Technology Adaptation in Japan’s Work Culture: Usage of Electronic Signatures (E-Signatures) in Post-COVID-19 Japan ^†

Abstract

Hanko or signature seals are widely used by Japanese companies to sign business contracts. However, the COVID-19 pandemic has caused Hanko culture in Japan to become ineffective, especially in teleworking. The pandemic has also negatively affected the global economy, including Japan. To face this issue, the Japanese government has expanded the use of electronic signatures since 2020. Regardless of the government’s efforts, many Japanese companies have not implemented the use of electronic signatures. Nevertheless, the prospects of utilizing electronic signatures in Japanese companies have increased due to post-COVID-19 socio-economic factors. We examined the problem of Hanko culture and how Hanko is replaced by electronic signatures in Japan’s society through an inductive, descriptive, and qualitative method. By using those approaches, we discovered that, in the short run, Japanese companies will be forced to adapt to the use of electronic signatures to increase productivity post-economic crisis. In the long run, Japanese companies will be inclined to use electronic signatures to adapt to global trade conditions.

1. Introduction

Hanko or better known internationally as “seals” is a strong Japanese business culture [1]. Despite that fact, as the COVID-19 pandemic catalyzed digitalization in all aspects of life, including businesses, Japanese Hanko culture is changing. The new culture of “teleworking”, which promotes long distance working and interaction has made it difficult for companies to implement the use of Hanko. This is evident when activities outside one’s home became restricted during the pandemic, while documents at companies still need to be signed by the employees [2]. Moreover, the effectiveness and efficiency of Hanko in modern times were questioned even before the pandemic. Personalized Hanko used to be a legitimate way to prove that someone is responsible for the approval of a certain contract or document. However, today, where Hanko can be mass-produced, two different people with the same names can use identical Hanko which increases the risk of the fraudulence in signing contracts [3]. Another weakness of Hanko culture is the fact that Japanese employees are at risk of being scapegoats if a document they have signed creates losses for their company. In other words, the use of Hanko can be a failsafe for companies to avoid losses at the expense of the reputation of their employees [4]. With technological advancement and the rise of electronic signatures, the use of Hanko can be replaced in the future by electronic signatures.

2. Method

We explore if and how electronic signatures replace Hanko culture in Japan. In this research, the following questions were answered.

1.

What are electronic signatures?

2.

What are the laws that dictate the use of electronic signatures in Japan?

3.

How familiar are Japanese people with the use of electronic signatures?

4.

What are the factors that drive the use of electronic signatures in post-pandemic Japan?

For the answers, hypotheses were proposed as follows.

1.

In the short run, Japanese companies will be forced to use electronic signatures to boost the nation’s economy in the post-COVID-19 era.

2.

In the long run, Japanese companies will be dependent on the use of electronic signatures due to factors of economic and technological advancement.

3.

Hanko culture will dissolve as the use of electronic signatures increases.

This research is a literature review that solely uses secondary data. The theories and data used were obtained from various resources including journals, news articles, and surveys made by both international and Japanese organizations. Relevant findings from those media were then analyzed through a descriptive and qualitative method. Moreover, an inductive approach was used in this research to establish links between theories from interdisciplinary subjects such as Japanese business manners, law, and economics to produce a general summary that answers the research question. This approach enabled the prediction of the long-term behavior of Japanese people regarding the use of electronic signatures.

3. Result and Discussion

An electronic signature is a digital seal on computer software. This type of seal is convenient because the legitimacy of the document is being checked directly by a non-sentient system, which decreases the possibilities for errors, inaccuracies, and fraud [5]. Unlike Hanko, which can be purchased or made by many other parties, the likelihood of an electronic signature being tampered with is low. In Japan, electronic signatures have been legalized by the “E-Signature Act” (Act No. 102 of 31 May 2000). This is an act that governs the legality of electronic signatures for certified business transactions [6]. Nonetheless, the implementation of electronic signatures is still limited, as shown in a survey conducted by Mizoguchi in 2022 regarding the use of electronic contracts in Japan [7]. In that research, Mizoguchi recruited 414 respondents, and their demographics are presented in Figure 1.

In total, 65.2% of the respondents collected were males and 34.8% were females. The majority of the respondents were in their 40s (38.6%), 32.1% were in their 30s, 13.8% were in their 20s, 13.5% were in their 50s, and 1.9% were older than 60. The majority of the respondents belonged to Generation X (born around 1965−1980) and Millennials (born around 1991−1996). Figure 2 shows the respondents’ professions. In total, 23% of the respondents were employed in the service industry, while less than 1% worked in the electricity and gas industry.

Figure 3 shows that 76.1% of the respondents were aware of electronic contracts, while 23% were not. The majority of the respondents were aware of the existence of electronic contracts.

Furthermore, Figure 4 shows that a total of 21.7% of the respondents thought that their companies were aware of electronic contracts, 60.9% of the respondents did not think so, and 17.4% did not know if their companies were aware. The majority of Japanese companies do not use electronic contracts. This implies that they do not use any electronic signatures in contracts.

The use of electronic contracts varied depending on industry sector as shown in Figure 5.

The leading industries for the use of electronic contracts were finance and insurance (71.4%), telecommunications and internet (36.8%), and construction (29%). They use digital contracts for error prevention and fraud deterrence. Finance and insurance benefit from document legitimacy and embezzlement prevention. The Japanese tax reform of 2021 requires companies to preserve transactions electronically starting from 2022. With the nature of the financial and insurance industry that correlates with many economic transactions, the tax reform boosts their need for electronic signatures and documents [8]. The construction industry handles numerous documents, while telecoms and internet are technology-oriented.

In total, 68.3% of the respondents supported electronic contracts, 2.7% were opposed, and 29% were unsure. Several respondents had never used electronic contracts. Supporters emphasized efficiency, cost savings, and convenience, while those who did not support them worried about the security, privacy, and the adversity of management (Figure 6).

Japanese employees, mostly Generation X and Millennials, are open to transitioning from Hanko to electronic signatures, which will lead Japanese companies to use them. Electronic signature adoption rates vary by industry involving many parties who are sensitive to errors in contracts or to the use of technological advancement.

The adoption of electronic signatures instead of Hanko is driven by social, technological, and economic changes in Japan. Since the 1990s, Japan has been facing economic stagnation [9]. This calls for an increase in economic growth. This condition is worsened by an aging population and a low birth rate. This affects the country’s GDP since an aging population means slower economic growth [10]. This leads to Japan’s dependency on foreigners to increase the country’s economic circumstances, through tourism and goods that are exported to other countries. The COVID-19 pandemic has slowed global economic activity, including in Japan. The Japanese government has attempted to increase economic efficiency, including expanding the use of electronic contracts and signatures, as a response to the rise of teleworking. Currently, the pandemic has shown signs of being benign. However, Japanese companies implementing hybrid (online and on-site) offices have increased due to the efficiencies such as lowering the cost of transportation, lowering the cost of meeting venues, and networking with people from different places [11]. This results in the wider use of electronic signatures and contracts [12].

The Japanese yen has been depreciating in the past few years. The Japanese government can use this economic condition to increase its GDP by maximizing exports and establishing a trading policy with other countries [13]. The capability of electronic signatures to avoid duplication and inefficient bureaucracy can smoothen the process of international trade [14]. This strengthens the use of electronic signatures since other countries do not have Hanko culture.

4. Conclusions

The use of signature seals or Hanko has been a tradition of business in Japan. In recent years, the legitimacy, effectiveness, and efficiency of Hanko have been questioned. Advancement in technology has also led to the creation of electronic signatures, which is a digital type of seal that depends on computer software. The use of electronic contracts and signatures was recognized by the government in the “E-Signature Act” (Act No. 102 of 31 May 2000). Despite that, the majority of Japanese companies have not utilized electronic signatures in signing contracts. Social and technological advances have increased the interest of Japanese employees in implementing electronic signatures. Technology increases the effectiveness, efficiency, and convenience and reduces cost, time, and energy wasted. Furthermore, the use of electronic signatures is increasing under the teleworking and economic conditions in Japan for trading with other countries to increase Japan’s GDP.

Several companies may be hesitant to adapt to the use of electronic signatures due to bureaucratic traditions and a poorer understanding of how to operate technology. In the short term, only big companies can adopt this technology due to their capital and manpower. Meanwhile, small companies may not use this technology due to limited capital and manpower. In the long term, as society embraces technological advancement, the capital and manpower needed to operate this technology will decrease. This means that slowly but surely Hanko culture will be replaced by electronic signatures. Further research is needed to compare bigger and smaller companies to determine different factors of using electronic signatures. The results can support or hinder the use of electronic signatures by Japanese companies.