On a cool Autumn morning in Tokyo, the Delegation of the European Union to Japan, opened its doors to a mixed group of government representatives, industry leaders, entrepreneurs and researchers for its second annual European Innovation Day. The event aimed at bringing together different European and Japanese stakeholders involved in promoting technological exchange, investments and entrepreneurship between the Old Continent and the Land of the Rising Sun.
Japan is often brought up by European politicians and academics as an example of the social and population crises the Old Continent may face over the next few generations. In Japan, the double effect of a shrinking population and an ever longer life expectancy is creating massive pressure for the government to tackle a social and financial time bomb. The issues Japan faces range from a shrinking labor force, the continuous migration of young people from the countryside to the larger cities, with small town mayors resorting to ever more colorful and ingenuous ways to attract young people and couples, to the rising demands on social services such as healthcare and pensions.
Japan’s tight immigration policy, stemming from deep-seated cultural and geographical isolation, is not going to change any time soon. The country prides itself in being unique and embraces a visceral concept of “insiders versus outsiders” whose ramifications may be difficult to fully understand, especially to foreigners used to the famous Japanese mild manners and politeness.
This dogmatic approach to immigration leaves very few policy options to Japanese politicians for dealing with the country’s ageing population. Public spending has been a big driver for sustaining internal economic demand and maintain Japan’s relatively high quality universal social services, with the Japanese government running deficits for over 20 years. Monetary policy has also been extremely accommodating with the Bank of Japan holding about 50% of all government debt and buying all sorts of domestic financial instruments, including equities and real estate funds. The joint fiscal and monetary stimuli have sustained the Japanese economy over the last three years, with GDP growth swinging between 1 and 2%. However, productivity growth has been stagnant, hovering below the 1% level over the last few years, and nowhere near the levels required to plug the shrinking population gap, which is expected to fall by nearly 15% by 2040.
Facing the twin threats of an aging and shrinking population, the challenge of improving productivity has become a focal topic of Japanese government policy. The cabinet of Prime Minister Shinzo Abe published in December 2017 a major policy program titled “New Economic Policy Package” focusing on a 3-year plan to foster human resources development and supply-system innovation. In practice, human resources development aims to provide financial and regulatory support to improve women’s workforce participation, healthcare workers and improve the quality of higher education. With regards to supply-system innovation, the government aims to “… realize innovations that will dramatically push up productivity through the use of technologies such as artificial intelligence, robots, IoT, and so forth” with three sets of policies aimed at large companies, at small-and-medium sized enterprises and at start-ups.
Japan’s open approach to technology-driven innovation has traditionally focused on industrial applications, robotics probably being the most well-known example. However, the service sector has been identified both by politicians and the public as needing the most development in order to boost Japan’s historically low labor productivity. If you ever visited Japan, you’d see this need first hand: a typical coffee shop has twice as many people working behind the counter as you’d find in Western country (and the coffee doesn’t taste any better for it). Most shops still only accept cash and despite universal healthcare being generally considered of high quality, there is a massive shortage of nurses and elderly patient specialists.
The signing of the Economic Partnership Agreement between the EU and Japan has been hailed as the beginning of a deeper trading relationship and European governments, trade organizations and companies are looking at Japan as a market to disrupt. Agricultural products are clearly the big winners of the agreement. Nevertheless, European excellence in technology and innovation is being promoted across various channels in several fields such as biotech, healthcare, financial services, IoT, blockchain, renewable energy and many more.
The European Innovation Day in Tokyo saw several start-ups present their innovative services and solutions as well as presentations by European embassies and trade bodies explaining their activities in promoting European businesses in Japan. Japan and the EU have a long history of trade and economic, academic and social exchanges. The EU-Japan Center for Industrial Cooperation (the “Center”) is a 30-year old public institution, co-founded by the European Commission and the Japanese Ministry of Economy, Trade and Industry promoting business opportunities for small-and-medium sized enterprises across the two economic blocs.
The Center has evolved over the last few years to cater to the explosive growth of start-ups and provides innovative European companies with great insights into, and connectivity with, the Japanese market. The Center even offers free office space that can be used by visiting European start-ups and offers a full suite of secretarial services.
Individual EU countries are extremely active too, with Innovation Days being organized regularly by German, French, Italian and Austrian embassies to name a few. European start-ups coming to Japan understand the advantage of entering the service sector: firstly, Japan offers a regulated large wealthy market of corporate and/or consumer users. Secondly, some of Japan’s social and economic issues are expected to hit Europe over the next decades. Entering Japan’s demanding service industry today helps them develop core competencies and competitive advantages that will serve them well back in Europe tomorrow.
Even large European companies are using a start-up approach to Japan. NN Group, the Dutch insurance giant runs a co-working space and innovation center in Tokyo through its global incubator SparkLab. La French Tech, a French government initiative focusing on promoting French start-ups globally, has an active presence in Tokyo and collaborates with both Japanese and international accelerator companies and innovation hubs, such as the Japan Innovation Hub and Plug & Play.
Some of the sectors where European companies are deploying their expertise in Japan are first and foremost healthcare and biotech, directly addressing Japan’s ageing population requirements. Financial services represent another area where Japan’s ageing population is facing difficulties. In summer 2018, the Tokyo Metropolitan Government, which oversees the most populous metropolis in the world, conducted a survey of its residents asking for specific problems relating to their financial needs and uses. On the back of the survey, it created a detailed list of use cases and initiated a global contest for companies to provide specific solutions and win monetary prizes. Most of the use cases revolve around financial services aimed at older people, such as simplifying password management for different banking apps or easier and clearer healthcare insurance, and several European start-ups are actively working on their submissions.
These are just a small number of examples of European companies and government-related entities helping Japan address its structural requirement for innovation and productivity improvements. Furthermore, one should not overlook cultural aspects that are facilitating European success in Japan: the social values, mentality and business approach of European companies is also often closer to Japan’s compared to US or Chinese firms.
I personally expect to see more and more participation by European companies in Japan over the coming years, taking advantage of the Economic Partnership Agreement and the ample opportunities that Japan’s population issues provide.