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Hitachi Research Institute

President Column

Commentary by our President, Keiichi Shimada

#1: Digital and Terroir

  A few days ago, I had some very delicious handmade soba (buckwheat) noodles. The chilled, firm noodles were subtly sweet, dark in color and rich in aroma, which matched perfectly with the slightly sweet dipping sauce made from flying fish broth (ago dashi). I asked where the soba was from and was told it is a variety known as Miyazaki-ohtsubu that is produced in Miyazaki Prefecture. Sown in autumn and grown in a temperature climate, much time and effort is needed to raise the Miyazaki-ohtsubu, as it takes a long time to ripen and measures to prevent damage from moisture are also necessary. Amid the widespread trend in Miyazaki Prefecture to cultivate other varieties, the restaurant serving the soba noodles became acquainted with a farmer who has remained committed to planting Miyazaki-ohtsubu for many years, and decided to purchase directly from the grower after falling in love with the flavor. The flavor of soba noodles varies considerably with the location where the soba is grown due to the significant impact of the mineral content in the soil and the climate of the location on crop growth.

  With regulatory reforms in digital technology taking the lead, there is an increasing trend to transform the supply chain and business model by connecting enterprises directly with individuals. Currently, many countries and regions are trying to utilize this digital strength by linking it to the development of innovative services and social systems, thereby establishing a new foundation of competitiveness. When talking about digital innovation, Silicon Valley in the US naturally comes to mind. However, the “center of gravity” is now slowly shifting from the US to Asia. Worldwide venture capital investments which had been concentrating in Silicon Valley up till about 2010 are gradually spreading across emerging countries and regions, particularly China and India. In 2016, the top 30 destinations for the investment of venture capital funds included six cities in China (Beijing, Shanghai, Tianjin, Hangzhou, Guangzhou and Shenzhen) and two in India (Delhi and Mumbai), all of which were not in the top 30 list in the 2000s. These cities have attracted a large number of experts in cutting-edge digital technologies, including those who have returned to their home country from their studies in the US. Proactive efforts are being made to import digital technologies and business concepts from outside, which are then developed into realistic services within a short period of time by opening up the massive domestic market as a platform for testing the digital technologies and business concepts. At HRI, studies are underway on what we refer to as “innovation hotspots,” which are regions that are implementing such market-driven and cross-border, cross-industry innovations.

  In the future, we will see the advent of new applied digital technologies and services in the global market following trials that are carried out at these innovation hotspots. These trends can be seen as a form of inter-regional competition for digital supremacy. However, if we look at the example of bike-sharing in China where the number of users is growing rapidly, although the service originate from the ride-share concept invented in the United States, it became increasingly popular and widespread after modifications were made to adapt to the local circumstances, such as the traffic conditions and lifestyles of the country’s users.

  In order to translate potential digital technologies and concepts into businesses based on the market forces, it is of primary importance for them to be accepted by the users who make up the market. According to the Oxford English Dictionary, the term “terroir” refers to “the complete natural environment in which a particular wine is produced, including factors such as the soil, topography, and climate.” Technologies and business concepts, which can be regarded as the “seeds,” are cultivated in and delivered from the domestic market, which is likened to the “soil.” While the US used to be the source of most digital innovation, we will see the arrival of an era where innovations developed from a wide variety of terroir in different parts of the world all coexist. As a business enterprise, it is necessary to determine strategies with regard to which innovation hotspots to approach as well as the way to engage with them, or in other words, whether we should be providing the seeds, growing them or lending effort to deliver the final products. To do so, it is of course crucial to conduct a level-headed analysis of the finances, social system as well as business and living environment that make up the “soil” of the respective regions.