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Business trends

Weak IT spending leaves corporate Japan high and dry

Most companies will still have decades-old systems in 2025

Many Japanese businesses still use systems introduced around 2000 -- ancient by today's standards.   © Reuters

TOKYO -- Japanese businesses have failed to sufficiently invest in information technology, spending most of their limited funds on keeping old systems alive instead of deploying new ones more suited for such applications as big data and artificial intelligence.

"We are overloaded with upkeep and management of systems built decades ago," a 49-year-old system engineer in Tokyo said.

Only about 20% of Japanese companies' IT investment is earmarked for new projects, according to the Ministry of Economy, Trade and Industry. Most businesses use their systems for many years, with 43% allotting 90% of their IT-related costs to maintenance.

The Japanese IT market will reach about 17 trillion yen ($152 billion) this year, IDC Japan estimates, with growth shrinking to 2.1% from 5.5% in 2017. The slowdown was due mainly to the completion of system upgrades at major financial institutions. IT investment, while still expanding, is not outpacing total capital spending by much.

U.S. companies invested $560 billion in information and communications technologies in 2015, roughly four times the Japanese total, according to a Ministry of Internal Affairs and Communications survey. The figure has increased by 180% since 1994, against 11% in Japan.

The difference reflects whether companies see spending on such technologies as necessary to growth. Just 24% of Japanese companies plan to step up IT investment to develop new products or services, show survey results released by the Japan Electronics and Information Technology Industries Association. More than 40% of U.S. companies said so in previous polls.

Cutting-edge technologies are a must for new businesses like big data and AI. Software from Germany's SAP, for example, can rapidly process vast amounts of data. SAP Japan touts how users can optimize their demand forecasts and inventory with daily data analysis in real time. California-based Oracle offers a cloud-based data storage system that automatically services itself without human input.

Japanese companies entangled in what METI calls "defensive" investments are falling behind in these emerging fields as their current systems face obsolescence despite meticulous maintenance.

Many companies' core systems for such tasks as production or settling expenses were introduced around 2000, when Microsoft's Windows operating system gained widespread popularity. METI estimates that in 2025, 60% of Japanese companies will still have systems more than 20 years old.

SAP plans in 2025 to stop offering support to customers for its mainstay enterprise resource planning software. Each of the more than 2,000 companies in Japan using it will have to migrate to new SAP software or switch vendors.

Japan Airlines spent 80 billion yen over nearly seven years to upgrade half-century-old technology in 2017 with a new system that can forecast demand and determine prices by using AI to analyze past ticket sales. But it embarked on such a project only because it was undergoing a court-led restructuring. The decision to modernize systems is typically put off by executives over upfront costs.

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