The Journal The Authority on Global Business in Japan

If there is one thing we can agree on it’s the rapid pace of technical change. Just compare the TV or cellphone you have today with what you owned a decade ago.

Well, the Internet economy is evolving just as fast, and where it stood 10 years ago bears no resemblance to where it stands today.

The accepted rule of thumb is that data worldwide is doubling every two years.

We’re approaching the zettabyte (one billion terabytes of information) era of Internet-based data, according to Cisco Systems Inc., and with everyday objects about to get their own IP addresses, that figure is going to explode.

It’s hardly surprising that the Internet, and the economy it spawned, is driving growth worldwide.

Companies are coming up with products and services designed for this new platform, and analyzing big data—the huge quantities of information arising from our digital lives—to tweak and improve their offerings.

Already, the Internet has helped create the world’s biggest businesses. Google Inc., for example, ranks fourth among the largest companies by market capitalization, and Apple Inc. is by far the largest, thanks to products like the iPhone, which enable people to consume the Internet economy’s products and services.

What’s more, countries increasingly can’t do without their digital businesses. Take the UK, where the Internet economy delivers 10 percent of gross domestic product (GDP)—that’s more than manufacturing and retail, according to management consultancy the Boston Consulting Group (BCG).

Yet, according to similar research by BCG, the Internet economy in Japan will still be 5.6 percent—around the G-20 average—come 2016. So why is that?

If you compare Japan with other G-20 countries, not least the UK, Japan is in a great position to have a thriving Internet economy.

The infrastructure here is second to none. Jim Foster, a professor at the Graduate School of Media and Governance, Keio University, and director of the Keio International Center for the Internet and Society, agrees. “The problem is data utilization,” Foster says.

DATA LAW
In 2014, the Internet Economy Task Force (IETF) of the American Chamber of Commerce in Japan (ACCJ) released a viewpoint called the “GOJ Policy Review on the Protection and Utilization of Personal Data.”

It was a reaction to the Government of Japan Personal Information Review Working Group having published a report with the goal of changing the legislation on data protection and privacy in 2015.

The IETF made a number of recommendations, including eliminating the overlap of government authorities on data protection, and permitting the transfer of de-identified data to third parties.

In September 2015, the government of Japan’s upper house passed an amendment to the country’s data protection and privacy laws, which supported the working group’s report and many of the IETF’s recommendations.

Of the changes, one of the most important is the establishment of the Personal Information Protection Committee. It creates a single body to oversee personal-data law and to coordinate governance.

As yet, it is not known how well staffed the committee will be, and Foster fears it may receive no more resources than the My Number social benefits and tax program, an initiative he feels has been underfunded.

With reference to Internet businesses and groups such as the IETF, he says, “It’s really important that we give as much support and guidance to the protection committee as possible. If we get it right here, Japan can be a great model for the rest of Asia.”

HARMONIZING ACROSS REGIONS
Michiru Takahashi, a partner at law firm Jones Day in Japan, is another voice calling on the government to amend Japan’s data protection laws.

Takahashi believes that amendment would help harmonize data laws here with those of other regions in the world.

She says, “It [would ensure] that Japanese companies with operations in the European Union won’t have to go through complicated procedures to take data out of the region. It should be a major cost saving for Japanese companies.”

Yoshihiro Obata, president and CEO of BizMobile Inc., raises questions over the effectiveness of the amended law. As Obata says, there is plenty of resistance among Japanese residents to companies using personal data even when controlled.

Obata uses the example of East Japan Railways (JR East) trying to sell ticket-related data to third parties.

Despite the initiative being lawful, the backlash in the media and online was such that JR East felt forced to apologize for its actions.

“It was communicated to the public as a bad thing, and there is no way to fight against that,” Obata says.

CYBER THREATS
One shouldn’t be too hard on Japanese consumers for their attitudes about personal data. There is a lot of anxiety about data being hacked, and rightly so, believes Motohiro Tsuchiya, also a professor at the Graduate School of Media and Governance at Keio University.

“I believe faith already has been lost,” Tsuchiya says.

He highlighted reported data hacks, such as that of the Japan Pension Service earlier this year, and warns there is a shortage of skilled systems engineers to fix system vulnerabilities for large Japanese organizations.

Tsuchiya believes many CEOs are at a crossroads. “They want to protect their companies from hacking, but don’t want to use too much money for security,” he says.

He adds that many companies are now making inquiries into cyber security insurance to protect themselves.

GLOBAL ISSUE
Although Japan clearly faces challenges, no country can say it’s got it completely right. There are just as many, if not more, concerns in the United States regarding personal data as there are here.

Gautam Hans is policy counsel/director at the Center for Democracy & Technology (CDT) in San Francisco. The CDT, a non-profit organization, champions the Internet economy and the rights of users to privacy.

Hans says the “CDT has long supported consumer privacy legislation based on the Fair Information Practice Principles, which prescribe a system of governance for data stewardship, while still allowing for secondary uses and innovative practices with appropriate disclosures.”

JAPANESE APPLE?
Now that Japan is falling into line with other developed countries concerning data protection, can we expect to see any giants like Google or Apple springing from Japanese shores? Foster says we need to think about how the Internet is developing to answer this question.

“The next big thing,” he says, “is going to be virtual reality. Once you put on the goggles, you could be in a conference room in Nigeria or on a beach in Borneo.

“Virtual reality is going to change the way we interact with the world—and Japanese companies have the skills and technology to do well. It’s going to require some creative destruction and government support, but Japan has the potential.”

Masanobu Katoh is country head of Japan for Intellectual Ventures, a global investment company aimed at startups. He says the amendments are good news for Japan’s Internet economy, and need to be implemented fast.

“This is a tremendous opportunity for the country,” he says. “I hope the changes encourage startups and new business models.

Japanese businesses have many strengths in many areas, and the Internet is a way for companies to go global very quickly with new products and services.”

Companies are coming up with products and services designed for this new platform, and analyzing big data