Of all the theories advanced to account for Japan’s reluctance to embrace digitalization, perhaps the most persuasive is that the country’s analogue systems were so efficient that it had no need to go digital. Covid has changed all that, however, and a concerted effort is now underway to bridge the gap between the physical and digital worlds. Enter the Mitsubishi Research Institute (MRI), a Japanese think-tank of more than 50 years standing, which, thanks to its innovative business model, finds itself perfectly placed to help address the country’s challenges.
For example, Japan’s aging population and low birth rate are the subject of two core MRI solutions according to President Kenji Yabuta: “The first is optimizing human resources to enhance productivity the second is improving wellbeing through initiatives in the healthcare sector based on our unique value creation process (VCP).” We sat down with Mr. Yabuta to learn more about MRI’s vital work.
The headlines across the world for Japan read: "The world's first super-aging society". Japan is an aging society with the oldest life expectancy in the world at 84. One out of three people is expected to be over the age of 65 by 2035. Can you give us your assessment of how Japan can proceed with this aging society? What can Japan teach the world as the first super-aging society?
Japan's demographic aging and the low birth rate are not just a challenge but also a great opportunity for our country. This situation will motivate progress towards digitalization including the implementation of artificial intelligence (AI) in routine administrative tasks, changing employment opportunities within Japan and overseas. Automation works great with routine tasks and is good for economies that are facing demographic decline. In our research and estimates, we saw that the decrease in job numbers due to automation will be balanced out by the decline in the workforce. Job skill sets required in the world of automation are going to be different from the jobs lost due to automation. We have to find a way to help upskill people for the resulting jobs. There will be a big need for skill transfer.
This must be supported by collaboration across the public sector, corporate sectors, and labor unions. Mitsubishi Research Institute (MRI) forecasts the kinds of work that will be required by our society 30 years from now. You can take a look later at what we published on this topic last June. Japan is pioneering the way of a super-aging society. Many countries around the world will face what Japan is facing now. For example, this will be around twenty years from now for Southeast Asia. The consulting and implementation strategies Japan is building now can provide valuable solutions for the rest of the world.
A longer life span does not equate to happiness. The quality of life and the healthspan of an individual directly affects their happiness. We are focusing on enhancing people’s quality of life so that they are able to eat, walk, and enjoy greater well-being as they age. This lessens the burden on the national pension system and social security, both increasingly difficult to maintain as the current baby boomer generation continues to age. The strategies and solutions in place in Japan will need more support and improvement. The experience we are gaining now will become the solutions that will provide the rest of the world the knowledge on how to ensure a sustainable society with enhanced quality of life. For this particular issue, MRI provides two core solutions. The first is optimizing human resources to enhance productivity and the second is improving wellbeing through initiatives in the healthcare sector based on our unique value creation process (VCP).
Although Japan has been successful when it comes to process automation, when it comes to digital tools, Japan is a real outlier ranking 28th in the world compared to other Organization for Economic Co-operation and Development (OECD) nations, according to Swiss think tank IMD. More than seventy percent of SME companies in Japan still use an outsourcing model for their IT infrastructure. Why has Japan been so slow to adapt digital tools and what opportunities does this present for your firm?
I believe that Japanese manufacturing companies are number one in the world when it comes to their contribution to creating machinery to optimize assembly production lines. However, when it comes to the individual companies and the public sector, Japan is slow to incorporate digitalization. One reason is that in the 1980s, Japan had become a world leader based on its highly-sophisticated analog socio-economic system—one of the most efficient in the world. When the wave of digitalization and IT hit the world, Japan was not able to adapt quickly because its system was so efficient that it did not need to go digital. With the covid pandemic, Japanese society became aware of the importance of going digital. This has affected both the public and the private sectors. Everyone is now aware that the country must go digital and accelerate its efforts to bridge the gap between the physical world and the digital world. We have already identified our role in this issue, and we plan to provide full-fledged support for this endeavor.
MRI is a company with a unique business model. You provide consultation research and policy-making advice that you also help implement in the real world. Can you tell us more about the type of clients you're working with and typical projects that you have done recently that you could share with us?
We have established strengths in the public sector providing research, consulting, and IT services. We are also extending the range of our activities to offer the same to the private sector, and to further take on the real-world application of the solutions we propose. For example, in the field of digital transformation (DX), we are working on solutions for the public sector, a substantial presence yet lagging in digital transformation. We also help the private sector, specifically in gaining an accurate understanding of their status regarding digitalization. After the assessment, we set clear goals they can work on. We create a reverse calculation to provide them with the time frame required to meet their objectives. This consultation package is called the DX Journey. We wanted companies to think of the process of digitalization as an adventure. In this journey, the first step is going paperless and making all information digital. The next step is to digitalize the services and workflows that use this information, incorporating AI and IT. The ultimate goal, or DX in its fundamental form, is to design new entirely digital services and businesses. In the public sector, we are helping the central and local governments to digitalize. This will directly benefit citizens when it comes to submitting documents and applications. Right now, everything is still done on paper, which is then processed manually. Our connection with the public sector and understanding of their processes and laws informs the consulting services that we offer to our clients. We provide support to local governments through our partnership with INES Corporation, offering an AI-based chatbot service to cover typical consultation services for residents.
What synergies have you established to benefit both private and public clients? We know that the public sector is your biggest revenue stream at more than 67% of your sales. At the same time, one-third of your more than 1500 annual projects are from the private sector. What steps are you taking to increase your revenue from the private sector?
Our traditional services are catered to address the public sector by offering research and consulting on policy and programs that contribute to society. Providing consultation services only is not enough. We have to ensure that all proposals and policies are effectively implemented. The role of implementation falls to the private sector. We launched our VCP management program to facilitate the efficient flow of this process from upstream to downstream. Our upstream work consists of recommending policies to attain the most ideal situations. Downstream, we implement solutions ourselves in collaboration with business partners or supporting other businesses to do so. For example, in reaching carbon neutrality, optimizing human resources to improve the economy and energy is the challenge. Both the public and private sectors will need to work.
Our role in the issue of carbon neutrality would be on putting emphasis on solar, wind and renewable energy, and reducing coal-generated power. To create this shift, it is very important for us to work closely with the public sector. Building a number of solar, wind, and other renewable energy power plants falls under the private sector. We can contribute by creating solid networks between the private and the public sectors which will allow us to help make policies with the public sector and make sure the private sector can implement these projects to completion. The experience and knowledge we have gained through our work in the public sector enables us to effectively provide consulting services to the private sector. We even invest in, build, and run solar power facilities ourselves, ensuring our proposed solutions see real-world application.
Another form of synergy between the public and private work that we have done is with electricity trading. Europe already has a market for the wholesale and distribution of renewable energies. However, it is still an emerging market in Japan. Focusing on electricity-trading specifically, we are working together with Dutch startup KYOS energy consulting B.V. with the aim of leading the new market in Japan. Specifically, through the partnership we offer a service that provides forecasts and information on the wholesale market.
As an island nation, Japan relies a lot on energy imports with 95% of its primary energy imported. Last December, Japan’s long-term contract with Qatar for LNG (Liquefied Natural Gas) was canceled, one held since 1997. Japan is the second-largest importer of LNG in the world and with the Fukushima incident highlighting safety concerns in relying upon nuclear power, Japan’s energy security is more unstable than ever before. What do you believe is the ideal energy mix for Japan?
Japan has an over-reliance on imported energy. We need to create a more sustainable energy security framework. With our goal of net zero carbon emissions by 2050, we need to consider how to have an economic model while working towards this objective. There are several factors to consider to in creating the ideal energy ratio to reach the goal of net zero carbon emissions. It is something that we expect to continually change so we have to think about creating the best mix that can adapt to evolving scenarios. We also need to consider utilizing different technological innovations in different sectors so that everyone can move towards the same direction of carbon neutrality.
There will be a shift to renewable energy like hydrogen power and ammonium. Areas where there are carbon emissions, like the steel industry and chemical manufacturing, will also be reassessed to reduce their emissions through such technologies as carbon capture. There are different elements and levels of integration that need to be done. When it comes to nuclear energy, there is a certain amount of energy that needs to be produced from nuclear power plants in order to provide for this energy mix. One issue that we are facing is the lack of acceptance and understanding of this need among the Japanese population. After the unfortunate incident at the Fukushima number one power plant during the great earthquake in Japan, MRI provided consulting services for containing ground contamination and clean-up management, which we have continued with in the years since. We have also done a lot of work around the country related to decommissioning reactors, implementing solutions, and reviving areas with decommissioned reactors.
What opportunities does MRI see in the private sector and which new type of clients do you foresee needing your services?
We have identified eight domains that, by applying our full range of upstream and downstream activities, offer great potential for building a better future, including the energy and healthcare sectors. Another such domain is human resources. We aim to help with smooth skill transfer by upping skill sets and retraining. We have already created projects and schemes to provide efficient skill transfer. A related initiative is to improve people's well-being by establishing a structure that helps all live more active lives. We proposed a new concept called actfulness. The idea is to enable more people to live more active lifestyles, thus enhancing their well-being. We are working with prefectural governments, municipalities, private companies, and organizations related to the transportation system to implement this idea effectively. To support the concept of actfulness, we wanted to create a structure within the local community that involves the transportation and infrastructure sectors. We have accordingly launched our Region Ring service—a regional digital currency to support active lifestyles.
You have offices in Hanoi, Vietnam and Dubai. You have also mentioned that networking is the key to your business growth. Can you tell us more about your international network and what kind of partners are you looking to collaborate with in the future?
Our office in Hanoi is for expansion in Southeast Asia and the office in Dubai is for our expansion in the Middle East. The reason behind those two offices is to create a network with the governments and Japanese companies in those regions, and to address various societal issues that these regions will face. In the Middle East, it would be helping the region’s countries shift to carbon neutrality and creating effective systems to address their environmental and energy concerns. In Southeast Asia, we are focusing on two areas. One is creating an effective health care system and solutions for aging populations. The other is revolutionizing their consumer financial system, which at the moment lacks banking for a majority of the population. In other words, we aim to foster financial inclusiveness, creating an environment where financial institutions can provide services to all.
Are there particular countries you are targeting?
First is Vietnam. From there, we will expand to Southeast Asia. We don't have concrete plans for the other countries in Southeast Asia, but we are looking to economies with a sizable population and sufficient degree of maturity. Thailand, Indonesia, and the Philippines might fit this bill. The other reason for our offices in these regions is the benefit it brings to Japan due to shared challenges and concerns. Japan has well-established and deeply rooted policies and standards which makes it difficult to break from the mold. Regions lacking the same degree of regulation and norms present a good opportunity for us to test various solutions that we can eventually apply in Japan.
Europe and North American countries are better able than Japan to address carbon neutrality and digital transformation. By working with organizations like KYOS, we hope to introduce cutting-edge technologies and innovations to Japan. We want to help western startups set up and establish their business in Japan and provide their services to the Japanese population. We have capital allotments to invest in such innovative startups. We are also dispatching our personnel to build networks in other regional areas such as the US.
What message would you like to send our readers about the unique opportunity that MRI brings and why they should partner with your firm?
We at Mitsubishi Research Institute address various societal challenges and have advanced technical expertise. We are committed to accelerating and improving the digitalization of Japanese society, and would like to work together with companies that are interested in expanding their businesses in these fields within Japan, Southeast Asia and the Middle East.