International forays to get back in the loop
Once a pioneer in virtually every consumer electronics segment (not least mobile and video games), Japan has steadily broken away from the global market, albeit not without feeling the effects of American and even Chinese developments, against the backdrop of a strained economy. The most dynamic aspects of Japan’s digital tech market now lie in B2B segments (electronics, robotics) and in globalisation.
A morose domestic digital services market
Japan’s digital services market is performing well below its global counterparts, with growth that is close to half that of the worldwide average. The telecoms market in Japan is already suffering negative growth, and lagging behind the most advanced markets (which is a first) in areas such as 5G, whose rollout began in other regions in 2019, but not expected in Japan until the time of the 2020 summer Olympic Games. Japan is, however, still seeing strong growth on the digital content front, and especially in video games. The country is suffering from both the global economy’s stagnation, a decline in population growth and increased competition in tech markets (which are already well saturated), as new disruptive local and foreign players come on the scene.
Sluggish and even declining telecoms market growth
Progression of Japan's digital services market, by segment
An ecosystem that extends beyond value chains and looking internationally
The Japanese ecosystem has long being organised around large domestic conglomerates involved in multiple businesses (the zaibatsu), and so who operate outside traditional value chains. Japan remains a powerful player in consumer electronics and content (especially video games and mangas), thanks to companies like Nintendo, Panasonic and Sony. The country’s other major players combine electronics and industry (e.g. Hitachi). Companies that are primarily local in scale, notably in the telecoms sector (with the exception of NTT in B2B solutions), are having a tougher time of it. In addition to these veteran players, Japan can also look to two still fast-growing giants, which are very active internationally and whose footprint is ever more global: Rakuten (retailer now also an operator) and SoftBank (operator and major investor in tech companies).
Japan slips in global Big Tech rankings
Japanese companies' ranking in the Big Tech top 500
The government as innovation sponsor
Unlike in other markets in Asia, the Japanese government applies very few directly protectionist measures – aside from those being applied to 5G. Japan’s digital services market is therefore open and, like in Europe, suffering the slings and arrows of American OTT solutions’ development (starting with Facebook, which is ahead of veteran local social network, Mixi, and Google) and emerging Chinese developments. R&D programmes are partially financing infrastructure deployments (through a 15% tax credit scheme for 5G) and so giving local players a leg-up. The government continues to play a key role, now providing hefty financial support in areas such as robotics, health, security and quantum computing. But Japan continues to slip in global innovation rankings, which also reflects the decline of its scientific publications.
Japan by far the world's top exporter
Global industrial robot exports in 2018, by country
Rakuten and SoftBank shaking up telecoms and digital tech
Japan’s telecoms market is one of the very few where telcos are involved in other, very different businesses. This began with fixed operator, Yahoo! Japan. Next came SoftBank (with the takeover of Vodafone KK) which set up shop as an operator in Japan (but also in the United States via Sprint). SoftBank is currently limiting its involvement in telecoms, and expanding its operations to include artificial intelligence, robotics and autonomous cars, in addition to its many major foreign investments (OneWeb, Uber, WeWork…). Local e-commerce giant, Rakuten, which is also heavily involved in financial services, has taken a more direct approach, through its acquisition of companies around the world that were then rebranded (such as PriceMinister in France) and, more recently, by becoming a 5G operator (after having been an MVNO) relying directly on a virtualised network architecture.