Japan opportunity rising for software companies

Japan is now a potential Big Opportunity for Indian IT companies. Global economic slowdown is forcing Japanese companies to outsource work, to meet their business needs cheaply and quickly.

But realising all that potential may not be a cakewalk for Indian coders. In recent years, they did make some progress, but language barriers and clannish corporate culture in Japan tend to slow such progress.

“Japan has been outsourcing for the past eight years. It’s not easy, however, to penetrate that market as clients there take a long time to build relationships with vendors. Though companies like iGate Patni and TCS have fared relatively better, there is still a lot that needs to be done. The market still has a lot of under-penetrated opportunity left,” said Karthik Anand, director, Zinnov, a management consultancy.

Recently, TCS, India’s largest IT software exporter, and Mitsubishi Corp of Japan decided to invest $5 million in a joint venture to set up a delivery centre — Nippon TCS Solution Centre Ltd — in Japan.

Though TCS had had a presence in Japan for almost 20 years, its annual revenue there is still less than $100 million. Similarly, Japan constitutes around 40% of iGate Patni’s Asia-Pacific revenues.  The company and Nucleus Software were among the first Indian firms to enter Japan. Nucleus forayed in 2000 by partnering Shin Sei Bank. It has invested $10 million in Japan, and operates there with a team of Japanese investors and Japanese staff. Japan contributes about 30% to its revenues today.

“Since Japan is the second-largest IT market, we want to increase our presence there, using our TCS Japan subsidiary, and we hope to make this a powerful delivery centre, in terms of partnership (with Mitsubishi). Through this partnership, we hope our revenue from the region increases to half-a-billion dollars by next year. This partnership will significantly accelerate our momentum in Japan,” said N Chandrasekaran, chief executive officer, TCS. 

R Chandrasekaran, president and managing director, global delivery, Cognizant, said the time is right to build partnerships in Japan since the market is opening up and growing.

“Economic pressures and unfavourable demographics (population that is both ageing and growing slowly) have forced them to open up their market to outsourcing to countries like India. Since they have just started investing in the Indian market, we definitely see a trend here for more Indian IT firms to forge partnerships,’’ said Vishnu Dusad, MD & CEO of Nucleus Software

Sid Pai, managing director, Information Services Group, a global advisory firm, said apart from the culture and language barriers, there is a lot Indian companies need to do to grow in Japan.

And with Japanese outsourcing companies such as Fujitsu, Hitachi and NEC Corporation already operating there, the going will not be easy for Indian coders. “These companies have been leveraging IT services in this market for years now. The Japanese like to take things a little slow, so the Indian firms will have to play the waiting game. Also, Japan has already been offshoring to China,” said Pai.

Indian companies, Pai added, will have to treat Japan as a different market and not compare it with the US or the UK.  Many feel that cracking the US market was easier for players such as TCS and Infosys as there was no language barrier and the market was predominantly a product industry. It was only in the ‘90s that IBM and Accenture opened up their services wings to Indian coders. “Basically, companies should be patient and willing to wait. Japan is not the kind of market where you can gain share all of a sudden,” said Pai.

Satish Joshi, executive vice-president and head of product engineering services, iGate Patni, echoed Pai’s views. “It takes time to win the confidence of Japanese customers. You have to prove your ability to address their requirements, demonstrate the value that you can provide. Having got over these hurdles and developed the confidence of working with you, they will then treat you as a true partner and would be willing to work with you for a long time.”

Dusad of Nucleus Software agrees. “From a historical perspective, Japan has been a closed island society, with no interactions with the outside world. Thus, they have always been suspicious of anything foreign, forcing foreign IT firms to keep persevering till they win their trust. Another problem is the fact that once a partnership is forged, it is for life, which may be difficult considering the changing economic scenarios.”

Small wonder, Nucleus trains its non-Japanese staff in Japanese customs. When it comes to Big Opportunity, it does not want to leave anything to chance.