Japan discovers innovation ecosystems

What is the attitude to the future of the world’s most rapidly ageing society? Optimistic, writes Teppo Turkki.

“During my recent visit to Silicon Valley, I came to understand that innovations for the future are generated in ecosystems, where knowledge meets knowledge, through the interactions of various actors and individuals,” said the enthusiastic Prime Minister of Japan Shinzō Abe in his opening speech at the Science and Technology in Society (STS) forum meeting in October in Kyoto, Japan. Meeting highly creative, world-class, innovative Japanese start-up entrepreneurs and researchers in California had made Abe realise the power of ecosystems.

“The issue might not be, after all, that the Japanese are inherently hierarchical or uncreative, or in their thinking, but rather the way in which the surrounding systems and structures function. In the future, Japan’s power will stem from an ecosystem-based approach,” Abe said, describing his vision.

Prime Minister Abe’s speech about ecosystems, alternative solutions for future energy production, the role of robotics with respect to the needs of a rapidly ageing society, nanotechnology and society’s need for social innovations, is a good representation of the way Japan has begun to change and take a more future-oriented approach.

These are truly fascinating times for Japan.

An active ageing society

In 2013, over 65-year-olds comprised roughly a quarter of Japan’s total population. In 2040, the share of people who are 65 or over is expected to be one third of the population. Japan will be facing a situation in which, as a society, it will be forced to apply innovative means to increase the national economy and further develop Japanese industry, which is already of the highest global standard.

Japan, as the most rapidly ageing society in the world, is now acting as a laboratory for new social welfare and healthcare services for the future. The aim is to use sophisticated well-being services to prolong people’s ability to cope with working life and their role as active citizens capable of taking responsibility for their own lives. Japan’s vision is that a great number of citizens will be active and capable in their 80s.

An ambitious target of three per cent has been set for Japan’s current economy, known as “Abenomics”. Meeting this target would mean that in the next 10 years, the GDP of Japan would increase by 20 to 30 per cent from the current trends. Productivity growth is the only way to maintain a sustainable economy when the working-age population will decrease by almost four per cent by 2025, and the population is shrinking and the size of the economy diminishes. This in turn requires building highly innovative new business models, as well as new social and societal innovations.

The “fourth arrow” of Prime Minister Abe’s reforms is aimed at dismantling the top-heavy administrative structure and the licensing system, as well as speeding up bureaucracy and reducing regulation. In practice, this means a revolution for Japan’s traditional operating models, which will be significantly accelerated by Japan joining the US-led TPP trade agreement. At the core of this change, are the operational processes of Western states and expertise with management practices, among other factors.

It is clearly visible even today that Japan has taken a more active role in moving globalisation forward and is opening up more to the outside world. Japanese companies are investing abroad significantly more than before. Larger companies that have mainly stayed in the internal markets are now trying out new strategies with the goal of becoming “global” companies, which employ global operational processes and HR management.

Digital leap and the benefits of urbanisation

Japan – like any other modern developed country – will be altered by the fast pace of digitisation and the effective introduction and utilisation of new digital equipment. The way digital services and processes are built in Japan is interesting; it is done holistically, based on an “end-to-end” philosophy, and significant investments are being made in innovations concerning intelligent digital processes. The exploitation of services made possible by the internet will be maximised in various service and production processes, for example in trade and trade-related logistics.

Japan is putting money on the exploitation of Big Data in various analyses, pricing of services and goods, marketing and R&D activities. Big Data and the analytical data it provides, play a key role in the development of management and various managerial processes. Automation, the Internet of Things (IoT) and robotics are embedded almost everywhere they can be, bringing them closer to people’s everyday lives. Intelligent programming and sophisticated programs enable the use of robots in industrial and service functions, not to mention fixing the ever-increasing shortage of manpower.

As one of the world’s most urbanised and intellectual countries, Japan can act as a global leader with respect to the development needs, infrastructure and green technologies related to urbanisation – and simultaneously create new competitive know-how and technologies for Japan. According to McKinsey, investments in the infrastructure and its construction in southern Asia alone will amount to 3.3 trillion US dollars by 2030.

Self-driving cars are big in Japan: when it comes to future energy solutions, Japan is investing in hydrogen energy. Industrial 3D printing will be put into practice, and intelligent robotics is viewed as a line of business that will help boost Japan’s competitiveness. The focus of the Japanese government’s R&D and other investments is now on new well-being and healthcare solutions and technologies, cleantech, renewable energy solutions, intelligent construction and housing, intelligent devices, and of course, robotics.

Reforming healthcare administration is the alpha and omega

The most important – and perhaps for Finland, also the most interesting ­– areas in Japan in the future, are well-being and healthcare; Japan will be compelled to innovate new services and solutions for these quickly. After all, the country’s healthcare expenditure is growing at a rate of almost four per cent a year, which, in 2025, will amount to nearly 515 billion US dollars.

The search for solutions in Japan has included paying special attention to reforming the healthcare administration by means of digitisation. In addition, functions that were separate before are now being integrated, such as diagnostic practices, the production of standardised information and data, and government cash and cost-flow management. In the future, the goal is to maximise the introduction of telecare and monitoring solutions and the related service technologies, in well-being and health services; improvements to in-home care, specialised hospitals and reforming the clinics and medical services operating close to people’s homes. New generic drugs will be introduced and genome data will be used for diagnostic purposes.

At the STS forum meeting, Japan was very proud of Kyoto University Professor Shinya Yamanaka, the recipient of the Nobel Prize and the Millennium Technology Prize in 2012, and his work in stem-cell research, which has enabled many medical breakthroughs. The key targets of Japan’s investments include stem-cell techniques, 3D printed bone implants, robotic surgery, various biosensors and nanotechnology equipment, and gene therapy.

Tokyo’s Olympic year, 2020, will see the rebirth of Japan.

Weekly notes is a series of blogs offering insights into the topical issues being discussed each week by Sitra’s research and strategy team. Our Weekly Notes are gathered together here.