Chinas AI Stars Turn to Japan as Growth Hotspot, but Trust and Local Know-H...

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AsianFin -- Japanese consumers and businesses are hungry for AI tools—and Chinese tech firms are racing to meet the demand.

　　At a recent generative AI roundtable hosted by Extraordinary Capital, Japan emerged as the surprise focal point, with founders of Chinese startups highlighting its untapped potential.

　　Compared to Europe and the U.S., Ive actually been paying more attention to the Japanese market lately, said Liu Haozhen, founder of Eolink and XPack.AI. His sentiment was echoed by Chen Guang, head of QuickCEP: Weve been doing quite well in Japan and Southeast Asia. In my view, Chinese products are more competitive in the Asia-Pacific region.

　　Theyre not alone. Global heavyweights from OpenAI to NVIDIA have planted flags in Japan over the past year, drawn by a market that blends high purchasing power with a massive gap between demand and supply. But cracking it requires navigating unique challenges—from deep-seated trust barriers to a reliance on powerful intermediaries that can slow deals to a crawl.

　　Japans AI revolution is still in its infancy, and thats part of the appeal.

　　Only 26.7% of Japanese consumers used generative AI in the 2024 fiscal year, according to the countrys Ministry of Internal Affairs and Communications—dwarfed by 81.2% in China and 68.8% in the U.S. Among businesses, adoption lags even further: Just half of Japanese firms have embraced generative AI, versus over 80% in China and America.

　　This inertia isnt new. Japans software and SaaS sectors have long trailed global peers. As recently as 2019, while Chinese companies were using collaborative digital tools, their Japanese counterparts relied on Excel, face-to-face meetings, and physical stamps to approve documents. Even now, only 37% of Japans small and medium-sized enterprises— which make up 99% of its businesses—use SaaS solutions, compared to over 70% in the U.S. a decade ago.

　　But change is accelerating. Japans cloud computing market grew 36.6% year-on-year in 2021, with annual gains exceeding 25% ever since. Its SaaS market ballooned 140% between 2019 and 2023, hitting 1.47 trillion yen , and could nearly quadruple by 2030 with AI integration, according to local consultancy Nihonium.

　　For Chinese firms, the math is compelling. Japans per capita consumption levels are high, and businesses—particularly in creative fields—show strong willingness to pay. Currently, Japans AI market is characterized by ‘high demand and low supply, a Wondershare executive told AsianFin. The companys video-editing app, Filmora, ranks among Japans top three, with 49 million users.

　　Success stories exist. Notta, an AI-powered transcription tool, counts over 75% of its consumer users in Japan and generates nearly $10 million in annual recurring revenue. Wondershare has thrived for a decade, thanks to localized content libraries—think anime-themed templates and Japanese sound effects—that resonate with users.

　　But others struggle. A major Chinese SaaS firm with a decade-long presence in Japan has seen lackluster results, hampered by half-hearted localization and a failure to build trust, according to *Going Global Reference*.

　　Trust is Japans highest barrier. Consumers favor local brands, and businesses prize reliability above all. Japanese users also demand meticulous attention to detail, from product interfaces to after-sales support.

　　Small tweaks can yield big results. Nottas founder, Zhang Yan, said switching pricing from U.S. dollars to yen boosted revenue by 30-40%, making the product feel less foreign. For enterprise deals, deeper steps are needed: Alibaba Cloud notes that winning over Japanese clients takes years, but loyalty follows—once a partnership is sealed, companies rarely switch and often pay premiums.

　　Notta went further, registering a local entity, signing contracts as a Japanese firm, and recruiting prominent local software figures as advisors. QuickCEP, targeting large Japanese accounts, set up a Tokyo office with local staff to nurture relationships—critical in a market where without acquaintances or familiar system integrators, its very difficult to enter large enterprises, Chen said.

　　Even with trust, closing deals requires navigating Japans unique IT ecosystem.

　　System integrators—intermediaries that handle outsourcing for corporate IT needs—dominate 70% of Japans IT spending, while SaaS firms capture less than 2%, Liu said. Unlike in China or the U.S., where companies often have in-house tech teams, Japanese firms outsource nearly everything to these integrators.

　　The problem? Integrators profit from complex, custom solutions and have little incentive to push cheaper, simpler SaaS tools. Convincing them to adopt new AI products means aligning with their existing workflows—a slow process.

　　Entering Japans large enterprises requires partnering with system integrators, said one industry insider. OpenAI did just that, teaming up with NTT DATA, Japans largest integrator, to distribute ChatGPT Enterprise across finance, manufacturing, and healthcare.

　　But patience is mandatory. Proof-of-concept phases can stretch 3-6 months—three times longer than in China—followed by another 3-6 months for business validation. Procurement approvals add 6-12 months more. From first contact to deployment, deals can take 2-3 years.

　　Customers dont mind whether a product is a 90 or an 80, but they do care about the difference between an 89 and a 90 when it comes to service, said Linklouds Gao Ning, summing up Japans exacting standards.

　　For Chinese AI firms eyeing global growth, Japan offers a tantalizing prize. But winning it means trading speed for precision—and playing by local rules.