In the latest World Digital Competitiveness Ranking, published by Switzerland’s Institute for Management Development (IMD), Japan placed 29th out of 63 economies, sliding one notch from last year to its worst place since the rankings began in 2017.
Japan continues to lag behind Asian economies Singapore (fourth), South Korea (eighth), Hong Kong (ninth), Taiwan (11th) and China (17th) in the rankings.
“Things are simply going downhill, and there is no transformation to be seen,” Naoshi Takatsu, IMD’s managing partner for northeast Asia, said.
The ranking grades an economy based on knowledge, technology and future readiness. Japan suffered the most attrition in the knowledge category, dropping three spots from last year to 28th place.
Fueling this outcome is a dearth of personnel, digital skills and international experience. Japan will be short 450,000 information technology professionals in 2030, according to an estimate by the ministry of economy, trade and industry.
The forecast has sparked a sense of alarm, especially in the business community. Property developer Mitsubishi Estate is training 10,000 people within the group in data analysis and other digital tools. But these types of initiatives remain the exception rather than the rule.
Another problem is the fact that 70% of IT personnel in Japan are concentrated in IT companies. This is the result of businesses not completely moving away from seniority-based pay scales to those based on skill sets and qualifications.
Furniture seller Nitori Holdings is one exception. The group established a subsidiary with a different compensation structure than the parent company. Specialists working at the new unit can earn over ¥10 million (US$69,000) a year.
At the same time, tech specialists who can hit the floor running are in short supply and training has failed to keep up with demand.
Topping IMD’s list is Denmark, which launched borger.dk, a one-stop portal where citizens can access government services at any time. The US, last year’s leader, came in second place while Sweden took third.
Unlike Japan, businesses in Western nations commonly set pay scales based on job importance, not on seniority. Those companies also typically hire in-house engineers.
Japanese corporations “would often pass system and software development onto IT companies,” said Kunihiro Tanaka, president of Sakura Internet, a major cloud service provider in Japan.
In terms of “future readiness”, Japan dropped one tick to 28th place. This category measures areas such as adaptability to digital technology, progress of e-government initiatives and cybersecurity capabilities.
Holding back Japan on this front is insufficient business agility. For example, Panasonic Holdings oversees a complex mix of over 1,200 systems. In typical cases, organisational silos are impacted by poor horizontal coordination of data that impedes access to much-needed information. This slows down decision-making by management.
“There are a lot of proof-of-concept tests being conducted for new businesses, but they’re not leading to significant changes overall,” said IMD’s Takatsu.
The high showings for Singapore, South Korea, Hong Kong, Taiwan and China can be partly attributed to each economy’s highly regarded business agility. While China dropped two spots in this year’s rankings, it is still a long way from 31st place, where the country finished in 2017.
Japan suffered what has been called a digital defeat due to the decidedly analog response to the pandemic. Officials still used fax machines to collect data on Covid-19 cases, and government systems failed to work together in an acceptable manner.
An all-new Digital Agency launched in September last year was tasked with leading the digital transformation of government organisations. But then-Prime Minister Yoshihide Suga decided to resign shortly after the establishment, which undercut the momentum of the agency.
Current Prime Minister Fumio Kishida is pushing forward with the Digital Garden City Nation, a vision that would create 2.3 million digital workers over five years, but observers point out that there is a lot of pork-barrel spending in the plan.
The evidence shows that Japan is slowly losing dominance on the global stage, like a frog in a boiling pot. Reversing the situation will likely require a renewed focus on structural problems and realising that technology alone is not the solution.
“It doesn’t matter how much IT expertise or IT professionals there are on the ground, if they don’t have the authority to change business operations, things will remain the same,” said Ichiro Satoh, a professor at the National Institute of Informatics.
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