Digitization as an Adaptation and Resilience Measure for MSMEs amid the COVID-19 Pandemic in Japan: Lessons from the Food Service Industry for Collaborative Future Engagements
1.1. MSMEs and the COVID-19 Pandemic
Micro, Small, and Medium Enterprises (MSMEs) are essential driving forces in several economies and play indispensable roles in expanding employment opportunities, absorbing surplus labor, protecting social stability, and promoting economic growth.
Despite these setbacks, the COVID-19 pandemic is said to have also galvanized several MSMEs to adapt and change their business models to meet the shifting demands and consumer preferences. This study highlights how MSMEs amid the COVID-19 pandemic have shown their resilience by adapting digitalization in the food industry in Japan.
1.2. New Risks during the COVID-19 Pandemic
Thus, within three years of the COVID-19 crisis, new risks such as digital power concentration, digital divide, cyber security, energy crisis, and rising cost of living have emerged, making the global risk landscape more complex. Therefore, the resilience of MSMEs needs to be put in the context of this dynamic change.
1.3. The Research Gap and the Contribution of the Study
Firstly, the paper starts with the context setting, where it reviews the critical issues related to MSMEs in general as well as COVID-19 perspectives. Secondly, the paper focuses on Japan’s digital platform of the food service industry, analyzing the case to come out with specific solutions. Finally, a brief trade-off analysis is to be made, providing suggestions that can be not only applicable to the resilience of MSMEs but also related to the livelihood sustainability of people and, therefore, have a larger impact on society.
2. Context Setting
2.1. The COVID-19 Pandemic and Changing Scenario for MSMEs
Despite this wave of adaption and the utilization of new technologies, there is limited information that can be found on MSMEs within the food service industry. Could it be that MSMEs in the food sector have not utilized the digitization wave sweeping across other industries? If that is the case, what are the characteristics, and how has the process enhanced productivity or adaptation to the new normal?
The need to probe into this instance is born from the sector’s relevance during the COVID-19 pandemic. Thus, at the peak of the COVID-19 pandemic, an important element in reducing the spread of COVID-19 was the restriction of people’s movement as well as the prevention of interpersonal interactions. Such an approach necessitated widespread policies that only permitted essential services to operate without several restrictions.
2.1.1. The COVID-19 Pandemic and MSMEs in Japan
As part of infection prevention, a nearly 70–80% reduction in contact and other personal interactions was recommended in Japan as a preventative measure since the COVID-19 infection rates started rising. People were completely banned from going out due to the rapid spread of the virus. These and other stringent measures for risk prevention caused several disruptions and affected several industries.
2.1.2. Impact of the COVID-19 Pandemic on MSMEs in Other Countries
2.2. Digitization and MSMEs
MSMEs represent huge chunks of businesses in several countries and become important in the wave of business digitization. MSMEs are, by nature, made up of businesses with limited resources and personnel, often lacking the formalities in their operations. Any deterioration in business conditions directly impacts all economies and has prompted several governments to assist MSMEs in the digitization process through various initiatives.
2.3. Overview of MSMEs and the Impact of the COVID-19 Pandemic
2.4. Japan and MSMEs
2.5. Impact of the COVID-19 Pandemic on the Food Service Industry
People’s food and beverage consumption is equally increasing as the level of income rises, and the categories of food and beverage supply have been enriched and innovated, leading to continuous innovations in food and beverage varieties and consumption. The food service industry does not only contribute to the development of agriculture, forestry, animal husbandry, fisheries, and manufacturing industries, but is also closely related to tourism, entertainment, culture, and logistics, which made it an important part of the social service system.
2.5.1. Digital Transformation
In digital transformation, enterprises use technology to create an efficient digital business operation model. Since the outbreak of the COVID-19 pandemic, electronic platforms set aside their marketing wars and every effort has been made to ensure the continuous supply of materials and the enhancement of productivity.
Retailers with their own logistics and efficient supply chain management capabilities have made a significant contribution during the challenging period of the COVID-19 pandemic by promoting strong cooperation and symbiotic development among all the stakeholders.
During the COVID-19 pandemic, online live broadcasts of retailers showcasing their products to prospective customers gained popularity as a great way to increase the sales revenue of enterprises by letting consumers have a better understanding of offered products in detail and specialties of target companies regarding procurement, processing, and production, leading to enhanced trust in their brands and, as a result, attracting more customers.
The digital transformation of the food service industry may be a comprehensive innovation in the process of capital operation and capital allocation as the core of all business management in the catering industry. In the following sections, the study focuses on the utilization of digital platforms and the prospects of their use by the MSMEs in the food service industry in Japan in the context of the COVID-19 pandemic and its impacts.
2.5.2. Food Industry and the MSMEs in Japan during the COVID-19 Pandemic
To prevent the collapse of lifetime businesses, some restaurants teamed together to consolidate their efforts to circumvent the challenges through digital adaptation to region-based online food service and delivery platforms. The approach in the Japanese case consolidates food service and delivery by MSMEs in two ways: (1) to initiate and sustain a city-wide food service and delivery and (2) to consolidate food service and delivery in a neighborhood context.
4. Case Study
4.1. Overview of Gotanda Eats
Gotanda Eats was launched in 2020 in the Gotanda district of Shinagawa Ward in the Tokyo Metropolitan Area to foster the idea of neighborhood mutual assistance among local restaurants. The online interactive networking platform, including this group of restaurants called Gotanda Eats, was voluntarily created by CXO Bank, a private enterprise offering direct networking services through their online platform as an exclusive meeting space among CEOs of various enterprises including restaurant owners. At the onset of the COVID-19 pandemic, CXO Bank already had an existing 1800 registered members.
Since those members shared common concerns about the decline of the restaurant business, CXO Bank, the owner of the platform, declared in May 2020 that a free website might be created for restaurants affected by the COVID-19 pandemic so that they can receive online orders using the platform at no cost.
Gotanda Eats, a group of five restaurants in the Gotanda area, is operated by Oriental Foods, a food company that initiated its business by running university food courts. When schools and offices were closed due to the COVID-19 pandemic, Tokyo Shokudo (located in Nishi-Gotanda 1) run by Oriental Foods, was heavily impacted. Therefore, led by “Tokyo Shokudo” (located in Nishi-Gotanda 1), “TOKYO SALAD CURRY” (located in Nishi-Gotanda 1), “Bagatto” (located in Nishi-Gotanda 1), “MR. CHICKEN chicken restaurant Gotanda” (located in Higashi-Gotanda 2), “PUERTO” (located in Higashi-Gotanda 2), “Lantern Rouge” (located in Higashi-Gotanda 2), and “Sakana WAIGAYA” (located in Nishi-Gotanda 1), joined the group of Gotanda Eats for delivery food parcels of cooked meals.
In this case, there were three advantages as follows:
Eliminating the hassle of handing over change at the time of receiving payment upon the delivery of the concerned order;
Reducing the amount of interaction between customers and store staff as an infection prevention measure;
Completing a cash payment by a customer by receiving combinations of 1000-yen notes and/or 500-yen coins to facilitate smooth interactions.
4.2. Business Operation of Gotanda Eats before the COVID-19 Pandemic
It was realized from the interview with Tokyo Shokudo that the five restaurants that came together on the platform had an average staff of five people and their operations involved customers placing orders at the restaurants. However, customers also had the option to place an order via a telephone call. Furthermore, before the pandemic, restaurants had websites and social media sites as below.
According to the information from the interview, the restaurants before the pandemic had wished to join the UBER Eats platform. However, the food delivery service required some payment for registration fees as well as submission of photographs and other requirements which made it difficult for several to meet the requirements.
At the onset of the emergency declaration in the Tokyo Metropolitan area in 2020, and the directive for the closure of all shops, the owners of several restaurants again rushed to have their services registered under UBER Eats. However, they found the business model where UBER Eats seeks profit-sharing of 30 percent of the sale was not sustainable. The norm of social distancing for keeping any chance of becoming infected with COVID-19 had already led to a considerable decrease in income, which made it not viable to part with 30 percent of the sale. At the same time, those who were fortunate to meet the requirements found it difficult to connect with the service on time due to prolonged waiting times, since a huge number of restaurants were also trying to move onto the platform.
These frustrations were part of the reason to seek alternatives which then resulted in businesses joining Gotanda Eats.
4.3. Business Operation of Gotanda Eats during the COVID-19 Pandemic
Once the platform was created and the restaurants joined, the mode of ordering food changed as this process was consolidated into one and was handled by Tokyo Shokudo. For this process, when an order is made on the Gotanda Eats platform, the information is received and relayed to the respective restaurant by Tokyo Shokudo. In addition, the restaurants were also encouraged to advertise their menu on LINE smartphone application. Therefore, several photos of the meals and the menu were uploaded on LINE app, their websites, and other social media platforms.
This is the new element the restaurants had to be content with after joining the platform. Deliveries are made by the staff of Tokyo Shokudo restaurant on behalf of the other restaurants. Thus, when an order is placed, the information is sent to the respective restaurant via telephone and a dedicated LINE app chat. Once the food is ready a staff from Tokyo Shokudo might visit the restaurant that received the order and pick up the packed food for delivery by riding on one of the two bicycles within a 4 to 5 km radius of the city.
Customer Service and Satisfaction
The Gotanda Eats platform requested the participating restaurants to showcase their signature dishes as part of the marketing strategy. This creates an appeal to people to remember the restaurant for their distinct identity. For this purpose, the following menus were showcased:
Singapore Chicken Rice & Taiga Pao (Mr. Chicken);
Italian Char Siu “Porchetta” Bento (Wine Tavern Tokyo Shokudo);
Beef Skirt Steak Bowl (Lantern Rouge);
Rice Berry and Chicken Potato massaman curry Asian herb set (Asian Dining PUERTO);
Toyosu Yamayuki direct tuna rice bowl (side dish WAIGAYA Gotanda main store).
To enhance customer satisfaction, restaurant staff often wrote and added notes of gratitude to the customers whenever a delivery was made. This was seen as a good gesture to distinguish itself as an easy-to-reach restaurant unlike other big food delivery companies which can be, at times, not easily reachable. This was highly appreciated by customers.
4.4. Challenges in Business Operation during the COVID-19 Pandemic
The interview also revealed that these changes also brought other challenges to the restaurants, and are summarized below:
The maintenance of the platform is undertaken free of charge without any cost to the restaurants. However, Tokyo Shokudo had the responsibility to maintain and update it, receive the orders, relay the information to others, as well as receive and deliver the orders to customers.
The number of staff remained the same and had to use two bicycles for the deliveries. All deliveries are carried out using those two bicycles.
Deliveries were hampered during bad weather.
Finding the right addresses to deliver meals made it difficult to make deliveries.
Limited Support from Other Stakeholders
The interview also highlighted that, besides the support from the CXO Bank, the private enterprise, and other volunteers, there has not been any government support to maintain and sustain the platform.
It is for this reason that the platform is designed only for the pandemic period and not beyond.
The number of staff at the restaurants remains the same while dedicating their time to cooking, serving, receiving, and checking orders on the platform and on the LINE smartphone app.
Thus, going beyond the pandemic period might mean expanding the service and increasing the scope of activities. It might require consistent and sustainable support from external sources of funding. However, this kind of support was not present.
5.1. The Element of Innovation
The case example of Gotanta Eats has presented several workable collaborative engagements in a local context. It has shown several innovative procedures to sustain businesses during the COVID-19 pandemic. Furthermore, in the context of Japanese society, the case has offered a new dimension by offering alternative coping mechanisms. Many restaurants faced the challenge of potential bankruptcies if no alternative coping mechanisms were introduced due to the restrictions imposed by city authorities.
In terms of productivity, the interview significantly indicated that, although the restaurants did not increase sales beyond their averages, the sales are one aspect to consider in keeping their restaurant business surviving.
One important element of this innovation is the ability of Gotanda Eats to connect with customers within the radius of their food delivery services. Even though the restaurants were already known throughout their locality, their customers appreciated that the staff attached small notes of appreciation to the delivered food parcels. They also valued the fact that restaurants were sacrificing themselves by delivering the food to their doorsteps regardless of strict regulations to keep social distancing during the COVID-19 pandemic. Thus, their commercial transactional deals were interpreted as a new form of engagement.
5.2. Adoption and Digital Transformations during the COVID-19 Pandemic
Before the pandemic, the business model of the restaurants involved serving walk-in customers where orders were taken by staff of the restaurants.
During the pandemic, orders had to be placed on the Gotanda Eats platform and the food had to be delivered to the customer.
However, a key element is the “digitization” aspect. As indicated above, digitization has been defined in various forms which in the end indicate that analog should be transferred to digital. Although the earlier sections highlighted this phenomenon in the case of the restaurants using Gotanda Eats, one may be tempted to point out that there is no indication of the conversions of the restaurants’ models and activities to digital.
As discussed in the interview response, one restaurant forms the fulcrum and coordinates all other restaurants. Although this is seen as a challenge, it also shows that this role is strengthened, and similar experiences can be replicated in other areas for other MSMEs.
The indication here is that more MSMEs can be transformed digitally to avert the impact of other unforeseen challenges. In this context, the case of Yamagata Eats is discussed given its relevance of region-specific approach to support MSMEs in the food service industry.
5.3. Citywide Consolidated Approach: Learning from Japan’s Yamagata Eats
The COVID-19 pandemic promoted people to stay at home has compelled food service enterprises to adopt an alternative approach to be in touch with the customers and in-tune with their needs through digital platforms. Hereafter, a citywide consolidated approach is discussed.
On 19 March 2022 in Yamagata city of Yamagata prefecture, north Japan, a regional-specific mass-customized food and beverage delivery service called Yamagata Eats was initiated. It has been run by Enishi Holdings which has already marked a prior success in their initiatives to run regional food chains in the Hokkaido region.
Their key contributions are listed below:
Consolidate the group of regional players in the field of the food and beverage industry;
Rejuvenate the regional local economy beyond metropolitan urban centers where digital platforms for food delivery services have become easily available in Japan.
Regional restaurants and community-based services were severely impacted by the onset of the COVID-19 pandemic when eating-out needs declined. They have been helped through Yamagata Eats mainly through following two alternative innovative measures:
Focusing on catering to the needs of three generations in a family by a single food delivery order.
Specializing in delivering dishes that represent regional food culture reflected in a variety of locally produced food items and beverages.
Thus, Yamagata Eats created a digital platform for local food delivery services as well as small enterprises to increase their visibility. Small enterprises tie up with local companies in regions where major companies do not expand, enhancing sales among targeted local consumers while observing the strict norms to stay at home and work from home during the COVID-19 pandemic.
Notable characteristics of Yamagata Eats:
It has cultivated a culture of online food order among families with three generations at home: one can order a delivery of variety of dishes according to the tastes of the family members from young to old belonging to different generations.
It has sustained local food enterprises catering to the needs of the local population, leading to revitalizing the regional economy.
It has enhanced the ease of using catering services for consumers by introducing a single digital menu platform embracing 30 different local business entities, allowing the consumers to choose delivery services according to the preference of each of their family members.
Multiple orders from various enterprises at one transaction became possible, where the consumers can receive freshly prepared dishes from different sources delivered at the expected delivery time, removing the chance of some of those orders turning cold before the completion of all ordered items. It enabled the creation of dedicated family time through digitalized food delivery services.
Yamagata and Yamagata Eats
Yamagata Prefecture in Japan has the highest number of joint families where different generations stay together. Thus, the COVID-19 pandemic gave Yamagata Eats, a region-specific online food and beverage delivery service platform, an opportunity to devise the means to digitally consolidate orders of multiple dishes by a single order from a home where the customers try to respond to varied food preferences of different generations of their joint family members within some reasonable delivery time.
It is notable that customers are not limited to age groups, and options of available dishes are inclusive of various dishes from different local enterprises. Yamagata Eats can successfully cater to the needs of regional consumers who have specific requirements of serving varied food preferences at a time for several members of a family, unlike urban consumers.
Yamagata Eats has shown several notable and unique characteristics.
Revitalizing the local food and beverage industry.
Involving local small enterprises, such as local sake shops known to the customers for generations.
Enhancing the opportunities of creating workable models for a sustainable economy in regional settings.
Here, it is worth mentioning that joining digital food delivery services demands the participating enterprises to be compliant with a high degree of standardization apart from bearing the cost of participation fees. Those enterprises that may not be able to bear financial as well as technological pre-conditions to be part of the circle of far more standardized digital food delivery services can find this locally grown online food delivery platform where successful digital adaptation was possible through local collaborations. These small enterprises might not have come to online platforms if there were no such region-specific options as Yamagata Eats.
It is important to note that Yamagata Eats found their IT partner, Itonabu, an IT venture in Ishinomaki City, Miyagata prefecture, in the same Tohoku region. Since the IT component has been jointly developed, handling site management and any updating requirements has become easier in both taking orders and processing payments for food delivery orders.
Digital transformation not only enhances business opportunities, but their services also improve the existing enterprise-customer relationships, like entrusting delivery work to all the local sake shop owners.
Entrusting delivery tasks to local shops has given customers much comfort to receive their orders through familiar personnel of local enterprises.
Both the safety and satisfaction of the customers are assured in this manner, further enhancing the prospects of the sales of other products of SMEs .
This case study points out the importance of involving crucial stakeholders.
It is notable to find that Yamagata Eats has successfully involved local wholesalers such as:
The case of Yamagata Eats offers a prototype that can be replicated, involving various stages of the stakeholders in the local economy. In the future, this system can be expanded to other regions with a population of 300,000 or fewer. Notably, Morioka City of Iwate prefecture on Japan’s northern coast of Honshu has also been trying to establish similar businesses in their city. This offers an opportunity for small and medium restaurants and gives other food service providers the chance to transform their businesses.
5.4. Discussion on Resiliency and Trade-Off
5.5. Lessons and Way Forward: Area-Specific Stakeholder Collaborations
The COVID-19 pandemic is an unprecedented catastrophe the world has endured over the last few years where the business of informal, scattered, or uncoordinated enterprises can be severely impacted. Therefore, strategies to survive the impact and adopt digital transformation to enable workable adjustments to sustain the business is paramount for all MSMEs in the food service industry in Japan. In this context, the COVID-19 pandemic has shown intensified obstacles for MSMEs in the food service industry but paved the way for an opportunity to ensure sustainable business through their timely adaptation to digital transformation.
The above overview of the crisis and respective solutions deployed by the restaurants during the pandemic have witnessed that digital transformation enables enhanced business opportunities through area-specific collaborations of various stakeholders.
The following points can be considered vital lessons learned that can contribute to introducing theoretical implications:
Digital transformation contributes to sustaining the working of the existing local food service industry to tide over the crisis by enabling caterers to effectively attend to the preferences of their customers.
There are possibilities and potentials for multi-tiered collaborations involving various stakeholders of local economies, letting local administrations take note of positive impacts on the regional economy through digital transformation in the food service industry.
The processes of digital transformation studied in this paper indicate that the food service industry can have comprehensive innovative collaborations, not restricted to or tied-up with one specific partner. There is a vital need to establish a comprehensive collaboration of several parties and stakeholders.
The need for a collaborative approach falls in line with how other industries can modify their business strategies and adapt themselves to digital transformation which in this case has proven that such a process does not require sophisticated procedures.
An acceleration in the digital development process of the food service industry can kickstart with the digitization of revenue, procurement, finance, marketing, operations, and customer data. It can be realized from the above discussions that the utilization of online platforms has been the major tool by most MSMEs to circumvent their challenges. It is appropriate to acknowledge that case studies from Japan have placed equal importance and eagerness in materializing local customization while adopting digital transformation during the COVID-19 pandemic and beyond.
However, it is equally important to note that successful customization in the local food delivery industry was the outcome of their willingness and urgent adaptation to digital transformation as a measure of survival, which resulted in the potential revitalization of the local economy of Gotanda City.
Based on the literature review and the case study examples listed above, the following are suggested options to enhance existing approaches as well as offer alternatives to future digitization of business models by MSMEs.
Sustainable Business for MSMEs Through Local Digital Platforms
The study has shown that sustainable business for MSMEs in the food service industry comes with timely digital adaptation to create their own digital platforms. Some MSMEs have started to develop their digital platforms for takeaway orders, but it will still take some time to see their maturity on the newly developed app for food deliveries.
For example, several restaurants can not join the mainstream food ordering platforms due to cost and other challenges, which in this case initiated the need for local digital food platforms. However, sustainability depends on assistance from governments and other stakeholders. Furthermore, the current stage of Gotanda Eats shows that, by developing local platforms, businesses can be sustained even if they do not to join big and well-known platforms.
Owning digital platforms enables MSMEs to grow beyond outsourcing deliveries. The key element lies in continuous collaborations and co-learning among all the concerned stakeholders in a particular region, enhancing possibilities of regional networking among MSMEs. The role of the government can be a catalyst in offering timely intervention such as offering subsidized skill-up training towards digitization of day-to-day operations of MSMEs as well as ensuring incentives for the consumers to opt for obtaining services from local businesses.
Further research on such case examples witnessed during the COVID-19 pandemic will possibly suggest valuable lessons for future policy frameworks in rejuvenating the local economy while proposing a resilient model.
Digitization of MSMEs for Survival Embraces Possibilities of Regional Resilience
Digitization in the food service industries appears to increase in the future even after the end of the COVID-19 pandemic. It should be noted that case studies of local food restaurants and the food sector in Japan have marked possibilities of enhanced reach to potential customers through digitalized networking and collaborations with concerned partners.
Government support will be crucial in harnessing all advantages that are available through digitization and possible collaborations among the partners.
For instance, the Shanghai District Government has worked with Tencent to develop an online system where restaurants can connect with professional delivery services to arrange their delivery riders through the WeCom platform. Additionally, on 11 May 2022, the Shanghai Catering and Cooking Industry Association in China issued guidelines to make restaurants resume their business via takeaway service online, by supporting them to work with qualified professional food delivery platforms or arrange their riders. A similar plan can be replicated in Japan to assist small businesses and the food service industry for local and regional resilience. Fortunately, Gotanda Eats and Yamagata Eats have paved the way for possibilities in the sectors and their replication in other cities. This can well align with Japan’s Society 5.0 and Industry 4.0 where technology plays vital roles in development.
As argued before, there is always a trade-off of digitization, which minimizes human interaction and therefore may have a larger impact on cultural conditions. The inclusion of the aging population in the digital platform is another challenge. Therefore, while digitization surely helped the MSMEs in the food sectors to overcome the shocks, a blended system may be better in the longer term.
5.6. Limitations of the Study and Future Research Directions
The study has focused on the case of Japan by highlighting the resilience of the enterprises in the food sector in the middle of the COVID-19 pandemic. It is notable to see that the case studies depict scenarios that can be the new development direction for several business entities of the entire food service industry to innovate as a means of staying afloat during crises. However, it should be emphasized that these are short-term measures for enhancing sustainability and achieving livelihood resilience.
The induced digitalization and the effectiveness of digital transformation in the COVID-19 pandemic as adapted by the case study can highlight the factors to counter the threat of closing their business, the replicability of the case is limited due to the one-case/one interview to obtain empirical original data for the study. Hence, the findings are rendered to form a narrative discussion of this case example.
In this context, further comparative case studies in regional settings, other than Tokyo or Yamagata, are necessary to find how other MSMEs can tide through the devastating impacts of the pandemic. The findings of such future studies will enable the central and local governments to inform themselves of the induced impacts of COVID-19 experienced by the MSMEs and better prepare for such disastrous eventualities.
As an outcome, incorporating some adaptive measures to upgrade the skills of the enterprises for their disaster preparedness given their business continuity can be a possibility.
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