2 mins

In comparative studies of the world’s major cities, Japanese cities like Tokyo often fare well. For example, it ranks fourth out of 84 cities in the 2014 Global Cities Index, produced by the consultancy firm AT Kearney. Yet, despite the country’s reputation for technological excellence and corporate acumen, confidence in its cities’ digital environments shows its cities struggling to meet high expectations.

Telstra’s Connecting Commerce research, in partnership with The Economist Intelligence Unit (EIU), gauges the confidence of business executives in their city’s environment and its conduciveness to supporting the digital ambitions of companies. Executives in 45 cities around the world were surveyed and the findings show Japanese cities rate towards the bottom of the barometer in a range of areas:

  • Tokyo business executives have less confidence in their digital environment in terms of developing new technologies and in local ICT infrastructure, compared with any of the other 44 cities in the study.
  • Business leaders in Yokohama display relatively low levels of confidence in their overall digital environment. A barometer reading of 5.61 on a 10-point scale puts the port city at 44th out of the 45 cities.
  • Osaka ranks 38th overall, showing more optimism in its financial environment, as well as innovation and entrepreneurship, compared with Tokyo or Yokohama.

Rising above traditional challenges.

While Japan is home to a strong business and technological culture, its reputation for entrepreneurial and start-up support hasn’t kept up with other mature markets. According to the EIU study, respondents from all three Japanese cities cite limited funding for investment, as well as talent and skills shortages, as the toughest challenges their businesses face in pursuing digital transformation. In the Global Entrepreneurship Monitor, a 2014 study led by a group of universities worldwide, just 31% of Japanese cite entrepreneurship as a good career choice, beating only Puerto Rico at the bottom of the ranking.

Creating an ecosystem to support digital innovation.

Connecting Commerce outlines how the support structure for digital innovation and entrepreneurship has been slower to develop in all three Japanese cities surveyed than in other Asian cities. This factor is reflected in local firms’ less frequent use of accelerators, incubators, innovation labs and university networks to obtain technology-related advice and ideas.

However, the situation is changing slowly as the Japanese government has initiated programs to boost start-up activity. The myriad networks of accelerators, incubators, innovation labs, and informal communities of technology entrepreneurs that are so instrumental in the ecosystems of San Francisco, London and New York are in the early stages of development in Japan’s cities. Even at this nascent stage of their development, businesses in Osaka already find accelerators and incubators more helpful than other support structures, according to the survey respondents.

Private and public investment in digital infrastructure.

The investment isn’t solely originating from the government either. The Accenture Digital Hub has been created in Tokyo to bring companies, technologies, and ideas together. The centre aims to facilitate and increase interaction between its corporate clients and innovative Tokyo start-ups, as well as policymakers at the national and city level.

Japanese funds dedicated to supporting start-ups reached $2.45 billion in 2016 amidst the rise of university-linked and larger independent venture capital funds, which Nikkei reported was the highest level since 2008. That funding is supplemented by the national government, which is expanding its role through programs designed to encourage VC funding and boost start-up activity. These developments bode well for the start-up scene in Japan where only 19.5% of Japanese who believe they have the ability set up a firm actually do so.

Boosting digital skills.

In all three cities, expertise in security tops the list of skills most needed by companies to support their digital transformation. Other digital skills in high demand by Japanese companies are in the areas of business networks, product and service offerings (involving, for example, the configuration, pricing and marketing of digital products) and big data analytics. The government’s decision to make coding a compulsory subject in the nation’s elementary schools from 2020 is a step forward, creating new basic skills for the nation’s workforce.

The future of digital transformation in Japanese cities.

Across its cities, a range of programs are taking on the demographic and economic challenges Japan is experiencing. Our survey respondents make clear that they expect their city government to play a larger role, with two-thirds of organisations in both Tokyo and Yokohama stating that the role of city support for digital transformation will expand in importance over the next three years.

Despite Japan’s challenges in digital innovation, new initiatives led by the government and private sector look set to boost the nation’s digital competitiveness.