"Bukkon-Densai" - Material spirit with Cyber tech

For a long time I have been talking about the coming era of the third force.

It all started in 2015, when I was invited to a meeting of the New Industrial Structure Subcommittee of the Industrial Structure Council (ISC) of the Ministry of Economy, Trade and Industry (METI) to understand the implications of the coming era and to consider necessary national initiatives and responses.

The Council was quite a distinguished group, including Mr. Nakanishi of Hitachi, who would later become Chairman of Keidanren, Ms. Namba of DeNA, who would become Vice Chairman, Mr. Kanemaru of the Future Architect, Mr. Kazuhiko Tomiyama of IGPI, Mr. Sato of Mizuho Financial Group, Mr. Yutaka Matsuo of Tokyo University, who was the first to alert us to the wonders of DLs, Ms. Kasumi Miyajima of Nihon TV, Mr. Takeo Doi of Keio Economics, Ms. Nanako Ishido of CANVAS, and many others. In retrospect, it was a terribly deep group of people. The chairperson was Motoshige Ito of the University of Tokyo. Incidentally, the moonshot concept also started with a suggestion made by Dr. Hiroaki Kitano of Sony CSL (currently Sony CTO), who was a special guest at one of the meetings of the Council.

The basic perspective that I presented to the Council seven years ago was that all industries would be transformed by the power of data and AI. Not only will many things be connected, but in particular, information identification systems, prediction systems, and execution systems, including image generation and picking, will all become automated and scalable. This will once again result in a quantum leap in human productivity. In addition to this period of technological innovation, the population has already entered an adjustment phase, and rather than the scale of business, it is the presence or absence of innovation for a hopeful future that will be the source of wealth, especially corporate value, which is central to the generation of wealth today. Of course, this is a strong version of Piketty's r>g from the previous year, i.e., that capital growth exceeds the growth of the normal economic scale. It all seems like common sense now (?). However, many people on the industrial side, who were not familiar with data and AI, found it valuable, and I made several additional presentations to deputy ministers and others.

At that time, I also mentioned that behind this change was the rapid evolution of information science, including massive log data generated by various Internet services and IoT devices, overwhelming computing power and bandwidth (increased by four orders of magnitude in 20 years) to enable its real-time utilization, machine learning, and algorithms such as deep learning, which had just emerged as actual services at the time. I also talked about the rapid evolution of information science, including machine learning, algorithms such as deep learning, which was just emerging as an actual service at the time, mass data processing, and mass data visualization technologies.

Incidentally, it was 2014, the previous year, when deep learning (DL) achieved remarkable results and caused a bit of a stir in the industry, a small part of which had been overworking machine learning, as if it was real. It is a history now that Google Photo, which came out a few months before I made this pitch (May 2015), was the world's first example of large scale DL implementation.

In the same year, Harvard Business Review editor Fumio Iwasa published a special issue on artificial intelligence, which was attracting a lot of attention but was in a state of confusion as to what it was. This is my article, which I threw in with my spare time. The comparison of human and Kikai (AI) using the axis of intelligence that I made here is still very much in my mind. FYI

I also mentioned that as of 2015, the industry is divided into the Old economy, which focuses on physical technologies and assets, and the New economy, which focuses on cyber technologies and assets, but that I think the next trend is obvious. Many people may be blinded by the rapid progress of the New economy side, such as GAFA , but a third type of industry (the third force) will appear at once in the unexplored areas that have the strengths of both physical and cyber, and they will renew the world and dominate it. This is the real battlefield, and the future of Japanese industry will depend on whether or not we can compete there.

In fact, many people thought that it would not be so easy for a company to overtake GAFA, but if you look at the market cap (corporate value) ranking, you now see that TESLA, which innovates the real world with its cyber strength, is one of them. It is now at a blindingly large scale, with an enterprise value of around 100 trillion yen (0.8 trillion US dollars).

At this time, I also mentioned that there are three ways in which a third force could emerge. First, from the upper left side of the old economy by taking advantage of existing physical world assets, from the lower right side of the new economy by taking advantage of cyber strengths, or by starting from scratch with a new idea. As I wrote in my book "Shin-Nihon (Japan Resurgence)” from the viewpoint of data x AI, Japan's strength of having many exit-oriented industries, as opposed to entrance-oriented industries such as image recognition, will be put to good use.

This industrial matrix, so to speak, has been loved in its own way since it first appeared, and even Nobuyuki Idei, the former CEO of SONY, who sadly passed away the other day, said to me, "ataka-san, this is it”.

Incidentally, there was a historic timing in the spring of 2017 when General Motors (GM), one of the world's three largest automaker groups (GM, Toyota, and VW), was matched by Tesla in terms of enterprise value. Based on the trend at that time, I was saying in most talk I gave at that time that Toyota, Japan's top company in terms of corporate value, the world's largest corporate value car maker (at that time), and our pride, could be overtaken in a few years at the earliest, but the atmosphere was not quite right.

In reality, however, those familiar with the stock market and asset management are well aware that Toyota was equaled in enterprise value by Tesla on July 1, 2020, and that there is now a fourfold difference between the two.


Many people thought that this was impossible, since the sales volume of Tesla was more than 100 times different from the three major manufacturers at that time. I told people in various places at the time that this was a story of the renewal inherent in the period of industrial innovation that manifested itself in corporate value, that the formula for generating wealth had changed, and that the same story would happen in every industry. After all, all they did was study and not do what they should have done.

Incidentally, as I have summarized in my blog before, so-called DX (digital transformation) means that companies on the old economy side are reborn as cyber companies.

"What is DX (digital transformation) ? -- a my old blog entry

Ultimately, they must be reborn as a third force type of company. The AI-Powered companies, the highest level of AI-ready companies, will be the very third force itself, as outlined in Society 5.0 under Keidanren Chairman Nakanishi and in the AI Strategy under the chairmanship of Dr. Hiroaki Kitano.

(Reference link)
Keidanren Society 5.0 - Creating the Future Together (November 13, 2018)
Keidanren AI Application Strategy - Toward an AI-Ready Society (February 19, 2019)
Keidanren AI-Ready Guideline

I have often been asked what this "third force" is, and to be more specific, it includes not only Tesla and SpaceX, which are now the most popular companies for students graduating from the world's top engineering schools (MIT, Berkeley, Stanford, etc.), but also Uber, Airbnb, Kiva Systems (now amazon robotics), BYD, which is looking to follow Tesla to the top of the EV industry, the largest drone company DJI, and Huawei. SpaceX boasts Starlink, a technology that allows satellite communications networks to support cell phones in a world without a communications grid. It will be remembered that Starlink saved many people in Ukraine during the Russian military invasion of the country.

Netflix, which originally emerged as an attack on Blockbuster, the largest video rental company in the U.S., is a third force, and along with YouTube, TikTok (ByteDance), and Amazon prime, they are creating a world where TV (stations and distribution networks) are no longer needed. In North America and Canada, the Internet surpassed TV in ad revenue in 2013, and Google and Facebook alone will overtake TV in ad revenue by 2020 on a global level. However, the competition in this new video platform is also fierce, with Google's media mainstay YouTube's ad revenue projected to be overtaken by TikTok within a year or two.

Alibaba and Tencent are dramatically transforming themselves into lifestyle portals that support real life, and as those in the industry know, Alipay, WeChat wallet, Baidu map, and others have been in the works for five years, even in their 2017 versions, but the world outside of China (including Japan) is not quite up to speed. This is exactly what has been expected. A third force would emerge from the new economy side.

There is another trend that has emerged in the shadows. This is how to reduce the environmental burden and contribute to a future that enhances sustainability for mankind and the planet. Mere digitalization is meaningless; the question is how much ESG (environment, sustainability, and governance) value can be created by using digitalization. Perhaps this is the core of the new capitalism that Prime Minister Kishida is advocating. Economic growth with lower environmental impact" should be the core of the new capitalism. I would like to share with you a diagram that I have compiled with Hiromichi Mizuno, an external board member of Tesla, Inc.

Recognizing these trends, on the other hand, if you think about it dispassionately, Apple since the iPod is a complete third force. Without "a platform (PF) that includes user UI/UX and enormous digital contents," a smartphone (the invention of the iPhone) is just a black slate. It is also a little-known but important fact that all aluminum used in Apple devices is made using a CO2 emission-free manufacturing process developed with Alcoa. Note that more than 10% of Japan's CO2 emissions come from carbon transported from underground through the use of mineral resources known as "steelmaking.

Anyone who uses the Apple Watch is aware that this is unlike any watch ever made, that it replaces a significant portion of smartphone use, and that it has many appreciated features that smartphones cannot do. This watch can be instantly redesigned as much as you like, can take phone calls as a matter of course, use LINE and paypay, read FB messenger, etc. It can also check the pulse, ECG, and blood oxygen level, and alerts the user when something is wrong, and has already saved the lives of many people, including several of my friends. It is not waterproof to a depth of 50 meters, it usually needs to be recharged every day, and it relies on software or communication to set the watch, which is completely different from the replacement of conventional watches.

What I feel when using the Apple Watch and Tesla is the importance of building in new hardware. It is important to have as few knobs and switches as possible, smooth, snag-free, stable, hard to fall off, and easily repairable in the event of an emergency. Apple has been thoroughly building this on the hardware side as well as providing service care with Apple care. Tesla has also loaded up two fairly large chips of their own, and even if one of them falls down, the car will always keep running, and furthermore, the driver's driving and their self-driving algorithm are being compared, and learning is being continued in both semiconductor chips.

Over the past few years, I have been asked quite a few questions about how companies on the old economy side should stand up to the emerging third force.

From my perspective as a strategist, DX is not the way to go. It is hard for me to say, as the creator of the term "AI-ready," but I have to be honest. It is the same story that Toyota Industries Corporation created Toyota Motor Corporation, Furukawa Electric together with Siemens created Fuji Electric, and Fuji Electric created Fujitsu. It is almost obvious from the fact that even Toyota, the leader of the existing old economy, is in the same situation as described above, but I am very concerned that many companies, ministries, and administrative agencies are not getting the message. They should make as much money as they can from the current model and transfer all the profits to the new digital x low environmental impact direction.

Also, I have been using the term “Denkon-Bussai (Cyber spirit with Material tech) ” for a long time to mean that the third force is real with a cyber mindset. However, considering what has actually happened above, I have come to believe that the current winning strategy is the opposite. In fact, many of the third force companies mentioned above are Denkon-Bussai-oriented companies, but this battle inevitably has a real sense of danger attached to it. The tactile polish that comes from the use of the real thing is also inevitably a bit skewed.

What the old economy, especially the Japanese old economy, needs is “Bukkon-Densai (Material spirit with Cyber tech)”. This is to value real things and technology, and create value from them with a completely new digital x ESG wisdoms. If we think again based on this, much hope will emerge unexpectedly. Japan is a country that has embraced the "Wakon-Yosai" (Japanese spirit with Western tech) , and has grasped the last fruits of the Industrial Revolution before it went cyber. If there is a Japanese spirit for us today, it is surely an overwhelming attachment to things, to the real physical values. I am sure it is not my imagination that we are now being asked how we can create a new world, while keeping these as our treasures.