Indian IT industry go Japan ?
SOURCE: Press Release
DATE: Oct 21st, 2008
MOHIT Soapbox:
I believe the Indian large vendors have been trying to penetrate the Japanese market for a number of years and have faced similar challenges of getting into China. Language and cultural barriers being the largest roadblock. Wonder how many firms during these times of trying to save cash will invest in the Japanese market to gain marketshare over a longer period of time. The smaller firms in India don’t have those deep pockets to explore slow penetration global markets now so has to be the larger players.
NASSCOM, the premier trade body and ‘voice’ of the Indian IT-BPO industry, and PricewaterhouseCoopers, the leading professional services firm in India, today released a report on Japan titled ‘Opportunities for Indian IT Industry: Japan’. This is the second report in the Country Report series that focuses on specific countries/regions that are alternate markets, competitive destinations and/or potential partners for India.
Speaking at the launch, Mr. Som Mittal, President, NASSCOM, said, “The Indian IT-BPO companies are fast diversifying into near territories and opening up new opportunities for growth. Currently, 90 percent of the exports happen to United States (US) and Europe with rest of the world contributing just 10 percent. These markets are investing in Information Technology (IT) offering huge opportunity. To facilitate this NASSCOM has launched the ‘emerging market series’.
Key Highlights
Demand is primarily driven by the BFSI and Manufacturing industries which together consume close to 42% of the total IT services.
Other large consuming industry sectors are the System Integrators (16.3%), Public sector (8.6%) and ICT (7.9%).
Unlike other developed markets, the Japanese look up to IT as a cost centre and a support service with IT budgets being largely utilised for ongoing maintenance of the current setup.
Domination of custom built software versus package products – More than 53% of the IT spend is on developing customised software.
Current setup constitutes legacy IT systems and shortage of legacy skill sets in the market is a major concern.
Less than 10% of the outsourced IT services are offshored – Most offshoring initiatives are by the system integrators and the next levels in the services hierarchy.
China, the preferred outsourcing option due to lack of available options to meet the Japanese linguistic requirements
More than 50% of services are offshored to China, while India receives around 13% of the offshoring pie. Philippines and Vietnam are other low cost offshoring destinations.
Japan as a second largest country economy and highly dependent on technology currently constitutes only 2 percent of our exports. With shortage of technical skills in Japan, and urgent need for business transformation, Japan would be a large market. While Indian companies have been targeting this market, a new concerted approach needs to be taken by both sides.”
Mr. Ambarish Dasgupta, Partner and Head of Consulting practice at PricewaterhouseCoopers India, the Knowledge partner for this report said, “Indian companies must change the mindset, and move from being transactional to transformational in their approach, and be ready to invest in strong relationships upfront. The alternative markets to the US and the UK, like Japan, which we are covering in a series of reports, are very relationship focused. The prospects expect the partners to prove themselves in a relationship, building trust and being a trusted advisor rather than a vendor selling them products and services.”
As per the report, a key element for Japan to retain its competitiveness in the global market would need the proactive effort by Japanese government and industry to break the traditional models and they would have to reach out.
They would need to embrace globalisation, accept the advantages of outsourcing and find ways to open up service businesses with countries like India. Japanese business houses would have to view IT as strategic enabler, rather than a cost center. They would also have to re-look at their current hierarchical structure of IT service providers to bring in best practices in domain, technology and service delivery.
NASSCOM through this paper identifies key opportunities for Indian IT companies as well as potential strategies for this market. It also clearly outlines NASSCOM’s agenda to facilitate this.
Opportunities and Strategies to Succeed
Japan, a market for long-term players – It calls for a strategic approach and the capability and intent to invest in long-term relationships and, therefore, project gestation periods.
Localisation of services in the Japanese market context Owning to a strong industrial and market base for embedded products in Japan, embedded systems & engineering services present quick win areas for Indian due to their high market requirement, low language dependence and high offshore ability
Japanese companies are now beginning to modernise/migrate their legacy application in view of the high maintenance cost, low flexibility and non- availability of legacy skills which presents another big opportunity area
Alliance with the top and second tier players is a good entry strategy
Mergers & Acquisitions – With the increased acceptance of foreign business practices, official government policy to attract FDI, changes in the legal, tax and accounting regulations complemented with the increasing muscle of the Indian IT companies, M&A is a viable alternative indicating strong commitment to Japanese clients
Setting offshore development centre in China is another strategy as China is currently a preferred location for outsourcing low-end development work by Japanese clients due to its cultural and geographical proximity.
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