Driving Japan's Tourism Industry into the Digital Age: Asian Startups Seize Growth Opportunities

In recent months, the Japanese tourism industry has seen a resurgence following the relaxation of pandemic restrictions, with over 1 million arrivals for the third consecutive month in February. To support this growth and address the challenge of a declining population, the Japanese government has been encouraging companies in the tourism sector to digitize their operations. 

Hong Kong's Klook and Taiwan's KKday are two startups that have recognized this potential for growth in Japan and are already helping to drive the industry into the digital age via online sales to replace paper tickets and reservations recorded in notebooks.

Klook and KKday officials report that they already earn the biggest portion of their revenue from tourists in Japan, and they are seeking to expand their presence in the country by targeting older or smaller businesses that are less computerized than major hotels and airlines. In particular, the lodging industry in Japan is dominated by smaller businesses, with 78% having fewer than 10 employees. These operators tend to rely on "long years of experience and intuition" and "old-fashioned analog" methods like tracking reservations on paper rather than modern management practices, according to a March report by the Japan Tourism Agency (JTA).

 

Klook's CEO, Ethan Lin, notes that in the post-COVID era, tourists "are looking to venture out" beyond well-known tourist destinations in Tokyo and Osaka. However, merchants in other areas "are not yet ready for reform," and are "hesitant" to serve visitors. To address this challenge, Klook and KKday are educating more local suppliers about the benefits of digitalization. Eventually, these digital platforms would help attract "a lot of international travelers from across many different countries with different holiday seasons" and generate "consistent demand," including on weekdays when domestic tourists are few.

One particular opportunity for these companies is collecting data to help operators devise more profitable pricing strategies. Lin notes that Japanese merchants today face "a dilemma" -- they want to raise prices but fear a backlash from domestic consumers. He believes that Japanese consumers can afford to pay more, but the country has been more focused on optimizing operation costs rather than revenue management. In addition to boosting revenue, digitization can also help improve operating efficiency and optimize the allocation of staff in tourism businesses at a time when many of them are struggling to find workers, particularly during busy weekends and holidays.

 

Overall, the Japanese government hopes that increased tourist spending will bolster consumer demand as the nation's population declines, particularly in rural areas. The government has set a target for tourist spending to reach 5 trillion yen ($38 billion), a little over the 2019 level. The JTA notes that tourism is "the trump card for regional development" in Japan, and encouraging digitization in the industry will be crucial to achieving this goal.

 

How do you think the growth of digital platforms in the Japanese tourism industry will impact the country's economy and cultural identity in the long run?