Unaddressed Challenges for Defense Policy Reform in Japan

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Japan’s Efforts to Strengthen Its Defense Industrial Base

The year 2022 marked a step forward in Japan’s defense strategy. The Japanese government decided to earmark approximately 43 trillion yen (about 30 billion dollars) over five years from 2023 to 2027 to strengthen and upgrade Japan’s defense capabilities. But securing resources was just the first of many steps Japan has taken over the years to further its leadership role in international security.

One example is next-generation fighter aircraft. On December 9, 2022, the leaders of Japan, the United Kingdom, and Italy issued a Joint Leaders’ Statement on the Global Combat Air Programme (GCAP) highlighting collaboration in developing a sixth-generation fighter aircraft. Simultaneously, Japan’s Ministry of Defense (JMOD) and the U.S. Department of Defense (DOD) released the Joint Statement on Cooperation for Japan’s Next Fighter Aircraft. These statements are integral to the concept of “advanced networked combat,” emphasizing the synergy between highly autonomous systems with artificial intelligence (AI) technology produced by the United States that would accompany crewed fighters that Japan is developing in collaboration with the United Kingdom and Italy—in combination, a game-changing capability for the sixth-generation fighter.

Japan also seeks to strengthen its domestic defense industrial base. In October 2023, the JMOD formulated a Basic Policy on Enhancing Defense Production and Technology Bases following the law it enacted on June 7, 2023. The policy aims to strengthen domestic infrastructure by providing national support to defense companies in the wake of the downsizing or withdrawal of more than 100 major Japanese defense companies, which has occurred over the past 20 years due mainly to the inability of the companies to generate profits commensurate with development costs. On December 22, 2023, the Japanese government announced the transfer of Patriot missiles produced in Japan under license to the United States, arguably an example of how increased potential for defense exports could incentivize Japanese industry. However, stringent conditions, including Japan’s prior consent for use and transfer to third parties, underscore the careful management of such exports. The strategic backdrop for these developments was Russia’s invasion of Ukraine, which prompted an active debate about the potential implications for security in Asia and a comprehensive review of Japan’s warfighting capabilities and defense equipment procurement practices. Much of this work was executed by the Acquisition, Technology & Logistics Agency (ATLA), which was established in October 2015 as an external bureau of the JMOD.

While Japan is making strides in strengthening its defense posture, an additional challenge remains. The International Institute for Management Development of Switzerland, which assesses the digital competitiveness of 64 countries and regions using a combination of hard data and survey responses from business and government executives, ranked Japan 29th in 2022 and 32nd in 2023. Although Japan is actively engaging in digital transformation (DX), the pace appears to lag behind that of other nations such as the United States, which secured the highest ranking. In light of Japan’s commitment to fostering innovation and leveraging cutting-edge technology through collaborative development with other nations, the relatively low global digital competitiveness ranking is a cause for concern. This commentary compares the digital landscape of the United States and Japan and the requisite digital competencies essential for enhancing Japan’s security sector.

Japan-U.S. Disparity in Awareness of Digital Transformation

The “White Paper on Digital Transformation 2023,” published by the Information-technology Promotion Agency, Japan (IPA)—the information technology policy implementation agency of the Ministry of Economy, Trade, and Industry—sheds light on the disparities in awareness and maturity in digitization, data analysis, and problem solving between Japan and the United States. The IPA surveyed Japanese and U.S. corporate executives in business divisions related to information and communication technology and digital transformation during June and July of 2022.

The white paper emphasizes the crucial need for a dual-pronged strategy to advance digital transformation. One facet involves enhancing the efficiency of business operations through processes like paperless workflows (digitization). The second facet focuses on exploring innovative avenues to create new value, exemplified by services like vehicle sharing (DX).

The figure below provides a comparative analysis of digital-related initiatives and outcomes in Japan and the United States. The percentages reflected by “Achieved enough” or “Achieved some” in “Digitization of analog and physical data” and “Increased productivity through more efficient operations,” so-called “digitization,” are around 80 percent in Japan, which is not far from the United States. However, the “Creation of new products and services” and “Fundamental transformation of the business model through customer-driven value creation” categories, categorized as DX, achieved around 20 percent in Japan and around 70 percent in the United States.

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The white paper suggests that DX requires a timely grasp of trends in advanced technologies. The survey asked about the status of new business initiatives using more advanced digital technologies such as the Trusted Web, non-fungible tokens (NFTs), decentralization autonomous organization, virtual reality, fintech, cryptocurrency, and zero-trust architecture. Less than 20 percent of respondents in Japan have started new businesses utilizing more advanced digital technologies, compared to more than 50 percent of respondents in the United States.

In addition, regarding the status of corporate culture and climate for DX promotion, the survey showed that less than 20 percent of Japanese companies answered that they are doing well in the following areas: good internal information sharing, respect for taking risks and challenges, high skills reflected in compensation, and ability to do cutting-edge work, compared to over 40 percent of companies in the United States.

It is important to note that a significant gap still exists within each country between large corporations and small to medium-sized enterprises across various industries and between metropolitan and suburban areas.

Digital Transformation in the U.S. Department of Defense

How do differing approaches to DX within the work environments of Japan and the United States manifest in their respective government agencies responsible for defense policy?

In February 2022, the DOD released a memorandum on Department of Defense software modernization, setting the department on a path to deliver resilient software capabilities in a timely manner, ensuring relevance. The strategy identified the secure and swift delivery of resilient software capabilities as a critical competitive advantage shaping the landscape of future conflicts. Acknowledging the imperative for transformation, the DOD underscored the need for substantial changes across processes, policies, workforces, technology, and software delivery times.

In December 2022, the DOD took a proactive step by awarding $9 billion worth of enterprise cloud contract slots to key industry players such as Google, Oracle, Amazon Web Services, and Microsoft. This initiative signifies a shift toward a multi-enterprise cloud environment and the creation of a comprehensive software ecosystem spanning relevant organizations. Notably, the program adopts an inclusive design, allowing each vendor to bid competitively for individual supplies or service orders. The emphasis is on compatibility across vendors, fostering coordination and collaboration among the involved agencies. The allure of these commercial cloud services lies in their flexibility and scalability. This model offers the unique advantage of renting any necessary infrastructure on demand, eliminating the need for extensive investment in labor and development costs associated with constructing and maintaining proprietary data centers. By enabling healthy competition among premier firms, the program ensures continuous access to the highest quality and security standards. This strategic approach not only optimizes resource utilization but also positions the DOD at the forefront of technological advancements in the pursuit of increased resiliency and speed.

Japan acquires defense equipment from the United States through the Foreign Military Sales (FMS) framework, but it faces issues such as price uncertainty and continual delays in the delivery of items and processing of bills, which have resulted in situations where the U.S. government holds Japanese funds without a resolution or refund for long periods of time. In January 2022, the Office of the Inspector General of the DOD submitted a report scrutinizing FMS, highlighting issues such as the absence of clear guidelines for information entry by implementing agencies, a high incidence of human error, and data incompatibility among involved agencies, calling for remedial actions. Furthermore, a DOD “tiger team,” working on FMS improvements in June 2023, emphasized the need to leverage cutting-edge technology for data collection and to clarify the definition of terms. In an example of U.S. efforts to employ technology for problem-solving, it expressed a collective commitment to adopting a more data-driven approach to addressing FMS challenges.

Digital Transformation in Japan’s Ministry of Defense

In December 2022, the JMOD announced the JMOD Digital Government Medium- to Long-Term Plan. This initiative seeks to centralize the oversight of various government information systems developed and operated by individual services of Japan’s Self-Defense Forces (JSDF) and JMOD-affiliated organizations. The objective is to align these systems with the guidelines provided by the Digital Agency to advance toward a digital society. This involves maximizing the utilization of common functions, such as the government cloud system developed by the Digital Agency, and collaborating with them to enhance and secure digital expertise. Essentially, the plan, under the Digital Agency’s guidance, aims to foster alignment with other government ministries and agencies.

Conversely, in the realm of defense equipment procurement, ATLA faces the challenge of securely and efficiently sharing a plethora of data, including sensitive information, between ATLA and associated entities, including small and medium-sized enterprises. To address this, the government intends to establish a public-private shared cloud environment called the Defense Security Gateway (DSG) by March 2024. This initiative represents a distinctive approach undertaken by ATLA.

Cloud Technology Will Be a True Game Changer for JMOD/JSDF

The JMOD’s strategy, which prioritizes establishing a government common cloud service as its foundation while also integrating a public-private cloud service with defense-related companies, demonstrates commendable inclusivity, especially in not overlooking small and medium-sized enterprises. This policy aims to streamline defense equipment procurement processes efficiently.

The JMOD should also prioritize the introduction of cloud technology within the JMOD/JSDF to streamline intraorganizational communication. Presently, email serves as the primary mode of information exchange. While shared folders exist within the organization, accessing necessary information remotely involves prolonged delays due to encryption protocols. These issues may eventually be resolved, but expediting the process is imperative to facilitate timely information sharing across the JMOD’s global network of employees.

The subsequent phase of the JMOD’s DX process should involve embracing technological solutions to address challenges akin to approaches adopted in the United States. By deploying software to minimize human errors arising from manual data entry, visualization, and automation of equipment inventory management, as well as simplifying content creation through automation, such initiatives promise to enhance efficiency. Additionally, leveraging machine learning for automated document proofreading based on historical data can further optimize processes. These endeavors will contribute to a more conducive, streamlined, and creative working environment within the JMOD/JSDF.

Moreover, fostering collaboration with allied nations is crucial. As partnerships with allied countries strengthen, the integration of cloud systems among them should be prioritized. Enhancing national security necessitates the acquisition of cutting-edge equipment; however, spearheading DX to bolster organizational capabilities takes precedence. This strategic focus constitutes the cornerstone of Japan’s transformative efforts to fortify its defense capabilities.

Miki Matsuo is a former visiting fellow with the Japan Chair at the Center for Strategic and International Studies in Washington, D.C., from Japan’s Acquisition, Technology, and Logistics Agency (ATLA).

The views expressed herein are strictly those of the author and do not represent the views of Japan’s Ministry of Defense, nor the government of Japan.

Miki Matsuo

Former Visiting Fellow, Japan Chair