Opening Japan’s digital drawbridge

East Asia Forum -- Oct 25

Digital transformation is crucial to overcoming a number of big global challenges. Yet Japan has unique disadvantages that put it behind global digital leaders such as the United States, Singapore and China and hamper its economic partnerships in the region.

Japan’s government entities and regulators are too deeply embedded in the digital industry’s fixed structure — which lacks digital literacy, client responsibility and close connections with traditional technology outsourcing vendors — making it difficult to drive digitisation in the private and public sectors. This fixed mindset, which is especially strong in Tokyo, demands efforts to promote digitisation and eventually digital transformation in rural areas where regulation and mindset problems are less rigid. But cities outside Tokyo lack digital experts to tackle local challenges through digital transformation.

Japan has other structural problems that hinder digital transformation. Digital talent, especially software engineers who can handle artificial intelligence is scarce. This is due to the relatively low emphasis on software education at top universities in Japan.

Another issue is that most software engineers work for systems engineering companies and their salaries are very low. This is partly because companies in Japan treat digital investment as a cost, not as investment for further revenue. Most companies lack knowledge of the management of digital technologies and try to order low-cost systems to achieve short-sighted goals. Talented software engineers who aim for high compensation have positions at big-tech firms, such as Google, and do not join Japanese corporations.

To overcome these barriers, engineers and management need to conceptualise digital investment as a tool to increase profit. A deeper partnership between ASEAN and Japanese corporations would help to accelerate the movement of digital talent.

Japan’s Digital Agency has been working on the Digital First Frontier Team concept, which aims to promote digital transformation. But it was only established in 2021 and Japan still needs to attract more data scientists from ASEAN countries by offering competitive hiring packages. Japan needs more talent from ASEAN countries with the knowledge and skills to achieve digital transformation, including engineers and developers, analysts and cybersecurity experts.

At the same time, Japan needs to share more insight with ASEAN businesses for operations and quality manufacturing. Japan still retains technological advantages in some manufacturing industries. Given ongoing tensions between the United States and China, enhanced collaboration between ASEAN countries and Japan would be of benefit to securing supply chains and increasing security.

The Taiwan Semiconductor Manufacturing Corporation’s recent decision to build a semiconductor factory in Kumamoto is a good example. It takes advantage of Japan’s location and strength in manufacturing and will decrease Japan’s dependence on other countries for chip supply and create local opportunities for skills development.

Japan needs to develop a robust mechanism that promotes the development, utilisation and circulation of human resources between ASEAN and Japan. There are programs related to multi-layered exchange and development of students, young people, researchers and entrepreneurs in various fields such as academic cooperation by Kyoto University ASEAN centre. But barriers to practical cooperation, such as onerous regulations and laws, need to be changed.

Complementarity between Japan and ASEAN is important. It will be mutually beneficial to promote exchanges and circulation of human resources between Japan, which has a declining and ageing population, and ASEAN, which has an abundance of young workers and wants to utilise ASEAN’s power. To welcome them, Japan needs to set up a competitive environment comparable to that of Singapore, which has not only efficient physical and but also social infrastructure.

Through this expected cross-border movement, there are a number of concrete ways in which Japan and ASEAN could address their own respective national problems and solidify cooperation.

One issue is the slow response of traditional industries such as manufactures to digitisation. In ASEAN countries, many people enjoy the benefits of new services as a result of the rapid progress of startups and the implementation of digital technology. In Vietnam, for instance, attracting and expanding supporting industries as a source of employment for the young population is an important issue. Skill development in those industries and the transfer of human capital from primary industries are also urgent issues. Vietnam’s biggest private conglomerate, Vingroup, achieved this skill development and transfer of human capital by acquiring the operations of General Motors Vietnam and by hiring experts from outside.

The outdated perception of foreign workers as mere cheap labour in Japan also needs to be discarded. Implementing more privileged visa schemes, better living conditions and tax incentives — similar to the High Potential Individual visa scheme in the United Kingdom — could be effective. ASEAN’s digital workers do not know much about lucrative visa schemes, partly because of a lack of competition and public relations. A comprehensive one-stop service or investment fund to support ASEAN startups is likely to attract more talent.

The sharing of talent and skills development in cybersecurity is also critical for the digital security in both Japan and ASEAN members.

With the US–China relationship becoming more tense following the introduction of semiconductor export controls, it was revealed in July that a hacker group had illegally accessed the emails of 25 government agencies, including the US State Department. Hackers also accessed emails from the US Ambassador to China and government officials in charge of regulating semiconductor trade. Hundreds of thousands of government-related emails were leaked. US authorities have not disclosed the identity of the hacker group. Cyberattacks will increase and become more advanced with the use of generative AI and cybersecurity cooperation will only become more important.

By fostering more opportunities for data scientists to work in Japan and facilitating the exchange of young professionals between Japan and ASEAN countries, a multi-layered connection will be established. This is critical to increasing Japan’s digital competitiveness and digital security and expanding opportunities for players in the digital economy in ASEAN.

Yasumasa Yamamoto is Associate Professor at Kyoto University and Senior Fellow at the Tokyo Foundation for Policy Research.