This fall, the Japanese government introduced measures to promote digital transformation. One such measure is the introduction of the digital governance code, which serves as a guideline for management teams to follow as they seek to strategically take advantage of IT systems. Another is a system in which the government formally recognizes businesses deemed ready to undergo digital transformation in accordance with these guidelines. The digital transformation stocks, which the Ministry of Economy, Trade and Industry (METI) and Tokyo Stock Exchange (TSE) jointly select, are now linked to these measures. Why is the Japanese government promoting digital transformation? The METI Journal posed this question to Takefumi Tanabe, who heads METI’s IT Innovation Division and Digital Transformation Promotion Office. The following is an edited excerpt of Tanabe’s comments.

Adding new value

The importance of digital transformation is increasingly becoming understood and more and more people are undoubtedly feeling the need to promote it. On the other hand, there aren’t many companies that can paint a clear picture of how they can link it to their business models or growth strategies, in my view. Management may push for digital transformation, but staff on the ground may be left confused about what to do. I think this is more or less a typical situation for Japanese businesses.

In the past, it was possible to gauge the impact of efforts to enhance operational efficiency and save labor by using IT, at least to a degree. However, when it comes to digital transformation, we’re in uncharted territory. Suppose you have successfully strengthened relationships with customers or stimulated communication across division borders in your company using Internet of Things technology. It could lead to winning new business, but it’s difficult to measure the immediate impact of these measures on revenues. You cannot channel management resources on something that’s uncertain. That’s a natural judgment, in a sense. But once people start to actually see digital technology add new value to businesses in various ways, I think digital transformation will accelerate in Japanese businesses.

That’s why we think we need to bet on the potential of digital transformation, highlight businesses that are actually promoting it so that everybody can learn from examples of specific efforts and introduce measures to support it.

At a symposium in early May titled, “TICAD 7 Preview: New Strategy for African Business,” held in Tokyo and hosted by Nikkei Inc., remarks by panelists presented a new environment in Africa. (TICAD stands for Tokyo International Conference on African Development that is led by the Japanese government. TICAD 7 will be held in Yokohama from Aug. 28 to 30.)

“It is essential to prepare a new model for overseas development to acquire business opportunities in Africa that is set to realize an economic development that is different from any other region in the world,” said Minister of Economy, Trade and Industry Hiroshige Seko at the symposium.

Touching on the ongoing changes in Africa, Seko suggested he would support private-sector businesses with new policies.

African businesses under Japanese companies are thought to experience a momentum boost every three years when TICAD is held. But this year, it seems the prospects are different.

The difference is the ongoing digital revolution in Africa. The power of technology has created new services to overcome the region’s unique challenges such as the lack of electricity and fragile infrastructure, which is good news that could contribute to an improvement in the business environment for companies.

Additionally, development potential can be seen in other areas.

In Africa, the demographic that accounted for the majority of the population was that of the so-called informal sector; namely those who did not have their own addresses or bank accounts. For companies adopting business models in developing countries, it was considered difficult to establish such a demographic as their customers. However, thanks to a major revolution that has seen the spread of mobile digital technology across this demographic, those people suddenly emerged as possible customers, believed to number about 1 billion.

For example, emerging services in Kenya, such as cash transfers utilizing text messages through mobile phones or provision of “virtual” addresses, have provided potential consumers who previously had no means to prove their credibility opportunities to go mainstream.

Through technology, private sector companies have increasingly provided alternative services in fields where governments are incapable of facilitating sufficient social infrastructure. One example of this is a service to supply electricity to areas that have no access to conventional power grids. Most of the main players who provide these innovative businesses are startups with a short history.

Seko: While the internet connects the world and economic activities go global, certain disparities can be created and worsened. This in turn can lead to a backlash against digitalization and globalization. With political populism on the rise, the world has seen the emergence and expansion of protectionism.

In particular, restrictive trade measures that the world’s two biggest economies have implemented have created a sense of uncertainty for the global economy, the growth of which has, in fact, slowed. In addition to such protectionist moves, distorted industrial structures, which have seen the advent of such issues as steel excess capacity, have also negatively affected the global economy. As a flag-bearer of free trade, Japan needs to do everything it can to ensure stability amid unstable times.

Question: What role do you think Japan should play when the confrontation between the U.S. and China becomes a global risk?

Seko: Japan has been highly evaluated globally as the country took leading roles in coordinating both the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the economic partnership agreement between Japan and the European Union.

With that background, it is extremely important that Japan makes efforts to retain and develop free, fair and rule-based international trade frameworks. Protectionist moves won’t eradicate the root cause of trade friction. I believe the road to resolve issues is one paved by fair and competitive conditions through abolishing industrial subsidies that can distort markets.

Meanwhile, innovation has been rapidly advancing thanks to the “Fourth Industrial Revolution.” An important source of innovation these days is data. The whole process of collection and flow of data becomes a wellspring for innovation.

In that sense, data flow has increased explosively. At the same time, privacy and security concerns have grown, and there is a need to address these issues appropriately. On the other hand, some may seek to contain data or disallow data flow. Since these new issues have arisen in trade, I’ll take the lead to promote active discussion at the G20 ministerial meeting on trade and digital economy as chair.

Promoting WTO reform

Question: Some people are concerned about the decline in the function of the World Trade Organization that plays a central role in the multilateral trading system. What is your view?

Seko: If the WTO is not functioning properly, it would be one of the biggest issues that needs to be addressed.

It is important for Japan as a flag-bearer of free trade to commit to WTO reform. It is also important to have a firm commitment from the rest of the world. Unfortunately, however, some members seem to prefer solving issues through bilateral channels.

The Japanese government attaches great importance to the trilateral meeting of the trade ministers of the United States, Japan and the European Union, a forum in which all ministers have been actively participating. We have conducted this meeting five times and discussed topics including rule-making with regard to industrial subsidies, forced technology transfers and the digital economy.

In an extension of these discussions, the U.S. has shown its willingness, to a certain degree, to let this trilateral group take the lead in reforming the WTO. For example, the U.S., Japan and the European Union jointly presented a proposal on compliance of notification obligations such as industrial subsidies. Utilizing the opportunity of the G20 ministerial meeting, we will strive to gain support from other countries on WTO reform.

Question: What is the current situation on efforts regarding electronic commerce within the framework of the WTO?

Seko: We need to create trade rules that can address digitalization. So, Japan, Australia and Singapore became co-chairs to launch a joint statement initiative at the WTO ministerial conference in December 2017. At the World Economic Forum annual meeting in January, volunteer countries issued a joint statement to confirm the intention to commence WTO negotiations to that end, and 77 countries, including the U.S. and China, have signed it.

There is a growing momentum for creating trade rules related to digitalization and e-commerce within the WTO framework.

In his speech at this year’s Davos conference, Prime Minister Shinzo Abe declared his intention to launch the Osaka Track on the occasion of the upcoming G20 summit in Osaka toward international rule-making for digital trade. At the ministerial meeting preceding the summit, we’d like to support the negotiations on e-commerce in the WTO.

In July, the ministry established the METI Digital Transformation (DX) Office. Under the premise of promoting digitalization, it serves as a working unit to improve the convenience of administrative services for corporate bodies and to systematically advance policy planning based on data and service improvement.

Behind the establishment of the DX Office lies such awareness as, “It’s not too much to say that the government is the biggest obstacle (in the way of digitalization).”

Today, it is commonplace that people can receive a variety of daily services with just a smartphone. On the contrary, administrative procedures are still mainly handled through massive amounts of paper and an actual window. Such processes put a tremendous burden on people who have to spend their valuable time completing such procedures, among other things.

Many people have likely experienced the inconvenience of going to various offices to compile the necessary documents for an application. The windows are often crowded and visiting them over multiple days right after the offices open — when they aren’t so busy — is difficult.

In the case of a subsidy application, people need to first obtain a certificate of registered matters at the Legal Affairs Bureau before visiting the relevant ministries with necessary documents. They then need to wait until screenings are complete. Upon receiving approval, they need to visit the offices once again. The whole system is not designed for people to obtain support quickly when they need it.

What the government is promoting now is a streamlining of administrative procedures and an improvement of the procedural experience from a user’s viewpoint. These efforts, once realized, are represented by what’s called one-stop service, in which people can complete an administrative procedure following a visit to just one website. It’s also what’s known as once-only service, which requires no resubmission of information after it has been submitted once. The realization of such services would not only improve the convenience of users, but also lead to work-style reform on the administrative end through the promotion of procedural streamlining.

Service change based on data

Another driving force on this front is the accelerating flow of global digitalization. Giant platforms such as Google LLC, Apple Inc., Facebook Inc. and Amazon.com Inc. — collectively known as GAFA — have taken the lead and developed user-friendly services through analyzing enormous amounts of data.

Such ideas can be applicable to policy planning. There are many clues in the information submitted by companies and citizens on the formulation of various policies, who are the recipients of administrative services. Analyzing it could potentially lead to high value-added policy formulation. Additionally, it could possibly give recommendations of services to a user depending on their needs through push notifications.

Economic circles have great expectations for the efforts of DX. NEC Chairman Nobuhiro Endo noted: “The value to be obtained from DX efforts would not be a partial optimization for a unit of a company or administrative office. A state-level effort is essential to create that.”

“In a digitalized era where abundant data would drive economic growth, what matters for Japan to maintain an international competitive edge is the initiative of its government,” Endo said, stressing the significance of DX.

If the public and private sectors could share and utilize data, the effort would expand possibilities to more efficiently provide greater convenience in services at the social end as well.

Overcoming past discussions

In the past, there were a wide range of initiatives and plans on the digitalization of administrative processes. What is particularly still fresh in people’s minds would probably be the e-Japan Strategy announced in 2001. The initiative called for realization of a nation featuring the most advanced information technology in the world.

In administrative efforts of the past, most cases dealt with direct digitalization of existing procedures. But what the government now aims for is to improve customer satisfaction by reviewing the whole concept of the public administration reflecting their viewpoints. In addition, the goal includes facilitating a social environment to produce newly added values through having a collaboration of data and service organically.

The Digital Government Action Plan crafted in January 2018 calls for the introduction of a system conducting administrative procedures via electronic application in general so people can receive such services anytime and anywhere. It also seeks to revise relevant laws and regulations to abolish submission of documents necessary in administrative processes. Additionally, it plans to introduce an identification measure in line with a revised procedure on the premise of digitalization.

METI is promoting its efforts to build a common corporate authentication infrastructure that enables companies to conduct administrative procedures with just one ID and develop a subsidy application system. METI plans to test it for its procedures from fiscal 2019, aiming to spread the initiative to other ministries and agencies from the following fiscal year.

Through these efforts, the government seeks to establish a corporate digital platform that would enable all corporate administrative procedures to be completed digitally.

In working to reform administrative services based on the Digital Government Action Plan, it has been reviewing past policies.

Although past initiatives have contributed to the advancement of infrastructure development such as that for broadband, the action plan pointed out, “it was not necessarily the case that they have produced full impact in terms of concrete values for customers, such as the improvement of usability in their application procedures and betterment of business surroundings.” Additionally, the plan notes that digitalization itself is not a goal, reiterating the intention to materialize a service design-oriented idea based on customer needs.