March 26, 2023

Author: Hiroshi Ono, Hitotsubashi University

A city clerk in the western prefecture of Yamaguchi carries a floppy disk containing account information for 463 residents to a local bank. He has every intention of transferring payments to the particular residents. But somewhere between the clerk’s instructions and the bank’s processing associated with the transaction, there is a miscommunication. File folders and other items are seen scattered on the floor of the Hirono town office after a strong quake in Hirono, Japan, 13 February 2021 (Photo: Reuters/Kyodo).

Instead of 463 occupants receiving their payments, one resident alone receives a lump sum payment for 463 residents. Such a mishap may be understandable had it occurred in the particular 1980s, when personal computers and memory devices were just popping up. Yet this took place in Japan within 2022.

Incidents like that are reminders of the state of electronic disfunction in Japan. Once known as a technological powerhouse, Japan has lagged in the global wave associated with digital transformation.

Japan still maintains technological competitiveness within certain areas such as robotics, batteries and some high value-added intermediate inputs plus machinery. The japanese also has a rich human capital base with higher literacy rates . But among wealthy countries it ranks below average in digital competitiveness , e-government and e-learning. The delay in digital transformation has been felt acutely during COVID-19 because much of Japan’s public health administration still relies on outdated record keeping methods that could not keep up with cases.

There are supply and demand-side explanators of why electronic transformation has not taken off in Japan.

A survey of Japanese companies conducted for a 2021 white paper by the Ministry of Internal Affairs and Communication (MIC) highlighted personnel shortages within the information and communication technology (ICT) sector as a key factor behind the lag in digital change advancement. This is the supply-side problem. In 2018, the shortage of ICT personnel within Japan totalled approximately 220, 000. The Ministry associated with Economy, Trade and Industry (METI) estimates that the lack will worsen and increase to 450, 000 workers by 2030.

One reason why The japanese doesn’t have enough ICT professionals will be because provide has been outpaced by the need for digital transformation. Yet ICT jobs may also be unattractive.

In 2016, METI carried out a comparative study of ICT staff in Japan and the particular United States. The particular study found that this average salary associated with ICT employees in Japan was roughly half that of their own US counterparts. For Japan workers in their twenties, typical annual salaries were 4. 1 million yen (US$31, 300), while US employees earned 10. 2 mil yen annually (US$77, 900). The highest paid ICT personnel in Japan were within their fifties, while US salaries peaked when employees were within their thirties. The variance in salary was considerably smaller in Japan.

These figures underscore the differences within the human being resources systems between each country. In Japan, compensation is based on age and seniority because this assumes long-term commitment. Young people must work until they reach their 50s to achieve a high salary. Pay is usually also distributed evenly across age groups as it is considered more egalitarian. But this may weaken incentives to work hard, because high-performers are rewarded at rates similar to low-performers.

The companies that succeed in recruiting ICT professionals are usually foreign firms, such because Google The japanese, which offer more competitive merit-based salaries. It is unsurprising that there is an exodus of ICT professionals from Western tech companies to foreign firms.

On the demand (or user) side, a resistance to change among employees reported within the MIC white paper is another driver with regard to digital disfunction.

The reasons behind resistance to electronic transformation are embedded in Japanese organisations and work culture . As reported in Nikkei Asia within 2021, many Japanese general public administration offices still use floppy disks. Even during the COVID-19 pandemic, health centres had been using fax machines to send handwritten reports. This is definitely an extreme case associated with organisational inertia. For Japan, the benefits of the existing technology, whether perceived or real, have been overridden from the inconvenience of switching to new technology.

Digital modification in the workplace can be problematic because the prevailing norm is that formal transactions should take place in person, on paper plus with a stamp associated with approval ( hanko ). These conventions prioritise formality over function. In the high-context culture like The japanese, where telework use remains low, online meetings cannot replace the particular authenticity of in-person meetings.

Resistance to modify in Japan is also rooted in risk aversion. After the asset price bubble burst in the 1990s, businesses took a more cautious approach that hampered innovation . Investments in digital technologies have already been sluggish since the 1990s as numerous companies fear potential downsides, such as data and security breaches. Floppy disks and fax machines might be outdated, but they don’t use on the internet networks and they can’t be hacked.

There are some signs associated with progress, albeit slow. The Japanese government launched the Digital Agency in 2021 in the particular hope of accelerating digitalisation. Remote work is gaining momentum. Hitachi, Panasonic plus other technical giants possess announced that will they will eliminate the hanko and reduce their use of paper documents.

But these moves are usually still rare and mostly limited in order to big companies. For the majority associated with businesses, especially small- to medium-sized enterprises, digital transformation is still not in their purview. Conducting business as usual within Japan can be inefficient and incurs significant transaction costs — it is dependent on the physical availability of people plus the duplication, transportation and storage associated with records. Handwritten paperwork is more prone in order to human error and hanko  approval for files can be stalled when the required signatory is certainly unavailable.

Resistance to alter and a good attachment to outdated conventions are untenable because they lower productivity. Japan must understand that the opportunity expenses of not really going digital are already too expensive.

Hiroshi Ono is Professor of Human Resource Management at Hitotsubashi University Business School in Tokyo.

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