europe in Japan.

3/ Challenges. EU companies interested in the Japanese market may face multiple challenges considering old
legacy systems, the language and cultural barriers, local regulations and the need to build trustful relationship,
which may require patience and upfront investment. For some EU firms, digital branding may be an additional
obstacle to attract interest from Japanese counterparts. Moreover, international competition is foreseen from US
and Israel-based companies, as well as from firms based in the Asia Pacific region.

4/ Japan interest in EU market is growing. Industry voices indicate that Japan has shown a growing interest
over the past few years to collaborate with European firms, suggesting a positive signal from the market.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

78

5.1 Business opportunities for EU SMEs in JapanThe report has shown key trends arising from the introduction of digital technologies in the Japanese
corporate environment. It pointed out great opportunities for development for BtoB solutions, whereindustries’ voices indicate strong intension to undertake transition to digital, with a focus on thedigitalization of business operations and processes. On the other hand when it comes to change inbusiness models, enhanced products and services embracing advanced technologies also show
opportunities in niche areas.
Based on market insights collected from the previous chapters of this report a well as throughinterviews organized with European Trade Organizations located in Japan87, this section deep-divesfurther into the following business opportunities identified for EU companies in Japan:

Opportunity 1
Opportunity 2
Opportunity 3
Opportunity 4
Opportunity 5
Opportunity 6
Opportunity 7
Opportunity 8
Opportunity 9

BtoB solutions for data platforms and IT security
BtoB cloud based software-as-a-service (SaaS)
Public procurement for e-government and smart cities
IoT and AI for smart factory solutions
Software, AI and IoT towards L4AV and smart mobility
AI and connected devices for healthcare services
AI and platform solutions transforming the financial sector
Solutions for e-commerce and AR/VR, unmanned stores for offline shopping
Other promising opportunities

87 Interviews organized with European Trade Organizations’ representatives located in Japan from December 2021 to January 2022

including France, Greece, Estonia, Portugal, Hungary, Denmark and members of the European Enterprise Network (EEN), as well as
information collected through conversations and attendance to webinars organized by TPOs from other Member States.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

79

Opportunity 1 – BtoB solutions for data platforms and IT security
Market trends
The section 2.3.1 has shown that the corporate landscape is in the process of digitalizing operations
while priorities for future investments for IT solutions concern cloud solutions, electronic
contracts/signatures and identification systems, as well as zero trust security solutions.


Corporate landscape moving to cloud and increased digitalization of back office. While large
companies have taken the lead of cloud adoption, smaller organizations are progressively following
the path, with the pandemic as an accelerator. The transition suggests the need for supporting IT
systems, system managements and security solutions is growing along with the trend.

Increased awareness around data governance and data management. With the digitalization ofprocesses comes along the increased need for a stronger data governance and the awarenessaround data management. The report has shown that Japanese corporations still lag behind
European countries such as Germany in maturity level when it comes to data management
practices, leaving large scope for future improvement.



Increased awareness around system security and cybersecurity. Large corporations are indicating
an increased interest in adopting zero trust security model, while overall awareness and concerns
surrounding cyber risks has increased among SMEs.

Opportunities for EU SMEs


The immature Japanese corporate landscape in digital governance open opportunities in thefollowing domains:o Digital trust and identification services. This include among others, electronic signatures,time stamps and security certificates.
o Solutions for secure data transfers/data platforms.
o Solutions for zero trust networks, zero trust architecture and cyber security.

European countries recognized for their competences. Countries such as Estonia or Denmark show
strengths in the provision of digital trust services, gaining international reputation for competently
delivering government e-services. When it comes to cyber security, the Netherlands as well as
Poland were placed among leaders in Cyber security solutions in Europe, while both have in place
important security clusters, namely the Dutch “The Hague Security Delta” and the Polish “CyberSec
Hub”.

ChallengesCompetition with US-based and Israeli companies. Important competition from US and Israeli
companies is foreseen in the domain of trust services and cybersecurity.

Japan legacy systems could potentially be a blocking factor for the deployment of advanced trusted
services or cybersecurity solutions. As indicated in section 3.1, 60% of IT systems are foreseen tobe older than 20 years by 2025, cross-company sizes and cross-industries.

Japan company culture. Japanese users generally take longer time to reach a final decision, andmay involve several meetings, very often in person, in order to clearly understand the product.

DIGITAL TRANSFORMATION IN JAPAN l TOKYO l 2022

80

Customization and trust. As a foreign company entering the Japanese market, productcustomization and localization are very likely to be required, while gaining trust from the businesswill be key considering that trust services and security solutions are supporting business critical
functions. Particular efforts and a good understanding of the market is therefore foreseen to build
trust with Japanese counterparts, which may require time and upfront investment to a certain
extent.

BOX 5 – Use Cases - European data platforms and cyber security solutions in Japan
PlanetWay – Secure data collaboration platform - Estonia
PlanetWay is a Japanese-Estonian startup with its R&D unit based in Tallinn. Its main solution isPlanetcross, a cross-industry secure data access platform. The solution connects the databases ofvarious enterprises in a decentralized manner, connecting data between companies via theInternet without having to make major changes to existing systems or databases. It combines
advanced e-government solutions incorporating technologies like blockchain to ensure theintegrity and security of data and make it accessible to both individuals and corporations.
In 2019, the major Japanese gas company Nichigas has started using the Estonian solution ensuring
secure data transfers through the use of digital signatures, encryption, authentications and logs.
Nichigas has selected the solution to make it possible to find information across the databases of
the group’s five companies in their affiliated call centers. The company plans to expand the use of
the system in the future.
Source : Invest In Estonia
Cybernetica – Secure data platform - Estonia
Cybernetica is an Estonian company that was founded in 1997 as an independent successor of theEstonian institute of cybernetics. It provides mission critical software solutions for governments
and corporations, where its key products and competences include interoperability and securedata exchange (UXP and X-Road), digital identity, confidential data analysis and cybersecurity
solutions. The company has established its presence in Japan since 2014, while it has been actively
involved in research collaboration with the country since 2010, when joint research projects werestarted with the Japanese National Institute of ICT (NICT) .
Since then, Cybernetica has delivered its solutions at multiple occasions, partnering with Japanesecompanies such as Eltes, providing digital risk management services, or with Fujisoft, one of thelargest IT solution vendor in Japan. Recent projects include the delivery of the UXP solution as aninteroperability platform for finance and trustbanking related transactions for Sumitomo Mitsui. In
2018, the company has contributed to the provision of UXP for building medical services for thecity of Yokohama.
Source : Cybernetica
Compumatica – Cybersecurity - The Netherlands
Compumatica is a Dutch Security Vendor delivering tailored solution to secure utility networks,
creating secure boundaries in the network and encrypting all data within the power grid. In 2019,the company signed a MoU with TEPCO, the largest electric utility in Japan, to collaborate in thedevelopment of the secure Next Generation SCADA technology to control and monitor plants andequipment. Both companies have met each other during a trade mission to Japan in 2016,
organized under the program “Partners for International Business Japan” coordinated by The
Hague Security Delta.
Source : SecurityDelta

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Opportunity 2 – BtoB cloud based software-as-a-service (SaaS)
Market trends

Estimated growth of the market: The Japanese SaaS market is anticipated to record a CAGR of
19.3% during the forecast period, i.e. 2019-202788.
Ageing workforce and need to operate and respond to labor intensive tasks. Deceasing workforce
population in the nation is inducing organizations to adopt automated processes that utilize
less labor-intensive approaches.



COVID-19 and shift to cloud to support telework. The COVID-19 has been a major accelerator
for firms to adopt solutions to support telework. Moreover, SMEs are investing in the adoptionof cloud services on the back of increasing governmental investments for the development of
ICT infrastructure in the country.



Improvement of business operations as a key priority when it comes to DX. Voices from Japaneseindustries indicate the improvement of processes and operations as a major priority when
undertaking initiatives toward DX.

Opportunities for EU SMEs

Large room for progress for Japan ecosystem to adopt SaaS. The section 2.3.1 has shown thatJapanese corporations, in particular SMEs, are still in the process of being on boarded, while
industry voices indicate investment in SaaS remains one of the priority for firms when it comesto investing in DX.
Increase in back-office solution demand and untapped vertical SaaS segment. The post-corona
situation has particularly seen an increase in demand for horizontal solutions covering back officetasks.89 Interviews with European TPOs have highlighted that successful use cases in exports ofsoftware providing niche solutions to increase operations performances were observed.
Identified promising areas are SaaS solutions for:o Robotic process automationo Data management and analytics
o Project management and process streamliningo Marketing automation
Whereas it is worth noting horizontal solutions are being more competitive with the strong
positioning of domestic players, vertical solutions (designed for industries specific needs) could
be an additional space for growth due to more untapped opportunities.
Several clusters ranked within world top 25 located in Europe. In Europe, Paris, Amsterdam, Madrid,
Berlin and Dublin were ranked among top 25 cities, as the main SaaS and cloud related startup
ecosystems in 201890.

88

MarketWatch, Japan Software as a Service (SaaS) Market Size, Industry Share and Forecast to 2027, Accessible at:https://www.marketwatch.com/press-release/japan-software-as-a-service-saas-market-size-industry-share-and-forecastto-2027-2021-09-02?tesla=y, published on 02/09/2021, accessed on 25/11/2021.
89
BOXIL, SaaS 業界レポート 2021, [SaaS industry report 2021], August 2021.
90
Crozdesk, Saas and Cloud Startup report 2018, 2018.

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ChallengesAs highlighted in the previous point, Japan legacy systems present a key challenge for thepromotion of advanced SaaS solutions. Interviews with EU TPOs located in Japan indicated that
legacy in-house systems are sometimes so outdated that it is not compatible with the offeredsoftware solution, a phenomenon particularly observed among Japanese SMEs.



Dynamic market with strong local and US-based competitors. Japan’s startup ecosystem is mainlycomposed of domestic SaaS providers, suggesting European companies could face strong
competitiveness form local players. Moreover globally, the SaaS and cloud sectors are led by USbased companies, which benefit from larger funding and growth opportunities, as well as thestrong label and recognition of “US-made-product”. Barriers may be greater for European SaaS
providers originating from smaller EU countries characterized by a weaker “digital branding” incomparison to other countries.



Similarly to the challenges listed in Opportunity 1, the Japanese company culture is often
mentioned as challenging for deploying foreign SaaS solutions. Building trust may take time andpatience, while the language is a key factor and solutions must be localized.

BOX 6 – Use Case: European SaaS for back office solutions in Japan
Probance - Marketing Automation Tool – France
Probance is a French-based SME providing a platform for BtoC marketing automation (MA), which
incorporates machine learning to realize predictive communication. It has multiple offices in
Europe as well as in the US and is commercializing its services in Japan. Clients include large
corporates as well as SMEs.
The company has been collaborating with Brainpad, a Japanese firm specialized in providing
services for digital marketing, which offers Probance’s MA solution as one of its portfolio product.
In 2021, Itochu, one of the largest general trading company of Japan, has announced its
collaboration for the creation of a new digital transformation support service in the marketingdomain, where Probance will be contributing by bringing its solution and expertise in MA.
Source : Probance

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Opportunity 3 – Public procurement for e-government and smart cities
Market trendsCurrent state of e-government services shows room for progress. Only 13% of administrative
procedures of the central government were digitalized in 2020, while only 7.5% of the citizens
were using government apps for administrative services. 91

The establishment of the Digital Agency (DA) as an accelerator for digital initiatives. As highlighted
in section 1.2.1, the recently established DA has been designated as the governmental body incharge of centralizing digitalization policies and measures. This includes initiatives such as moving
to the cloud, implement data governance, digitalize administration services and set in place ane-ID system (MyNumber), as well as related trusted services.



The development of smart cities as one of the priority domains of the 6th STI plan. On top of thedigitalization of the government administrative services, the development of smart cities are also
considered as a top priority with the objective of setting in place 100 projects by 2025. Among
key projects are mobility, healthcare and government administrative services.

Opportunities for EU SMEs


European countries have shown successful implementation of e-government solutions, forexample with the case of Estonia, where 99% of government administration processes are
digitalized. The GoJ has also closely looked at use cases in other EU countries such as Denmarkand Sweden for reference. For EU SMEs with proven track-records in developing successful public
IT services in their countries, Japan might be an interesting market to pursue.

IT services might be comparatively less complex than other sectors in responding to public sector
demand, as it is guided by international standards to a higher extent and knows fewer barriers
such as local standards and certifications.

Europe is well positioned for smart cities, where initiatives are growing. Zurich is classified secondin the IMDB Smart city ranking 2021 among cities with the highest scores for technology
indicators. Other European cities classified in the top 10 include Oslo (#3), Lausanne (#4), Helsinki(#6) and Copenhagen (#7) 92 . As multiple initiatives are undertaken across Europe, it opens
opportunities for EU SMEs, which contributed to the successful procurement and delivery ofsolutions for smart cities.

Challenges
Procurement process and language barrier remains a great barrier as the procedures take placein Japanese, suggesting that it is very likely required to have a local partner.

Mitsubishi UFJ Research and Consulting, 国・地方一体となったデジタルトランスフォーメーション, [Digital transformation that unites national
and
local
governments],
Publishedon
25/02/2020,
Accessibleat:https://www5.cao.go.jp/keizaishimon/kaigi/special/reform/committee/20200225/shiryo1.pdf.
92
IMD, Smart City Index 2021, 2021, Accessed on 04/01/2022.
91

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



Tendency to prioritize domestic vendors. In the daily public procurement practice thus far,Japanese government organizations depend on a relatively small pool of very large, mostly
Japanese, IT system developers and integrators.
Legacy systems. Similarly to the private sector, the GoJ, local prefectures and municipalities are
no exception when it comes to legacy systems, which may be a challenge to consider whenoffering solutions or services that integrate advanced technologies.

BOX 7 – Use Case: European solutions for e-government in JapanKMD – IT software solution for e-gov - Denmark
KMD holding is a company originating from Denmark, which is specialized in developing IT
solutions for Danish municipalities and governments. It is a well-established organization which
was founded in 1971 and which counted 3 200 employees by 2021. The KMD Group has
subsidiaries in Denmark, Norway, Sweden, Finland and Poland, with more than 1 500 Danish andinternational customers.
In 2018, the Japanese electronics maker NEC announced it would acquire KMD Holding as part ofits strategy to grow in the provision of digital services and software for the public sector. Part ofthe basis for acquiring KMD was the fact that Denmark is regarded as one of the role model for
improving public-sector services, as the country came out no.1 for e-government development in
the UN e-government Survey 2018.
Both companies found mutual benefits in this transaction, as those saw complementarities inknow-how and potential integration of products. Moreover for KMD, it was a massive change as
it was sold by local governments to a private group characterized by an international foothold,representing a strong new platform for developing KMD activities.
Source : KMD

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Opportunity 4 – IoT and AI for Smart Factory solutions
Market trends
Estimated growth of the market: Factory IoT is expected to more than double from ¥ 541 billion in2019 to ¥ 1.100 billion in 202593.



Immature digitalization of the manufacturing processes. In practice, digitalization of the
manufacturing sector is still immature, in particular for SMEs. Introduction of sensors and data
analytics along the production line or the adoption of wearable devices are still uncommon andled by large domestic players and forerunners.

The government is actively promoting Connected Enterprises with multiple government support(including local regions and municipalities) in R&D programs, as well as to support innovation of
manufacturing processes in SMEs (example: SBIR, municipalities’ initiatives such as iToP
Yokohama).

Opportunities for EU SMEs


Increased interest of the manufacturing sector in incorporating digital solutions: the report has
shown in section 3.4 that manufacturers show clear interest in the digital transformation along theengineering chain, in particular when it comes to the industrial design and production process.

Trends and forecasts suggest the following domains as particularly promising for further
development:o Solutions for the digitalization of the production process, including the need for sensors
capturing data and providing visualization along the production chain, relying on IoT and M2Msolutions.
o FA/ Industrial robots solutions for predictive maintenance and quality control.
o Solutions for product and industrial process designs (e.g. digital twins and simulations).
o System/software for manufacturers including ERP, MES, SCADA, production schedulingsystems.

Strong initiatives are identified in Europe, such as “Industry 4.0” in Germany, “Industrie du future”
in France and “Industria 4.0” in Italy, while other countries such as Finland and Austria have also
demonstrated advanced technological solutions in manufacturing.

Challenges


A transition relying on the initiatives of the industry’s giants. The typical Japanese Zaibatsu systemdoes not provide the incentive for small manufacturers to undertake digital transformation for the
manufacturing process, as large companies themselves are not advanced in the adoption of suchtechnologies.

93

JETRO, Invest Japan - Manufacturing, 2021, accessible at:https://www.jetro.go.jp/ext_images/en/invest/img/attractive_sectors/manufacturing/manufacturing_EN_202103.pdf

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Priorities of the management level differ with DX. Although awareness around the benefits ofadopting digital solutions is increasing, for the broader spectrum and approaching the industry as
a whole, minimizing costs remains a key priority and convincing factories management to takeactions and invest in costly solutions may represent a great barrier.

BOX 8 - Use case – European solutions in Japan for smart manufacturing
CENIT – 3D factory simulator software - Germany
CENIT Japan KK, the Japanese subsidiary of CENIT headquartered in Germany, was established inTokyo in July 2011. The company has a global presence with 17 offices across Europe, North
America and Asia, counting about 700 employees worldwide.
CENIT is engaged in IT software development and consulting, primarily for manufacturers andfinancial service providers. It places special emphasis on the development of software that predicts
equipment failures through 3D simulations of entire factories by building virtual factories incyberspace. The software conducts verification and analysis that is necessary before actual
production and proposes an optimal production line based on the data collected via the network.
Its aim is to improve productivity, reduce costs by decreasing the number of problems that canoccur during the manufacturing process and eventually make factories fully automated in the
future.
In 2016, CENIT has conducted experimental studies in partnership with HIROTEC corp., a leading
Japanese manufacturer specialized in the production of automotive body parts, in order to develop
a system that can quickly work out in cyberspace the best response to problems or emergencies
that may occur in the actual factory. The software also enable predictions about potential
equipment failure.
Source : Jetro
METRON – Cleantech solution for factories – France
METRON is a French-based startup founded in 2012. It has expanded to 9 locations globally,
counting 120 employees across the world. It provides an AI-based enterprise platform to support
energy management and reduction in factories.
The company has benefited from NTT investment in 2019, where the large Japanese corporation
met the French startup in 2017 in Amsterdam, during the European Utility week. Since then,
METRON has set a branch in Japan.
In 2021, OMRON, a Japanese manufacturer of control equipment and factory automation systems,
has announced its investment in METRON’s solution with the purpose of reducing greenhouse gas
emissions from production activities. The company hopes to improve energy productivity infactories and to contribute to the realization of corporate carbon neutrality through the adoptionof the software solution.
Source : EU-Japan

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Opportunity 5 – Software, AI and IoT for autonomous driving toward L4 AV and smart
mobility
Market trendsJapanese strong automotive sector is undertaking the development of L4 AV, as well as thedevelopment of connected cars for the upcoming years, with multiple initiatives of open source
innovation led by industry’s leaders.



The government is aiming to put in place regulation and technical support for the development ofautonomous driving and is proactively working on the development of appropriate infrastructureand framework, in line with the development of MaaS solutions to promote smart cities.

Opportunities for EU SMEs


The development of L4 AV and connected cars rely on multiple capabilities, which solutions are very
often delivered by startups. Use cases show that collaboration with foreign startups is consideredby Japanese companies. Opportunities are foreseen particularly in the following domains based onmarket trends identified in section 4.2.1 :o Solutions for autonomous driving and connectivity including sensors and cameras for spatial
localization, integrating AI solutions to control and enable autonomous vehicle, as well as IoT
solutions for secure communication between the vehicles and infrastructure components.
o Data management platforms and reliable transmissions systems from the vehicle to the cloud.
o Solutions for connected services, leveraging data generated by the vehicle.
o Solutions for shared mobility and fleet services.
o Solutions for vehicle safety.

Connected cars and L4 AV solutions are also strongly promoted and developed in Europe, where
activities are growing with the emergence of startups in France, Germany as well as in Austria, Italy
and Spain94. From a regulatory perspective, Germany is set to legalize the commercial use of L4
AVs as shuttle bus and autonomous public transportation bus by 2022.

Challenges
Strong competition from the US startup hubs. Similarly to the other software segments, theUnited-States is home to most of the firms involved in the development of such solutions forautomated vehicles.



As already highlighted for the SaaS industry, companies providing software solutions originatingfrom European countries characterized by a comparatively weak digital branding may face greater
challenges to attract interest or to build trust with potential customers and partners.



Undeveloped regulations for AV. Regulations for automated vehicles are still in development,
while clear standards and infrastructures are not in place yet. As such, the changing regulatoryenvironment and compliance requirements may be a point to consider.

94 StartUs Insight, Top 10 automotive industry trends and innovation in 2021, Accessible at: https://www.startus-

insights.com/innovators-guide/automotive-industry-trends-10-innovations-that-will-impact-automotive-companies-in-2020-beyond/ ,Accessed on 24/12/2021.

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BOX 9 – Use case – European solutions for L4 AV and connected cars in Japan
Veniam – Network for autonomous cars - Portugal
Veniam is accelerating future mobility by delivering intelligent networking software for connectedcars and autonomous vehicles. With an IP portfolio of more than 160 patents, Veniam's data
networking platform makes the most out of all available networks to improve quality of service andreduce the costs of moving massive amounts of data between vehicles and the cloud. Working
closely with the world’s largest Auto OEMs and Tier 1 suppliers, Veniam provides a solution for
securely managing the data flows of a new and emerging mobility ecosystem – the Internet ofMoving Things – where vehicles move people and goods efficiently but also expand Internet
coverage and gather valuable data for smart city applications.
In 2018, the company has explored joint solutions for the connected vehicle market with DENSO,
supplying advanced automotive technology, systems and components for major automakers,
through a MoU.
As part of their collaboration, Veniam and DENSO will explore the integration of Veniam's
intelligent data networking features in DENSO's Communication Management (DN-CM) systems.
This combination will significantly improve the ability of vehicles to move large amounts of data byleveraging multiple different networks securely.
Source : Cision
EasyMile – Self-driving cars – France
EasyMile is a global technology company specialized in self-driving technology, founded in 2014.
The company has been drawing attention for its cutting-edge software development of fixed route
driverless technology. Its software for driverless solutions processes data fed by any platform’s
sensor set, analyzes it and teaches vehicles how to perform. Its clients include leading transport
operators, city authorities, airports, business parks, universities, manufacturers, factories andlogistics centers.
The company has entered Japan through the participation to business matching events, which
ultimately opened opportunities to several projects, including small driverless automobiles thathave started to be sold, as well as other projects that are currently undergoing demonstration tests.
For now, the company has its Japan base at an office at the French Chamber of Commerce andIndustry in Japan, while it has announced it plans to launch soon a Japanese subsidiary in Tokyoand fully expand to Japan.
Source : InvestTokyo

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Opportunity 6 – AI and connected devices for healthcare services
Market trendsExpected growth of the market: Health technology market size is expected to more than double
from ¥ 129.2 billion in 2020 to ¥ 270.2 billion in 202695. Main contributing areas are solutions forprevention and health control, recuperation and rehabilitation, as well as consultation andtreatments.



Low maturity of Japanese market when it comes to telemedicine services, as indicated by apenetration rate of 5% of telemedicine use in 2018 96.



The Japanese silver economy is growing, with a population of approximately 120 million people, of
which 30% are projected to be 60 years old or older within a decade. The current state urges theneed for more efficient services and reduction of costs of medical services, which can be leveraged
through the introduction of digital technologies.



Healthcare/pharmaceuticals as top-10 of most funded sector by VC firms in Japan in 2019.

Opportunities for EU SMEs


Market trends as indicated in section 4.2.2 suggest medtech offer interesting opportunities for EU
SMEs providing AI and IoT solutions in the healthcare domain, with a strong focus on the software
component:o AI solutions for clinical trials and drug developmento Automated and AI powered diagnosis using medical imaging and data analysis
But also for advanced material and devices:o Advanced equipment for labs and clinical testso Connected and wearable devices for health management and health monitoringo Solutions for robots assistance for remote or assistance surgeryEurope holds a strong position in the medtech industry, positioning second in terms of market size
behind the US, with 27% of the global medical device market in 2018. In comparison Japan reached
7% the same year. Leading countries in this domain are Germany, France, Italy, Spain as well as
the Netherlands. In 2018, there were around 27 000 healthtech companies in Europe, of which
95% of them were SMEs97.



A rapidly growing segment in Europe. The combined value of European healthtech companies hasgrown from $ 8 billion in 2016 to $ 41 billion in 2021. This has been brought on by telemedicine,
operation software and insurtechs, while VC investment activity has moved beyond telehealth, toremote monitoring, AI-first products as well as digital therapeutics98.

95

Statista, Forecast of health technology market size Japan FY 2020 – 2026, Published on 17/08/2021, Accessible at:https://www.statista.com/statistics/1030901/japan-digital-health-market-size/, accessed on 04/01/2022.
96
IPSOS, Global views on healthcare 2018, Accessible at: https://www.ipsos.com/sites/default/files/ct/news/documents/201807/Global%20Views%20on%20Healthcare%202018%20Graphic%20Report.pdf
97
Medtech Europe, The European Medical technology industry in figures 2020, 2020, Accessible at: https://www.medtecheurope.org/wpcontent/uploads/2020/05/The-European-Medical-Technology-Industry-in-figures-2020.pdf.
98
Dealroom, Digital healthcare, patient first? , April 2021, accessed on 04/01/2022.

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Challenges


Heavy regulatory process characterized by long procedures, while the documentation is most of thetime in Japanese language. This eventually requires a connection with an experienced partner inJapan and may need to consider upfront costs.

Weak European brand offer, as small EU SMEs and startups in the IT fields are not well known andmay face preference for local products.



The distribution system may also represent a challenge when it comes to solutions for advanced
and connected devices, also considering the need to build up an after sales organization thatsatisfies Japanese companies.

BOX 10 – Use case – European solutions for healthtech in Japan
Coala Life – Smart Cardiac Monitoring - Sweden
Coala Life is a Swedish digital health venture founded in 2015, focusing on cardiac diagnostics anddigital health. The company has developed a portfolio of patented medical products and services
for user-centered digital remote monitoring and analysis of the heart based on advanced and smart
algorithms. Coala’s solutions enable analysis, remote monitoring, more effective cardiac
assessments and integrated care services, all in real time.
In 2019, it entered in technology partnership with multi-billion Japanese medical device company
Asahi Kasei to expand into the Japanese heart failure market. Together, they are exploring thepossibilities to develop novel digital biomarkers for heart failure and evaluate the clinical solutionsin terms of service feasibility in Japan.
Source : Coalalife
Sidekick health – Digital therapeutics/gamified digital care – Iceland/Sweden
The Nordic startup Sidekick Health provides a platform that combines clinical validation with
gamification, behavioral economics and AI, delivering personalized experience for patients.
In 2020, the company partnered on a pilot project focusing on treating diabetes with SOMPO digitallab, which supports the digital innovation of the Japanese group. The proof of concept is primarily
focusing on exploring the feasibility of the solution delivered by Sidekick for enabling basic heathoutcome such as lower glucose level, improved sleep quality, weight loss and other parameters.
Source : Sidekick health

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Opportunity 7 – AI and platform solutions transforming the financial sector
Market trends
The financial sector is among the most advanced in comparison to other industries in Japan when it
comes to the transformation of business operations, as section 2.3.1 highlighted that the adoptionof cloud, RPA and AI was the most intensive in the industry.



Expected growth of the market: FinTech market in Japan is expected to grow from 1.9 billion USD
in 2019 to over 10 billion by 202299, largely led by digital payments solutions.
Among the rapidly growing fintech segments, the market size of insurtech grew at a CAGR of
22.05% from 2016 to 2019, reaching a market size of 809 million USD by 2019. The market is
expected to grow further and accelerate as from 2020 to almost triple to more than 2 billion USD
by 2022100.



Japanese companies are in need for collaboration with fintech startups and are actively promoting
investment and partnership, as well as conducting proof of concept in the banking, securities andinsurance domains as shown in section 4.2.3.



The GoJ is promoting deregulation, positioning finTech as part of its national strategy since 2016,
in line with its vision of Society 5.0. In 2016, the Banking Act was amended to encourage banks toestablish IT related subsidiaries to develop fintech business, while the shift to cashless payments
is also promoted with the goal to double Japanese consumer’s cashless payments usage rate to
40% by 2025.

Opportunities for EU SMEs
Japan is seen as a potentially lucrative market to expand into for EU-based fintech, in particularwhen it comes to already developed commercial and operational know-how. The following arepotential areas of expansion:o Banking and asset management solutions for payment and transfer systems, blockchain andcryptocurrencies, robo-advisory, lending solutions, but also security solutions growing in linewith increased digital risks.
o The number of insurtech companies in Japan is small for the size of the insurance market,
while the country is a latecomer in the global market. On the European side, insurancecompanies were leading fintech sector’s funding growth in 2021 101 , suggesting great
opportunities for European startups to explore Japan’s untapped market.

With the purpose of revitalizing Tokyo’s position in the international financial market the Japanese
Financial Service Agency (FSA) as well as the Tokyo Metropolitan Government (TMG) have set inplace dedicated teams to attract foreign Fintech companies interested to expand their business inJapan.

99

Yano Research Institute, FinTech Market 2019, 2019.
Yano Research Institute, A study undertaken on the domestic Insurtech market in the life insurance sector, published on 12/03/2020.
101
CBinsights, Fintech funding trends in Europe, 2021.
100

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Europe counts multiple fintech hubs leading innovation in banking, asset management andinsurance. Among the biggest and rapidly growing hubs are Berlin, Paris, Stockholm, Vilnius,
Amsterdam and Dublin.

Challenges

Uncertainty of the regulatory framework for disruptive solutions. New participants entering themarket with significant disruptive effect or solutions may face regulatory challenges due to theinexperience with the existing financial regulatory framework. In such cases compliance may belacking or insufficient.
Competition with domestic startups and with firms based in the Asia-Pacific regions is expected
given the fintech adoption rate in those regions and the attractiveness of the Japanese market.

BOX 11 – Use case – European solutions for fintech and insurtech in Japan
Shift Technology – Insurance claim processing – France
Shift Technology is a French-based company established in 2014, providing a decision making
platform designed for insurance fraud and claim handlers to increase their capacity to detect awide spectrum of fraudulent and suspicious claim behaviors. It has expanded its activities toEurope, Tokyo, Singapore and Hong Kong and signed contracts with more than 50 insurers covering
property & casualty insurance, travel, life and health business lines.
The company entered the Japanese market in 2017 through the participation to the Tokyo
Metropolitan Government accelerator initiative, where it was chosen as one of the 8 finalists ofthe business camp. The program helped accessing support and providing exposure to insurancecompanies, the target group of Shift Technology.
Prior to entering Japan, the company has taken 6 months to prepare for the business activities inJapan to localize the solution and spent time physically in the country to establish relationships
Source : Invest Tokyo
with the domestic insurance industry.
Wefox – Insurance management platform for consumers - Germany
Wefox is a German-based startup established in 2014 that provides a digital platform for insurance
information management for consumers, insurance brokers and insurers by leveraging AI, big dataand cloud solution.
The company has expanded its activities in Japan since 2019, establishing SBI Wefox Asia K.K. jointlywith SBIHoldings, a Japanese company active in financial and asset management services.
Together, they are deploying the platform solution providing consumers with a centralized app for
managing insurance documents in one place, allowing update of policies and personal details
through the platform, as well as to file claims through the app with real time status tracking.
Source : Fintech Futures

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Opportunity 8 – Solutions for e-commerce and AR/VR, unmanned stores for offline
shopping
Market trends

E-commerce sales are expected to rise at a CAGR of 5.9% between 2021 and 2025102. Japan is no
exception, as the COVID-19 has brought a permanent shift in consumer buying behavior and has
accelerated their adoption of online purchases.

Online sales are led by large industry players, indicating that market shares are largely hold by
online retail platforms Amazon and Rakuten. In contrast, SMEs show a large room for further
adoption of online sales practices.



Offline shopping is recently showing the emergence of unmanned stores, where demonstrations
and practical implementations are led by domestic convenience stores. The GoJ is largely
contributing to its promotion with the support of the METI.



Initiatives in image recognition and VR/AR to improve offline user shopping experience have been
growing over the past years but it remains an undeveloped segment.

Opportunities for EU SMEs

The development of omnichannel approach requires companies to improve online operations andcustomer experience, opening opportunities in the following segments:o Front end solutions for e-commerce platform including interfaces with advanced
functionalities for improved UX.
o Back-end solutions such as API cloud for established companies to link and integrate their preexisting systems to a newly launched e-commerce website, along with the need forcybersecurity solutions.
o Marketing automation and data analytics tools (eg. SaaS solutions as referred in earlier inopportunity 2) arising from the deployment of e-commerce, including solutions such as deeplearning for demand prediction, dynamic pricing or machine learning for customer
segmentation.
Moreover, improvement of in-store customer experience and operations leveraging tech suggests
opportunities for:o Solutions for image recognition and VR/AR to enhance customer experience with extended
reality.
o Solutions for robotics, inventory and logistic software to support shop automation and thedevelopment of unmanned stores, in-store shopping assistance, stores network optimizationand delivery.
Investment in European retailtech has been growing by 10% YoY from 2015 to 2020 with a focus on
SMACT technologies (Social, mobile analytics cloud and IoT), indicating a growing startup
landscape in this domain. Leading countries in investment for the period in scope were France,

102 GlobalData, “Japan e-commerce market to grow by 10.5% in 2021”, published on 23/09/2021, Accessible at :https://www.globaldata.com/japan-e-commerce-market-grow-10-5-2021-says-globaldata/ , accessed on 11/01/2022.

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Germany, Sweden and Spain 103. The COVID-19 has been a great accelerator, with a particularincrease in investment in 2019 in European startups developing tech solutions for marketing andresearch, payment platforms, last mile fulfillment for delivery, chatbots, interactive stores as well
as solutions for operations including analytics, pricing tools, inventory and logistics. Japan may be
a potential market for further expansion, given the similarly growing demand for these type ofsolutions.

Challenges

The retail and distribution sectors are the ones that have the greatest reliance on legacy systems,
where one third of the companies 104 in the industry are almost relying entirely on such systems.
This is to be considered when deploying advanced solutions relying on established systems as it
represents a great barrier for the digitalization and adoption of newer technologies. Moreover
existing non-standardized products and customer IDs hinder supply/demand and customer data
analytics.



Lack of in-house digital maturity and capabilities to deploy digital products. Many retailers do nothave in-house digital knowledge and understanding to drive deployment and change, whereas
they very often outsource work related to digital to system integrators. This is to consider whenbringing EU solutions to Japan and defining a market entry strategy.

BOX 12 – Use case – European solutions for retailtech in Japan
Virtusize – Online fitting solution - Sweden
Virtusize was founded in 2011 in Sweden and provides a way for customers purchasing online tocheck whether a listed garment would fit by either comparing it to a previous purchase or bymeasuring an item already available at home. By 2018, the solution was available on 20% ofJapanese e-commerce websites for clothing and had partnered with 45 retailers in Japan including
Uniqlo, Balenciaga and Acne.
The European startup was acquired for €11 million in 2018 by a group Japanese investors including
Yahoo Japan Capital, Ideos Venture Cap fund, D4V and Toyoshima, a large company from the textile
industry.
Source: TechEU

103 NautaCapital, “How Europe’s startup are driving the retailtech R/evolution”, 2020.
104 McKinsey & Company and ACCJ, Japan Digital Agenda 2030, February 2021, Available at https://ceaa17af-1e95-46ee-9cbf-

fff62ee679ca.filesusr.com/ugd/c01657_e32b2f3f71974adcb0d0aba48059b852.pdf

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Other promising opportunities
All industries without exceptions are disrupted by digital transformation, both from an operational andbusiness perspective. It is worth mentioning this report has focused on a limited number of sectors
and technologies given the complexity and the broad range of industries, processes and solutions
concerned. The following segments are additionally identified as interesting opportunities, but notlimited to, for EU SMEs and for which further analysis is worth to be considered.
[1] Greentech solutions. The growing concern around climate change and the need to shift toward
more environmentally sustainable practices have played in favor of the development of greentech
solutions, described as technologies used in production processes that enable sustainable forms ofenergy. A good example is the previously analyzed use case METRON, the French-tech startup
delivering an online platform to reduce factories energy consumption. Another successful example of
EU expansion to Japan in this domain is Doconomy, a Swedish startup that develops solutions forbusinesses and their customers to visualize their environmental impact when they make purchases.
The company has entered into a partnership with the Japanese firm Datafluct in 2021. Together theyplan to develop a green fintech solution that reflects the effects of carbon dioxide emissions and water
consumption from users’ payment data, for example, when customers pay with credit cards.
[2] Infrastructure and construction sector. Infrastructure and construction is a segment to consider
given that, although very advanced, Japan public infrastructure is currently facing important
deterioration. The country’s rapid economic growth period has created a shortage of skilled labor andincreased the financial burden for inspection and maintenance. Moreover the government has also
indicated the development of infrastructure for disaster prevention as a key priority for the coming
years. Employing digital tech solutions to increase accuracy, performances and maintenance in these
domains has been strongly encouraged by the government’s i-construction policy, which advocatesthe development of solutions for geospatial analysis, drones, as well as connected sensors. Recent
example includes the expansion to Japan of the Finnish company, Iceye, delivering satellite solution tomonitor earth data.
[3] Agritech solutions. AgriTech solutions are expected to grow in order to address the shortage ofskilled labor. Cultivation and production control solutions have been popular, but sales and operational
support, as well as precision farming are also forecast to grow significantly in the coming years. Japan
has already shown interest in EU practices and solutions in this domain as shown by the successful
expansion of Gremon Systems, a Hungarian startup founded in 2013. The company offers integrated
cloud-based solutions using connected devices installed in plants. Those collect data about workers’
activity as well as plants, which is processed through an in-house developed software. The solution
provides growers with relevant information that helps them better exploit their resources, reduce
costs and achieve higher profitability.
[4] Extended reality for the gaming industry. Japan being one of the leader in the gaming industry,
software solutions in this domain have attracted the industry’s interest, as suggested by recent
partnership agreement between Virtual training, a company headquartered in the Czech Republic andgrowB Sports Communications, a sports marketing creative agency based in Tokyo. The Czech firm
provides solutions for landscapes and countryside virtual visualization. Together they will create
cycling courses and run events for the augmented reality platform, “ROUVY” delivered by Virtual

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Training, while the Japanese partner will ensure an accelerated AR course production and will provide
support for event management locally.

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5.2 Recommendations for market entry and practical tips
5.2.1 Recommendations for market entry
Establishing presence in JapanAs already highlighted several times in theopportunities analysis, Japan is known for its
corporate culture, which strongly values trust
and long term relationships to tie any kind ofpartnership, requiring very often multiple inperson meetings and exchanges over time. Thisis particularly true when it comes to solutions
that are linked to business critical systems.
Although practices have slightly evolved toward
online meetings in response to the COVID-19
pandemic, use cases suggest it may be of good
benefit to have a physical presence in the
country. A sales representative in Japan is an
option to limit the costs and to connect with thedomestic network.
Industry voices have indicated that once
introduced to the Japanese market, theestablishment of a branch office is notmandatory however a nice to have, in particularwhen the offered product/service requires
aftercare maintenance or customer service,where Japanese customers are very often
demanding to have a local presence.

Creating network and businesstouchpoints in Japan
Establishing a relationship with a local partner ishighly recommended to benefit from support for
product localization, language and translation,
potential introduction to existing networks, aswell as to get access to regulatory andcompliance advices. This is particularly relevant
for solutions with a strong need for localization(language and cultural fit) but also for heavily
regulated sectors such as the financial or
healthcare industries.

In recent years, the number of businessplatforms and events in relation to digitaldomains has increased, providing theopportunity to create networks, meet potential
customers or gain visibility in the Japanesemarket:[1] The amount of industry specific fairs
promoting digital solutions has significantly
increased over the past years. Recent examplesof events organized in 2022 include the Smart
Factory Expo Japan, the Smart Logistics Expo or
the Healthcare IT Fair. Many others are taking
place on a regular basis focusing on specifictechnologies or sectors.
Use cases which were presented in theprevious section have shown that several
successful cases of European expansion to
Japan started from networks created duringbusiness fairs, suggesting it is an effective
channel to gain visibility and connect to themarket.
[2] Matching platforms and events are set up
and organized by private as well as publicorganizations (e.g. European Union, European
embassies, trade organizations or the GoJ) to
encourage international business connections
with Japan. It is worth looking into existing
platforms, as well as to check on a regular basis
whether events or programs are taking place to
get in touch with potential Japanese partners
or customers. As a consequence of thepandemic, many events are taking place online
or in hybrid format, giving the opportunity to alarger audience to join with the advantage ofreduced participation costs.
Moreover on the Japanese side, the GoJ has
also created multiple platforms in specificdomains to connect industries, academics andgovernmental bodies as part of its strategy to

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promote DX (e.g. Smart city, IoT, AI, healthcare,quantum platforms). Although many of thoseare only available in Japanese, it may be worth
exploring further network opportunities withthe support of a local partner or representative.
[3] Open Innovation forums and business
contests are organized by large Japanese
corporations seeking for innovation utilizing
technologies, ideas, resources and assets ofexternal organizations. Although open
innovation remains limited in Japan incomparison to global peers, the practice has
become familiar to large Japanese companies
and is continuing to expand. Multiple open
innovation programs and business contests
were organized across industries over the past
years, of which examples include NTTData
Open Innovation for the telecom industry or
MUFG Innovation Partners for financial
services.
It is also worth leveraging existing institutions
and hubs to deploy a network in Japan, inparticular considering the expanding startup
community and the growing contribution ofuniversities in the development of advanced
technologies and in R&D.
[1]
Startupcommunities,
universities,
accelerators, VCs, R&D and innovation hubs.
The number of startup and innovation hubs has
been increasing in Japan together with thegrowth of VC markets. As highlighted in section
4.1, those remain relatively small incomparison to global peers, however a positive
evolution has been observed over the past
years. The key startup cluster in Japan is
identified as Tokyo, whereas innovation andtechnology clusters are identified in the capital,
as well as in the areas of Osaka-Kobe-Kyoto andNagoya. Multiple events for networking are105

Rueckert P., Bridging the culture gap: Venture café
tokyo’s plan to develop networking in japan, Startup
Guide, published on 05/02/2020, Accessible at:organized, for example, by the non-profit
organization Venture Café Tokyo, whichindicated close to 24% of the 19 000 attendees
who participated to the organization’s events
between 2018 and 2020 were not fromJapan 105 . For European startups active in thedigital domains, it may be beneficial toinvestigate relevant hubs which could be
potential channels to connect to the growing
community of accelerators, mentors, andincubators as well as to VCs or CVC investors.
[2] Public Trade Promotion Organizations.
Europeandomestic
Trade
Promotion
Organizations, the EU-Japan Center for
Industrial Cooperation, as well as the Japan
external trade organizations (Jetro) can help
European companies to get in touch withmarkets and relevant industries in Japan,
through the provision of various services tobusiness and by connecting firms to theirestablished networks.

A variety of market entry models
The preferred method for market entry will very
likely depend on several elements including thenature of the solution (e.g. software, platform,
device, service), its maturity stage (indevelopment, ready-to commercialize, alreadycommercialized with success) and the maturityof the company. Considering that tech solutions
are very often delivered by startups, those may
face other challenges and needs compared tolong established companies (such as capital andresources) when considering market entry.
[1] Direct entry. Some companies opt for directentry to market without partnership or support
from a Japanese corporate venture nor system
integrators. This entry method matches withsolutions and products that have a provenbusiness model and that have shown
https://startupguide.com/venture-cafe-tokyo-plan-todevelop-networking-in-japan , Accessed on 14/01/2022.

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commercial success in the country of origin or atinternational level, facilitating discussions withpotential Japanese clients. The company hasvery often sufficient resources and expand to
Japan as part of its internationalization strategy.
Examples from the analyzed use cases include
Shift Insurance (see Box 11), which haveestablished a branch to directly operate in the
country.
[2] Partnership/Joint Venture. Some EU
companies enter the market through apartnership or joint venture with a local partner,
which relationship is very often characterized by
a complementarity in technologies or market
knowledge. For example, the establishment ofWefox KK Asia (see Box 11) results from a joint
venture leveraging Japanese SBI Holding’s
market knowledge and German Wefox’s
insurtech solution. Other use cases in this reporthighlighted partnerships of startups withindustries giant to conduct PoCs and explore thecommercial feasibility of the European solutions,such as CoalaLife’s partnership with Asahi Kasei(see Box 10) or Veniam with Denso (see Box 9).
[3] System integrators play a key role inconnecting Japanese companies with disruptive
IT solution providers by scaling partnership with
BtoB startups. Fujitsu, NEC, NTT data and Hitachi
can be listed among main Japanese system
integrators, whereas smaller IT service
companies covering more specific areas (e.g.
data analytics, digital risks, and so forth) are also
cooperating with IT solution providers. This
market entry approach is particularly relevant
for EU companies delivering proven market
products including software, trust services orplatform solutions. Examples from this report
include the Estonian firm Cybernetica (see Box 5),

which had an alliance with Eltes delivering thejointly developed tool Vizkey, or Probance and its
partnership with Brainpad (see Box 6), deploying
the French marketing automation solution to theJapanese market.
[4] Corporate Venturing, is a way for startups toget sufficient funds, industry expertise andconnections, as well as market knowledge froma large and well established company. Tokyo has
one of the largest presence of corporate
investors among global ecosystems, with morethan 60% of startup rounds having a corporate
investor. This suggests the importance of CVC inthe development of the Japanese startup
ecosystem. Moreover, 15% of overall CVCs
funding represented overseas investments106, in
a context where funds available for startups
outpaces the amount of homegrown startups.
This suggests a window of opportunity to attract
capital from Japan for EU companies. The natureof investments are also responding to the needof startups in seeds phase, as it shows that Japan
investors are more open in providing long term
investments, as opposite to European VCs which
tend to prefer quicker turnarounds and provenbusiness models.
[5] Public procurement. When it comes totargeting the public sector and government
services such as products and solutions for smart
cities or solutions for administrative services,
European companies will need to apply throughlocal public tenders, which are very likely to be inJapanese. Given identified barriers to entry
including language and favoritism to local
vendors, a partnership with a local player or aparticipation to a consortium could potentiallyfacilitate and raise the chance to get an
engagement in public procurement.

106 World bank (2021), Tokyo Start-up Ecosystem, published on

September 2021

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5.3 Insights from Trade Promotion Organizations
5.3.1 Insights from EU Trade Promotion Organizations (TPOs) in JapanStartups are the key players in exporting European digital solutions to Japan. Although not limited
to them, startups were identified as the main contributors by TPOs when it comes to opportunities
or recent initiatives that took place in the digital domains from Europe to Japan.



Smaller countries from the continent are struggling to attract market interest. Depending on countryof origins, the approach may be more/less difficult in relation to the country’s digital branding.
Whereas France is known for its “French tech” or Estonia recognized for its “e-government”
solutions, other countries which are less known for their digital competences may face challenges
to attract interest for investments or partnerships.

European startups leveraging the “US-based” label to enter Japan. In response to the above
mentioned issue, some successful startups entering the Japanese market which have establishedtheir headquarters in the US did not disclose their European background for a better positioning
and visibility in Japan.

Japanese market attracts less interest from EU companies in the digital domain. Interest from EU
SMEs has been comparatively lower in the Japanese market, as those have the tendency to favor
other EU or US markets with less barriers to entry and closer relationships considering culturaldifferences, the language and the geographical distance. However interest remains strong forstartups in niche solutions, with a greater incentive to expand globally and going beyond the EU or
the US markets.

E-government market opportunity is of great interest. Several EU countries have raised theirinterest in expanding e-government solutions in Japan, given current initiatives undertaken by theJapanese government. However the domestic procurement process, and in particular the language
barrier, have been raised as a key issue to approach the market, suggesting further dedicatedeffort and support in this segment could open opportunities for EU companies.

Growing response and interest over the past years from the Japanese market. Several TPOs haveindicated that receptiveness and enthusiasm from the Japanese market to European digitalsolutions has been growing over the past 3 to 5 years, indicating a good signal for European
expansion to Japan.



Large companies and system integrators remain the main clients and partners. Successful cases of
deployment of European digital solutions to Japan are very often taking place in partnershipagreements and collaborative development as part of Open Innovation Programs or CVCs led bylarge industry leaders, or through the introduction of system integrators incorporating European
solutions into their service/product portfolio.

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5.3.2 Recommendations to the EU-Japan Center
Recommendations to promote EU digitalsolutions in Japan[1] Europe to promote the Japanese market in thedigital domain. EU countries that would like topromote the expansion of their solutions toJapan need to understand in the first place theirdomestic strengths (industries and technology
solutions) and identify local startups/innovation
hubs and networks. Moreover, they should
actively promote and communicate theattractiveness and the benefits of the Japanesemarket in the digital domains to raise interest
from EU firms, considering that those have thetendency to prioritize other EU countries or the
US for international expansion.
[2] Counter weak digital branding with regional
approach. For EU countries characterized by aweaker digital branding, it may be interesting toapproach the Japanese market from a broader
perspective. Promotion at a regional level (e.g.
with “Eastern Europe” or “Europe” branding)
may help for a more efficient positioning tocounter weak domestic branding, for example,
when participating to business fairs or whenorganizing business matching events.
[3] Startups and entry mechanism. Althoughexpansion of EU solutions to Japan is not limited
to startups, those play a key role in the digital
revolution and as such, represent the main
candidates that will eventually export digitalsolutions. Market entry mechanism andpartnerships’ targets may slightly differ fromlong established companies. Indeed, there is a
growing role of CVCs, VCs, accelerators,
R&D/innovation centers, universities and startup
ecosystems. Main opportunities in Japanesemarkets were identified to respond to the needsof large organizations and system integrators
seeking for solutions unavailable locally. It may
be worth considering expanding networks for
those channels and to monitor on a continuous
basis VCs and CVCs initiatives to further identify
opportunities for EU companies.

Opportunities for the EU-Japan Centerfor future research[1] Evaluate opportunities in policy and R&D
cooperation. Recent trends indicate that Japan
as well as Europe are in favor of international
cooperation. Multiple topics are considered, forexample, to set up international standards tofacilitate cooperation in domains such as Data
Free Flow with Trust, cyber security, dataprotection or ethical AI. It is worth conducting
further analysis around this topic and identify
key policy and R&D cooperation areas that could
strengthen EU-Japan relationships and benefit
both parties.
[2] Conduct sectorial approach for future
research. This report was conducted with ageneric approach of the digital transformation in
Japan, with the purpose of providing a holistic
overview of current trends in the country. A
more in-depth sectorial analysis may be valuable
to generate more precise insights regarding agiven sector or technology solution and guidethe corporate landscape accordingly. Indeed, as
stressed by the report, technologies such as AI,
IoT, sensors, platform solutions or intelligent
devices disrupt industries in multiple ways, while
their importance and uses are fragmented froma sector to another.

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CONCLUSION

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CONCLUSION
A digital transition moving slowly inJapan
The report has shown that Japan still showsroom for progress when it comes to DX. Both the
public and the private sectors are concerned,
whereas the GoJ is investing important efforts toguide the country toward digital shift. The
comparatively low productivity level and theageing population are urging the need forchange, while the 2025 digital cliff and the
COVID-19 pandemic have greatly contributed toaccelerate the trend.

comparatively small in Japan. The main
contribution and demand are coming from
corporate giants and system integrators, getting
involved through open innovation programs,
partnerships and CVC funds.

Window of opportunities for EU SMEs in
Japan

The country still faces multiple structural
challenges to achieve the Society 5.0 as itenvisions. The lack of digital talents, the low
digital maturity of government services, theunder-developed startup ecosystem, as well as
the broad range of firms characterized by old
style corporate management hinder thecountry’s transition.

EU firms interested to enter the market will need
to overcome the challenges of old legacy
systems, the language and cultural barriers, local
regulations, as well as the need to build trustfulrelationships, which may require time andpatience. Those may eventually feel the need tohave at least a local representative or partner.
For some EU companies, digital branding may
also be an obstacle to overcome to attract
interest from Japanese firms. Moreover,international competition is foreseen from US
and Israel-based companies, as well as fromfirms based in the Asia Pacific region.

In this context, it is without surprise that theJapanese corporate landscape shows room togain maturity in DX. Whereas facts and figures
reveal that overall awareness around digitalpractices and benefits has been rising, it also
shows it has not materialized yet. Overall, thedigital transition is led by industries’ giants while
SMEs, composing 99% of corporate landscape in
numbers, are largely lagging behind.

Nevertheless, opportunities for EU SMEs wereidentified within all industries disrupted bydigital transformation, suggesting firms that canpropose trustful and innovative solutions willfind their place in the Japanese market. This isparticularly true if they offer the potential to fill
the domestic gaps resulting from the lack of local
digital talents, as well as the lack of disruptive
innovation.

Industries voices indicate main priorities remainin the improvement of business operations,while established companies do not invest muchin the development of new services/products
leveraging digital technologies. Innovative
initiatives transforming business models andproducts are led by forerunners in theautomotive,
manufacturing,
healthcare,financial and retail sectors.

For well-established firms, which can supply
innovative solutions with proven businessmodels to their Japanese counterparts, they can
opt for direct market entry or work together withdomestic system integrators to deploy theirsolutions. Alternatively, partnerships and jointventures are also a good option to leveragecomplementarity in technologies and to benefit
from partners’ market knowledge and resources.
For startups in niche industries seeking for funds
to grow, Japan also represents a good

Key players driving digital innovation are startups,
which ecosystem is growing, however remains

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opportunity as it counts multiple large CVCs
seeking for innovation abroad that they cannot
find locally. Finally when it comes to solutions for
public procurement, it seems to be a promising
but challenging channel, where EU companies
may need to collaborate with local partners to
overcome entry barriers.

segments are forecasted to reach double digit
growth. It has also identified numerous use casesof EU companies holding unique solutions thathave managed to successfully enter Japan,
suggesting that the country remains an
attractive market to consider for international
expansion in the digital domain.

As the report has shown, the market ischaracterized by positive trends, where some

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RELATED READINGS
Berre M., The Evolving Fintech Landscape in Japan, 2018, EU-Japan Center for Industrial Cooperation
Eriksson S., E-Health and Telemedicine in Japan, 2021, EU-Japan Center for Industrial Cooperation
Garcia G., Artificial Intelligence in Japan, 2019, EU-Japan Center for Industrial Cooperation
Gonzales M., Blockchain in Japan, 2019, EU-Japan Center for Industrial Cooperation
Kuczynska A., Analysis of opportunities for EU SMEs in Japan’s Data Economy an AI in connection with
Robotics, 2019, EU-Japan Center for Industrial Cooperation
Kodama T., Opportunities for venture firms, universities, and research institutes in the EU to conduct
knowledge transfer with Japanese counterparts in nine digital technology areas, 2018, EU-Japan
Center for Industrial Cooperation
Lundin M., Artificial Intelligence in the Japanese Medical Sector, 2020, EU-Japan Center for Industrial
Cooperation
Meyer N., The Japanese Fintech Sector, 2018, EU-Japan Center for Industrial Cooperation

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APPENDICES
Appendix 1 - SIP Research and Development themes (FY 2018):
Strategic Innovation Creation Program (SIP) Phase 2 (2018-) Issue List:
・Cyber space infrastructure technology utilizing big data and AI
・ Physical space digital data processing infrastructure
・ Cyber-physical security for an IoT society
・ Autonomous driving (expansion of systems and services)・ Material revolution by integrated material development system
・ Realization of Society 5.0 through light and quantum technologies
・ Smart bio-industry and basic agricultural technologies
・ Energy system of an IoE society
・ Strengthening national resilience (disaster risk reduction and mitigation)
・ Advanced diagnostic and treatment systems using AI (artificial intelligence) hospitals
・ Smart logistics services
・ Innovative deep sea resources survey technology
Source: Cabinet Office website: https://www8.cao.go.jp/cstp/gaiyo/sip/index.html, Accessed on 11/11/2021.

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Appendix 2 – Moonshot R&D program
Moonshot goals

R&D projects

GOAL 1 - Realization of asociety in which humanbeings can be free fromlimitations of body, brain,space, and time by 2050.

The Realization of an Avatar-Symbiotic Society where Everyone can Perform Active
Roles without Constraint
Liberation from Biological Limitations via Physical, Cognitive and Perceptual
Augmentation
Cybernetic Avatar Technology and Social System Design for Harmonious Coexperience and Collective Ability
Comprehensive Mathematical Understanding of the Complex Control System
between Organs and Challenge for Ultra-Early Precision Medicine
Challenge toward the Control of Intractable Cancer through Understanding ofMolecular, Cellular, and Interorgan Networks

GOAL 2 - Realization ofultra-early disease
prediction and intervention
by 2050.

GOAL 3 - Realization of AI
robots that autonomously
learn, adapt to theirenvironment, evolve in
intelligence and act
alongside human beings, by
2050.
GOAL 4 - Realization ofsustainable resource
circulation to recover the
global environment by
2050

Challenge for Eradication of Diabetes and Comorbidities through Understanding andManipulating Homeostatic Systems
Towards Overcoming Disorders Linked to Dementia based on a Comprehensive
Understanding of Multiorgan Network
Understanding and Control of Virus-Human Interaction Networks
Smart Robot that is Close to One Person for a Lifetime
Innovation in Construction of Infrastructure with Cooperative AI and Multi-Robots
Adapting to Various Environments
Co-evolution of Human and AI-Robots to Expand Science Frontiers
Adaptable AI-enabled Robots to Create a Vibrant Society
Development of technologies to recover greenhouse gases (“GHGs”) and convert
them into valuable materials
Development of technologies to recover nitrogen compounds and convert them into
harmless or useful materials
Development of marine biodegradable plastics which can control the timing andspeed of their degradability

GOAL 5 - Creation of industry that enables sustainable global food supply by exploiting unused biologicalresources by 2050"
Research and Development of Theory and Software for Fault-tolerant Quantum
GOAL 6 - Realization of a
Computers
fault-tolerant universal
Development of Quantum Interfaces for Building Quantum Computer Networks
quantum computer thatwill revolutionize economy, Fault-tolerant Quantum Computing with Photonically Interconnected Ion Traps
Development of Large-scale Fault-tolerant Universal Optical Quantum Computers
industry, and security by
Large-scale Silicon Quantum Computer
2050.
GOAL 7 - Realization ofsustainable care systems to
overcome major diseases
by 2040, for enjoying one’s
life with relief and releasefrom health concerns until
100 years old

Quantum Cyberspace with Networked Quantum Computer
Development of Integration Technologies for Superconducting Quantum Circuits
Development of method for complex tissue regeneration via tissue embryonization
Realization of innovative medical systems that extend healthy lifespan to 100 years
old by eliminating tissue inflammation- inducing cells
Quantum and neuromodulation technologies to suppress tissue-specific diseaserelated micro inflammation
Development of new-generation medical care systems through customizing sleep
and hibernation
Mitochondrial medicine

Source: Moonshot R&D Program official web page: https://www.jst.go.jp/moonshot/en/index.html , Accessed on
03/02/2022.

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Appendix 3 – Priorities in digital transformation (SMEs)

Source: Ministry of Economy, Trade and Industry, 令和２年度中小企業のデジタル化に関する調査に係る委託事業 報告書, [2020, Report on SMEs Digital transformation]

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Appendix 4 – JUAS survey: Methodology
The industry survey was conducted by the Japan Institute Users Association of Information Systems(JUAS). The survey took place from September to October 2020 and reached 1146 companies, crossindustries. Those were classified into 7 main categories namely, (1) construction, (2) material
manufacture, (3) machinery manufacture, (4) trading and distribution, (5) financial, (6) social
infrastructure and (7) services.
1. The composition of the surveys’ respondents is as follow:

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The following industry categories were created with the following composition:

Source: JUAS, 企業 IT 動向調査報告書 2021, [Corporate IT Trends Survey Report 2021], 2021, Accessible athttps://juas.or.jp/cms/media/2021/04/JUAS_IT2021.pdf.

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Appendix 5 – DX maturity (per industry)

Source: Accenture, 業種別・企業規模別の DX の状況と課題が明らかに 〜DX サーベイの調査・分析結果から見る日本企業の現状, [DX survey, analysis of state of Japanese firms, Insight on DX adoption based on industry andcompany size], published on 22/06/2021, Accessible at: https://www.accenture.com/jp-ja/insights/local/dxsurvey,
accessed on 06/09/2021.

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Appendix 6 - TOP 10 Japanese startups in funding received (H1 2021)
Company

Business description

Year

1
2
3
4
5
6
7
8
9
10
11
12
13

Smart HR
SmartNews
Paidy
Mobility Technologies
Net protection holdings
NetstarsAtonarp
Menu
Heartseed
UniFa
UbitusBitkeyThinkCyte

2013
2012
2008
1977
2018
2009
2009
2018
2015
2013
2012
2018
2016

14
15

LegalForce
Axelspace Holdings

2017
2020

24.90
24.01

16
17
18

WealthPark
Open8
Kyukux

1967
2015
2015

23.21
23.21
22.33

19

Noile-Immune Biotech

2015

22.12

20

Reiwa Travel

Cloud based HR software
News app for mobile devices
Buy-now pay later service
Taxi hailing app “GO”
Payment services
QR code payment gateway “Starpay”
Molecular sensing and diagnosis products
Food delivery app
Myocardial regenerative medicine
Childcare related technologies using AI/IoT
End-to-end support for online gaming
Platform for user account linking, authentication
High speed next-generation cell sorting technology
using AI.
AI driven contract review software
Solutions in the microsatellite domain fromdevelopment to launch and operation
Cloud based asset management SaaS productAI-powered automated video editing solution
Next-generation material for OLED displays andlightning
Immunotherapy solutions based on CART-cell
terapy using patient’s own immune system
App based international travel services

Fund raised in
H1 2021145.31131.95121.92
92.86
64.72
61.29
50.54
46.43
37.14
37.14
36.21
28.24
26.46

2020

20.90

Source: Initial, Japan mid-term summary, published on 20/08/2021, accessible at, https://initial.inc/articles/japanstartup-funding-2021-H1-en , accessed on 03/02/2022.

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