"Market Formation Potential Index Ver. 1.0" Developed

1. Background

Japanese companies are struggling to create and expand markets. Between 2009 and 2019, their net profit grew approximately 4.9 times, but sales only increased 1.1 times.

One of the reasons for this is that as society has matured and competition with developing countries has intensified, functional values such as quality, performance, and price, which have traditionally been Japanese companies' strengths, are becoming less appreciated by the market.

On the other hand, appreciation of social value such as SDGs and well-being is increasing year by year. For example, in 2017, the potential market size for SDG-related businesses was estimated at 2,449 trillion yen, so the market for them could become huge if successfully formed. However, social challenges are coming to the surface because they are not solved through market principles. Therefore, simply solving them will not earn sufficient compensation from the market, making it difficult for related projects become viable. For business in these areas to be sustainable, it will be necessary to establish a system (rulemaking) in which the market recognizes the value of solving social challenges.

However, many Japanese companies have been averse to rulemaking due to obstacles such as the following: (1) a strong perception that rules are to be observed, and a lack of ideas about how to utilize rulemaking in business; (2) a lack of know-how about rulemaking, as it requires completely different skills from working to improve quality, performance, and price; and (3) difficulty getting the management echelons to understand, because they are often driven by short-term profits and rulemaking is a medium- to long-term endeavor.

2. Market Formation Potential Index

Against this background, the Ministry of Economy, Trade and Industry (METI) examined companies that are working to use rulemaking to create business aimed at solving social issues, and researched what forms of potential (market formation potential) are necessary to form a market. The results showed that the market formation potential consists of the following three capabilities:

Capability to envision an agenda	The capability to strategically set an agenda and envision and design a story for forming a market in which the value of solving social challenges is recognized, based on the means for solving social challenges inherent in the agenda and on feasible rulemaking
Capability to solve social challenges	The capability to provide goods and services that contribute to solving social challenges through, for example, cooperation with others, while possessing the expertise and systems necessary to solve the above social challenges
Capability to develop rules	The capability to develop rules (regulations, norms, specifications, other standards and attestation, etc.) in cooperation with stakeholders to ensure that the goods and services provided to solve the above social challenges are appreciated by the market

In addition, METI has developed the "Market Formation Potential Index Ver. 1.0," in order to make it possible to assess the situation regarding building these three capabilities. The Market Formation Potential Index is in the form of a questionnaire. By answering it, businesses will be able to visualize, from the viewpoint of market formation potential, the strengths and weaknesses of their own projects specifically aimed at market formation.

3. Future efforts

In order to encourage Japanese companies to utilize the Market Formation Potential Index, METI is going to undertake dissemination activities and examine whether it can be adopted as one of the criteria for evaluating projects for market formation that the ministry implements. Through these efforts, METI is aiming for the Market Formation Potential Index to become a set of action guidelines for companies working on market formation.

Division in Charge

Technical Regulations, Standards and Conformity Assessment Policy Division, Industrial Science and Technology Policy and Environment Bureau