The balkanization of the cloud is bad for everyone

by Michael Rawding, Founding Partner at GeoFusion and Samm Sacks, cyber policy fellow at New America and senior fellow at Yale Law School’s Paul Tsai China Center

As more countries require data to remain within their borders, the cloud will become harder and more expensive to access.

Cloud computing is at a critical juncture. Millions of companies now use it to store data and run applications and services remotely. This has reduced costs and sped operations. But a new trend threatens the benefits that cloud computing has unlocked.

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Japan’s Digital Transformation Acceleration

co-authored by Michael Rawding and Eugene Saburi, Founding Partners at GeoFusion LLC

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Summary

While Covid-19 has driven individuals, organizations, and governments to accelerate digitization globally, perhaps nowhere has the pandemic had a bigger business impact than Japan.  In the wake of the coronavirus, many companies and industries have realized how far behind they are in their use of information technology.   Beyond technology adoption however, the impacts are more far reaching, serving as a forcing function to accelerate change in attitudes, long-standing business cultural norms, as well as laws and regulations. 

In this short paper we examine the state of digital readiness in pre-Covid Japan, the impact of the pandemic thus far, and provide some thoughts on where we believe things will go.   While adjusting to the pandemic has been painful for all, it might prove to be the catalytic event that Japan Inc. needed to succeed over the long haul.

State of digital readiness in Japan

IT spending in the US [was] more than double the tech intensity and nearly 10x the overall spend [of Japan].

Spending on IT by business and government in Japan in 2019 was roughly $198BN in 2019, which equates to approximately 4% of GDP.  By contrast, IT spending in the US of $1.8TN equaled approximately 8.4% of GDP, more than double the tech intensity and nearly 10x the overall spend.  This gap is even more extreme in new technology adoption that are helping many organizations to improve their effectiveness through digital transformation, including Public Cloud services and the infusion of AI and Machine Learning into business applications.   

The Covid19 shock

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Once the full impact of the coronavirus became clear with businesses and schools forced to operate remotely, Japan’s lack of readiness became uncomfortably apparent.   Outdated hardware, lack of enterprise technology infrastructure, and long-standing manual business processes meant that many Japanese organizations were unable to quickly transition to remote work, if at all.  Japan’s longstanding tradition of conducting critical meetings over dinner and drinks, evaporated overnight.

Japan Inc. adapts

Faced with no alternative but to change, Japan has put forth a remarkable effort to evolve, and evolve rapidly, resulting in the dramatic acceleration of digital transformation by many Japanese companies. 

When necessary, Japan adapts quickly.

The government quickly established policies for remote work and encouraged members of the Keidanren (Japan’s primary business association) to accelerate adoption of these guidelines to serve as an example to the broader business community.  By July 2020, the goal was to be at 50% of Keidanren members, with a push to get to 70% by September.  According to Nikkei, despite a decline of 1.2% in capital investments, digital transformation spend is forecasted to increase by 15.8% YoY with stalwarts such as NTT, Fujitsu, 7-Eleven, and Kubota leading the way, with digital transformation being a core part of their broader corporate strategy.

  1. The first phase of this shift focused primarily on upgrading hardware, basic remote management infrastructure, and enabling remote meetings through collaboration tools like Zoom and Microsoft Teams.   Video-based meetings with customers and partners became acceptable, if not the norm, almost overnight.  A staggering 61% of online video meeting usage in Japan was precipitated by the pandemic, according the JD Power.

    The rate of adoption/acceptance of this magnitude is not unheard of but it is rare.  For example, Japan was slow to adopt corporate email in the early 90’s.   The 1995 Great Hanshin Earthquake, which necessitated real-time and one-to-many communication amongst businesses, forced a drastic acceleration in both technology adoption as well as business customs.  When necessary, Japan adapts quickly. 

  2. Following the first phase, the next wave of modernization is in the digitization of business processes.  Enablement of e-signatures is one prominent example.  As remote work took hold in the Spring, the custom of paper agreements and company chops (signatures) became a glaring problem, leading to bottlenecks and necessitating employees to commute.  To solve this, the Japanese government established guidelines in June to accelerate adoption, paving the way.  According to ITR, e-signature usage has increased 71.2% YoY.  Anecdotally, Bengo4.com, a SaaS provider of the popular Cloud Sign product, has seen its stock price increase 2x since March.   

  3. Finally, several prominent Japanese companies have announced changes to their performance management systems, emphasizing individual accountability based on measurable results.  Traditionally performance has been measured via time in the office and perceived activity.  Remote work has forced managers to approach the subject with a pragmatism and focus on merit as opposed to facetime.  While the immediate benefits are clear, this will have large positive implications including higher productivity, work-life balance, gender equality and perhaps greater economic mobility for employees who are in the first half of their careers.    

Where do we go from here?

We can expect continued efforts by Japanese enterprises to modernize their technology infrastructure, digitize their core business processes, and enable new modes of work.   Traditional business practices and customs will also continue their evolution, resulting in increased flexibility and openness to change.  

This will all take place within a society that has not been as critically impacted by Covid-19 as other similarly developed countries.  Social cohesion and a sense of broader purpose remain strong amongst the Japanese people.  Additionally, incoming Prime Minister Suga appears intent on accelerating Japan’s Digital Transformation, creating a new Digital Ministry, citing the importance of investing in tech. In short, Japan continues to be a stable environment that can yield significant business returns for foreign companies willing to make the commitment and adjust their strategies to meet the market opportunity.   

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Response to COVID-19 in Taiwan Big Data Analytics, New Technology, and Proactive Testing

Taiwan is 81 miles off the coast of mainland China and was expected to have the second highest number of cases of coronavirus disease 2019 (COVID-19) due to its proximity to and number of flights between China.1The country has 23 million citizens of which 850 000 reside in and 404 000 work in China.2,3 In 2019, 2.71 million visitors from the mainland traveled to Taiwan.4 As such, Taiwan has been on constant alert and ready to act on epidemics arising from China ever since the severe acute respiratory syndrome (SARS) epidemic in 2003. Given the continual spread of COVID-19 around the world, understanding the action items that were implemented quickly in Taiwan and assessing the effectiveness of these actions in preventing a large-scale epidemic may be instructive for other countries.

How Chinese companies have responded to coronavirus

As the Covid-19 crisis spreads to new epicenters in Europe and the U.S., companies are scrambling to mobilize responses. There are no easy answers, due to the unpredictability of disease dynamics, a lack of relevant prior experience, and the absence of plug-and-play instructions from government or international authorities. Clearly each local situation is different, but we believe there are opportunities for companies to learn from others in regions that are weeks ahead in responding to the epidemic. China appears to be in the early stages of an economic rebound…