Japan’s 27th IMD Digital Competitiveness Rank, Explained

Japan’s 27th IMD Digital Competitiveness Rank, Explained

In late February 2021, McKinsey Japan published a report titled Japan Digital Agenda 2030 in collaboration with the American Chamber of Commerce in Japan.

The report contained an analysis of Japan’s current digital scorecard and McKinsey’s suggested proposals for pushing Japan into a digitally competitive future. 

McKinsey’s analysis of Japan’s current digital state relied on data from Japan’s 2020 World Digital Competitiveness Ranking, assessed by the Institute for Management Development (IMD)

Backtracking to the IMD source, we take a closer look at Japan’s 2020 digital competitiveness ranking, what the government is doing in response, and the subsequent opportunities for businesses looking to shift to virtual. 

What is the IMD World Digital Competitiveness Ranking? 

For the past 30 years, IMD has analyzed how nations lay the groundwork for future growth, with the Digital Competitiveness Ranking, an offshoot of their annual World Competitiveness report. 

The Digital Competitiveness Ranking assesses the ability of 63 economies to adopt and explore digital technologies to create economic transformation within business, government, and across all societal sectors.

Now in its fourth year, the Digital Competitiveness report examines the readiness of countries to adapt to advancing trends throughout the world, as well as attitudes toward globalization and e-government. 

How are countries ranked? 

Countries are ranked by how they fare in the following 3 categories: 

  1. Knowledge

  2. Technology

  3. Future readiness

Digital Competitiveness Factors and Sub-factors
(Image source: IMD World Digital Competitiveness Ranking 2020)

Each of the factors is further divided into subfactors to create 52 criteria by which each country earns a score and a total overall rank. 

Criteria include hard data (e.g., Internet bandwidth speed) and soft data (e.g., company agility). Hard criteria represent 2/3 weight and survey data represent 1/3 weight.

2020 rankings: Japan’s 27th placement

A total of 63 countries were ranked in 2020’s World Digital Competitiveness Ranking.

Of the 63 countries examined, Japan ranked 27th in 2020, a backward slide of 4 placements from their 2019’s rankings. Their best showing came in 2018, with a 22nd place finish. 

Japan’s 27th IMD Digital Competitiveness Rank
(Image source: IMD World Digital Competitiveness Ranking 2020)

Of 14 Asia-Pacific countries ranked, Japan scored 9th, with their best Asia-Pacific ranking at 7th in 2018 and 2016. 

With the world’s third-largest economy, Japan’s disappointing digital score over the last 5 years is finally prompting action where it matters. 

Additionally, Japan ranked dead last in the following categories: 

  • 63rd in Talent: International experience

  • 63rd in Business agility: Opportunities and threats

  • 63rd in Business agility: Agility of companies

  • 63rd in Business agility: Use of big data

But there were a few bright spots. Japan did fairly well in the technological framework sub-factor category—where they ranked 1st in the world for mobile broadband subscribers and 2nd for wireless broadband. 

In other sub-factor categories, Japan ranked 1st in pupil-teacher ratio (training and education), 2nd in world robots distribution (business agility), 4th in high-tech patent grants (scientific concentration), and 4th in robots in education and R&D (scientific concentration).  

Japan’s 27th IMD Digital Competitiveness Rank, Explained

Current administration resolves to push digital forward

McKinsey’s Japan Digital Agenda 2030 report proposed the digitizing of government processes as one of the key drivers to digital competitiveness. Japan’s government is aware of this need. 

Prime Minister Suga, since the first week of his administration, proclaimed that digitizing government processes and doing away with obsolete measures would be a central focus of his agenda. 

Suga plans to abolish the hanko (personal seals) as part of his digital reforms, a much-needed move to streamline Japan’s notorious paper-based requirements, which earned Japan a 106th placement in the “starting a business” category of World Bank’s Ease of Doing Business rankings.

To aid this digitization overhaul, Suga’s administration intends to establish a new government agency focused on Japan’s digital transformation (Japanese NHK article), with the open date of September 2021. 

A total of 6 digital reform bills were passed on February 9, 2021, authorizing this new agency and paving the way for digital measures, such as the expanded use of the My Number (Individual Number) system, including integration with driver’s licenses in 2024.

Opportunities for businesses looking to go digital

With awareness and desire to catch up in digital competitiveness, the government has funded business subsidies over the last several years to nurture this necessary digital evolution. 

Businesses looking to shed weight by transitioning some or all of their operations to virtual are now in a better position than before, as the following subsidies allow improvement of workspaces within their eligibility scope. 

  • IT subsidy. This program focuses on subsidizing software and IT solutions that improve office employee productivity, operations efficiency, and new customer acquisition. E.g., improving labor management systems and inventory management systems and software that promote business automation. This program will subsidize the cost of software and tools that cover any of these aims. Subsidy amount: up to 1/2 of costs with a limit of 4.5 million yen. 

  • Manufacturing subsidy. Among other aims, this program supplements the cost of capital investment for changes to work style, management innovation costs, improvement of production processes, productivity process improvements, etc. Subsidy amount: based on business size categories with an upper limit of 10 million yen (up to 1/2 of investment for SME businesses; 2/3 of investment of small businesses). 

Japan’s current digital rank is unimpressive, but glimmers of hope are filtering through. 

What’s for certain, ready opportunities exist for foreign talent and digital-centered businesses that can help pull Japan into a better global digital competitiveness position. 

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