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A recent survey of new orders reveals faster growth in demand from companies outside Japan big cities, compared with their urban counterparts.
Datawatch

COVID pushes Japan's non-metropolitan companies to digitize

Business outsourcing from rural to urban rises 80% in two years

KAZUYA MANABE, Nikkei staff writer | Japan

TOKYO -- The COVID-19 pandemic is forcing Japanese companies located outside big cities to go digital as conventional marketing and other business practices prove less effective in the face of restrictions on movement introduced to limit the spread of the coronavirus.

Faced with a shortage of information technology specialists, Japanese companies headquartered outside large metropolitan areas like Tokyo and Osaka are increasingly sending work to companies and workers in urban centers.

Asao Seni Kogyo, a bedding and linens manufacturer in Izumo, western Japan, is one such company. It has hired a freelance IT expert in Tokyo because face-to-face marketing has become difficult. The pandemic, meanwhile, has fueled shifts in customer demand. Asao Seni launched a nationwide recruiting effort "to seek new, data-based marketing techniques, as conventional analog methods have [reached their] limit," a company official said.

"Lots of regional companies are starting to feel the need for [digital transformation] as the coronavirus pandemic has worsened their business conditions," said Yoshitaka Inoo, president of Joins, a Tokyo-based company that connects workers in big cities to jobs in regional centers. "Companies unfamiliar with digital [technology] will continue to hire more outside manpower," he said.

While the number of people registered with Joins' service has roughly quadrupled over the past year, more than 60% of its successful matches are related to digital transformation, Inoo said.

Orders from companies outside big cities for system development, data entry and other services to staffing companies and freelancers in urban centers are also increasing, said CrowdWorks, a crowdsourcing service that links outsourcers with companies or individual subcontractors.

Nikkei and the Japan Center for Economic Research analyzed CrowdWorks' data on registrants and orders, finding that more companies outside big cities are starting to use its service than urban ones. On a per capita basis, the top nine prefectures by number of new users registered to the service in the year through March were all predominantly rural, with the western prefecture of Tottori topping the list, followed by Kochi and Shimane prefectures, also in western Japan.

The number of orders placed from the countryside and received by the three largest metropolitan areas -- Tokyo, Osaka, Nagoya and prefectures near these three cities -- increased 80% over two years, double the growth rate of orders placed and received within the three big urban areas. Tokyo, Kanagawa, Osaka and other urban prefectures with a large pool of IT workers are taking new orders from rural regions at a faster pace.

Many freelancers and other IT experts say they see changes in the way companies outside the big cities are operating. Ippei Takeuchi, 37, who lives in Kanagawa Prefecture, southwest of Tokyo, receives orders online for freelance jobs to supplement his employed work for an IT company in Tokyo. Orders are increasing from companies in the countryside that are struggling with sales declines due to the pandemic. They are trying to find new sales channels, he said.

Takeuchi now has more time for his side job because his employer lets him work from home more. He currently carries out work for three companies, including help with an e-commerce site operated by a company in northern Japan's Yamagata Prefecture that sells locally brewed sake.

Companies outside the big cities lag behind their big-city counterparts when it comes to digitization, according to Nomura Research Institute. By prefecture, those near Tokyo and Osaka scored highest on digitization, based on their IT infrastructure, use of online services and other factors. The Tokyo metropolitan area scored 65 points out of a possible 100, while the Osaka metropolitan area had a score of 57. The average score for prefectures outside the three main metropolitan areas was 51. "There are huge gaps in digital skills between residents" in urban and rural areas, said Takeshi Mori, a senior researcher at Nomura.

But the increase in remote work driven by the pandemic may help close this gap. If the level of digitization is raised nationwide, Japan may also be able to gain ground on the U.S. and Europe, which have higher overall productivity than Japan.

Nevertheless, many problems will need to be addressed to allow rural areas to tap IT talent in urban centers. Many companies still prohibit IT workers from taking side jobs, for example, and some freelancers report not receiving appropriate payment for services rendered.

To foster a greater flow of work between urban and rural areas, more flexibility regarding labor practices will be required.

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