While Japan’s declining and aging population is set to cause a demographic and economic headache, it is also presenting opportunities for Japanese companies wishing to diversify into the growing sectors of health and life care, ICT, and robotics
Earlier this year, the results of Japan’s latest census were released and revealed that the country’s population has officially shrunk. It has decreased by almost a million people in the last five years, down from just over 128 million people in 2010 to 127.1 million in 2015.
Despite being fully anticipated by the Japanese government and wider public, a declining population poses a number of demographic challenges. The combination of a low birth rate and a growing life expectancy means that Japan’s population is not only shrinking, but also aging. With the proportion of working age people falling, the resulting smaller labor force could struggle to drive the country’s future economic growth.
It isn’t a problem that’s unique to Japan, however. The World Economic Forum’s Global Agenda Council on Aging predicts that over the next four decades the rapid aging of populations will be one of the biggest issues affecting the world, having a significant impact on areas such as social welfare, public health and economic prosperity.
Although Prime Minister Shinzo Abe has made tackling the problem a priority, many experts say that the looming demographic crisis will be extremely difficult to avoid. However, with every challenge comes an opportunity. With rising concerns over how to provide care for increasing numbers of older people, many leading companies are choosing to diversify into the sectors of health and life care services in order to both help Japan through its challenges, and also to capitalize on them.
“The life and health sector is one in which everyone should capitalize on, because there is a global increase of health consciousness, as well as an aging society,” explains Mitsuharu Terayama, President and CEO of Asahi Holdings, which is now diversifying into the manufacture of massage chairs and other healthcare equipment. “It has only been a year since we started this business with the acquisition,” says Mr. Terayama. “The company that we acquired has various channels within this sector, so we are now working to find and select what healthcare products best fit the needs, and also make it profitable.”
In addition to pursuing growth, the decision to diversify was also driven by the desire to actively contribute towards the country’s demographic dilemma, adds the Asahi Holdings chief. “Japan is suffering from a very bad fiscal state at the moment, one of the reasons is the increasing amount of medical and social security costs that the government must burden because of the aging population. If people become healthier, it will create less cost, so we want to contribute to people’s health through our life and health business.”
With the demographic transformation and the great need for modernization throughout the health sector set to create a strong growing demand for medical equipment, care and health services, as well as the need for greater investment in biotechnology, companies like Shimadzu Corporation are also eager to expand their operations in these growing sectors.
“The core of our business is science and technology, and afterwards we find areas that they can be applied to,” says President and CEO, Teruhisa Ueda. “Our important focus now is our efforts into research and development, particularly the integration of analysis equipment into medical technologies. For example, in the case of cancer, our aim is to create a possibility of earlier detection so that cancer cells can be removed while they’re still small, because we know that if we do so, people have a bigger chance to recover. Therefore, by creating this synergy between medical and analytic instruments, particularly through analysis of blood and of bodily fluids, we think we can contribute to an earlier diagnosis of these diseases,” Mr. Ueda affirms, emphasizing that he believes the medical segment of the business to be the future of his company.
Along with healthcare and biotechnology, information and communication technology is also a sector that is set for unprecedented growth thanks to Japan’s changing demographic dynamics. With the number of working age people on the slump, the evolution of technology is being seen as a solution to a decreasing labor force as a way of increasing productivity. Some of the most promising areas for the private sector to take advantage of in this respect are the development of e-commerce services and robotics, or artificial intelligence (AI).
“The world is changing drastically and rapidly, and this is led by the speedy evolution of the IT sector,” says Hiroshi Ohnishi, President and CEO of Isetan Mitsukoshi Holdings, which is behind Japan’s biggest chain of department stores. “Two years ago we reorganized and boosted our e-commerce segment which led to a 20 to 30% increase in sales. Out of total sales of our business, it is still a very low percentage,” he explains. “American department stores on average take in the sales from e-commerce of about 20 to 25% of their total sales whereas in Japan it is only 1 to 2% of the total, which actually means there’s a lot of potential for us. We are looking into how we can capitalize on ICT in order to create a new business model.”
Another company which sees the vast potential of e-commerce and is evolving its business accordingly is Daifuku. “The market is always changing,” says Masaki Hojo, President and CEO. “Ten years ago, Daifuku enjoyed being at the forefront of providing material handling systems to the flat-panel display industry in Japan. Now, we are concentrating on developing the distribution automation for the e-commerce sector. We are always developing new technologies and ideas to contribute to customer operation efficiency and we are looking to grow our business further in this sector, maybe twice of what it is now. The business potential for the future is very good.”
“We live in a society where everything is changing at breakneck speed,” agrees Minoru Tanaka, President of Kakaku.com, a pioneer of Japanese e-commerce and the country’s price comparison website kings. “Especially in terms of smart phone usage which has been a very disruptive force in many sectors, not just the Internet, but anything from food to services. Of course, we are trying to harness this as well.”
Kakaku.com is particularly well placed to capitalize on the double edged sword posed by an aging population. With Japan experiencing sluggish wage growth over the last decade or so, one major reason attributed to this is higher rates of retirement, as high-wage baby-boomers are being replaced by low-wage young workers and the growing ranks of elderly are increasingly tapping into their savings. For Kakaku.com, less disposable incomes actually make for better business. “People are becoming very cost conscious, in terms of their day to day spending, and that goes for utility costs as well,” explains Mr. Tanaka. “Due to that, we think that the price comparison service that we can provide to the Japanese household through our website will probably gain quite a bit of popularity.”
As Japan’s demographic and economic dynamics continue to transform, the country’s businesses evidently have to adapt and generally become more innovative. Such is Japan’s expertise in scientific and technological invention, even robots are now becoming common place and increasingly seen as a viable answer to the nation’s labor shortages. This is especially the case since Prime Minister Shinzo Abe’s promise of a “robot revolution”, which will see deregulation and research funding eventually double Japan’s robot market size from 600 billion yen ($5 billion) to 1.2 trillion yen.
USEN Corporation recently teamed up with Unirobot Inc. to explore more opportunities in the sector, for instance. “We have not made any concrete decisions,” says USEN President Kimimasa Tamura. “But in this aging society, I’m looking for a different type of business which can add value to our services in combination with our automatic payment systems.”
“AI is evolving at a fast rate,” adds Mr. Terayama, Asahi Holdings President. “It’s not that robots are going to be better at everything but we are definitely considering using AI for our customer service at our stores in the future.”