Priorities for the Japanese Economy in 2018 (January 2018)

Challenges of Servitization and an Information-intensive Society in the Latter Half of the 2010s

TAMURA Suguru
Senior Fellow, RIETI

Introduction

The impact of information and communications technology (ICT) on the economy has been a hot topic these days, and how the Internet of Things (IoT), Bitcoin, and artificial intelligence affect society has been widely discussed. New technologies have been creating new types of services in succession, and most services provided by new ICTs involve the interconnection of terminals. In this respect, securing interconnectivity is the key to providing new types of services.

For example, IoT is a concept of collecting information from "things" and using the collected information in production and marketing activities. In the absence of common technologies or rules concerning how to collect information from "things," it would be impossible to collect information from one thing and another thing simultaneously, and the pieces of information collected from multiple things would not be easy to use due to differences in the categories or formats of the information.

Let us consider collecting information from different farms though the use of IoT technology to compare the production from respective farmlands. If the category of production information to be collected differs, comparison would be difficult, also making it challenging to draw up a total production plan. If a unified method or format is applied when collecting or storing information, it would be possible to collect information from multiple production sites and control total production even when using different measurement instruments. In order to solve this problem and make the collected information available for shared use, it is important to formulate standards for the networking of things. In other words, since the beginning of the latter half of the 2010s, it has become increasingly important to establish standards for providing new types of services that connect things through the exchange of information.

Structural changes in the Japanese economy

The system concerning public standards in Japan started in the mid-20th century, and it was initially designed to assure the quality of industrial products. After the Japanese economy entered the high-growth period, the objective of the standards system was shifted to assuring quality and enhancing efficiency in the manufacturing process. Then, as the Japanese economy aligned with the international trade system and Japan became one of the major players in trade, the public standards came to be expected to play a role in promoting trade through the process of making Japanese domestic standards compliant with international product standards. However, today in the 21st century, the share of the manufacturing industry in the Japanese economy has declined compared to the time when the standards system started. On the other hand, the service industry in a broad sense now accounts for more than 70% of Japan's gross domestic product (GDP), demonstrating the importance of developing standards in this industry.

It may be difficult to understand the scope of the service industry based on the term "service." According to the classification of statistical data, the service industry denotes industries that do not fall within either the first or second industry. Specifically, the service industry covers a wide range of industries, including retailing (e.g., department stores), finance (e.g., banks), and entertainment (e.g., theme parks). Among these service industries, the ICT industry and some other industries achieve a higher level of value added per capita and therefore take on a greater importance (Note 1).

Related challenges

The main target of the Japanese public standards (i.e., de jure standards) is industrial products (Note 2). Specific examples of industrial products may be machine parts. Because of this, with a wide variety of ICT-based service activities becoming the center of economy, the public standards system becomes unable to fully meet the demand for standards applicable to such various service activities.

Public standards are not developed for the purpose of enhancing productivity of any specific company but are expected to serve as a social system. Someone needs to bear the cost for providing public standards, or otherwise there would either be no standards or insufficient ones, resulting in the failure to enhance productivity for society as a whole. Therefore, a public body should be responsible for providing these standards.

In order to adapt to IoT and other technological developments, which is part of the Fourth Industrial Revolution, it is necessary to enhance interconnectivity of information terminals and promote harmonization of data collection formats. That is, in the latter half of the 2010, it is vital to develop an environment that will facilitate the formulation of public standards as may be needed in this sector.

Conclusion

Since the beginning of the latter half of the 2010s, service industries, especially those relating to information and communications, have been growing increasingly important in the Japanese economy. Accordingly, it has become even more important than before to formulate public standards in this sector. It is now a significant challenge to develop an environment where the necessary standards will be established swiftly.

January 4, 2018
Footnote(s)
  1. ^ Ministry of Economy, Trade and Industry, Report of the Study Group on Creating a Higher Value-added Service Industry (draft) (May 2014) (in Japanese)
  2. ^ Industrial Standardization Act (Article 1) (in Japanese)

February 2, 2018

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