How the pandemic sparked Japan’s digital revolution

Generally speaking, the pandemic has accelerated the digitalization of Japanese industries, although the country lags behind some peers in improving efficiency with information technology. The potential is high, which is why investors should take a look, says the author of this guest post.

Like other economies, Japan has also been affected by the COVID-19 pandemic. A common factor is that lockdowns and other restrictions have acted as a catalyst for rapid technological change accelerating the use of digital toolsa trend which had gained ground even before the crisis. Wealth managers have also been caught up in this process.

Japan is renowned as the birthplace of robotics and in some ways is a world leader in related fields. How has the pandemic affected this sector and what are the implications for investments? To examine these questions, Mr. Hiroyasu Sato, Portfolio Manager of Japan Growth Opportunities Strategy, SuMi TRUST. The editors are happy to share these views. The usual editorial disclaimers apply. Email [email protected]

In the wake of COVID-19, Japan’s long-awaited digital revolution may well be about to take off. One of the great legacies of the pandemic for Japan will be how it has changed attitudes towards the digitization and modernization of legacy IT systems. Surprisingly, for a country that was seen abroad as technologically advanced before the virus hit, Japan’s digital infrastructure may be up to 20 years behind that of the United States, the Kingdom United Kingdom and parts of Europe, with most government communications still ongoing. by fax. Private industry was no better.

A number of Japan’s failures during the pandemic were directly linked to inadequate IT infrastructure, online reservation systems and poor online data management. In the wake of COVID-19, businesses and government departments realize that urgent reform is needed. Japan has state-of-the-art hardware in many of its industries, but companies often don’t have the right mindset to maximize software efficiency.

Kishida’s administration, following in the footsteps of Prime Minister Sugaand’s previous government, has made it a priority to change that. Prime Minister Kishida launched his Digital Agency in 2021, a government task force tasked with centralizing government data, overseeing the digitization of documents, revising old regulations that mandate a paper trail, and encouraging businesses, large and small, to take digitization seriously. This strong digitization push in Japan offers strong opportunities for investors, but there are also potential risks.

If the digitization campaign is successful, the gains could be huge. Opportunities for investors arise through companies that are willing to increase productivity and revenue by introducing overdue digital reforms, as well as companies that also supply their own IT systems and software. Sectors where much digital progress could be made include healthcare, where nurses’ reports are still handwritten, real estate, where regulations still tend to assume that all transactions are face-to-face, and the education, where paperwork is abundant.

Three companies well positioned to exploit this trend are SRE Holdings, Infomart and Money Forward. SRE Holdings is a “real estate technology” company that provides digital and artificial intelligence solutions to the real estate market, especially to brokers, which in Japan tend to be small businesses operating in a fairly old way. Currently, a number of regulations in the country’s real estate sector prevent modernization through digital solutions and AI. The Kishida administration is likely to undo them and the SRE is extremely well placed to take advantage when this happens.

Informart is in the restaurant business and specializes in digitizing the buying process for restaurants. In Japan, many restaurants are small and run by individuals or small families, with paper or fax being the main means of communication with suppliers, banks and government agencies. Informart is pioneering an industry-wide digital ticket to enable restaurants to manage purchases and payments more efficiently, provide and receive allergy information, and aid in tracking and COVID-19 tracing.

Money Forward specializes in cloud-based accounting software for individuals and small business owners. Traditionally, Japanese SMEs have made little effort to digitize accounting procedures, a factor that contributes to low productivity. When the pandemic hit, bringing these functions online became a necessity because employees couldn’t always be in the office to perform them the old-fashioned way. Money Forward seized the business opportunity and now has over 180,000 customers. He has also expanded his areas of activity from accounting and finance to human resources and mergers and acquisitions activities. The company has long-term growth potential.

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