A New Era - Why Japan Will Once Again Become a Digital World Leader
In the country where fax-machines still reigns supreme could become the world leader in Digital Transformation.
Many people don't know this, but Japan is in many regards very out-of-date when it comes to the use of technology, especially in the corporate world. Fax machines still reigns supreme in many offices, and most companies run their entire IT-infrastructure on-premise. However, this might all be about to change...
On May 1st, Japan got a new emperor, and a new era — Reiwa (令和). The transition is largely symbolic, as the emperor’s role is ceremonial, but the start of the Reiwa era marks the end of the Heisei (平成) era, often known as “the lost decades” in Japan. Over this period, Japan’s gross domestic product increased by only 20%, compared to the 200% expansion of the US economy. Since the economic crash in 1991, corporate Japan became stagnant, started hoarding cash and lost their ability to innovate.
Will this new era mark the beginning of a new Japan, one with a stronger economy that dares to leverage digital and emerging technologies? No one can tell, but there are strong signs that corporate Japan is looking to renew itself.
The first reason to believe that Japanese companies will rapidly digitize is out of share necessity: Between now and 2030, Japan is expected to lose another 2.3 million people between the ages of 15 and 64 from the country's workforce. This lack of labor will drive companies’ urgent demand for solutions that require less labor. As Japanese companies never really invested in the cloud in its earlier days, many of them have decided to skip the previous iterations of cloud computing and jump straight to latest era, Software-as-a-Service (SaaS) (What is SaaS?), to address their needs.
Already, the Japanese SaaS market has potential to become a global leader. Last year, the software market in Japan was valued at about $11 billion, and SaaS accounted for 31%, or $3.5 billion. For a country that previously never had a startup scene, venture capital investments into SaaS-startups have received over $230 million of investments last year. This is the highest figure seen over the past ten years, and almost 10% of total venture capital spending in Japan.
In recent years, Japan has seen more and more SaaS companies getting closer to reaching so-called Unicorn status, aka. a valuation of over $1 billion. These include Money Forward, a platform for personal and corporate finance that went public and currently has a market cap of more than $600 million. Rakus is another, a provider of several SaaS products for small and medium businesses with a market value of about $780 million, and Uzabase, a provider of market and company research products that has reached a value of $730 million.
Although Japan’s digital progress has lagged in the past several years, Japanese firms are finally stepping up to the challenge of innovation once again. It will be interesting to see if Japan can match the insane economic growth that occurred after the 1964 Summer Olympics in Tokyo when it again hosts the Olympics 2020.
