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Agenda
Introduction and overviewIndia and Japan - need for strategic partnershipOffshoring market in JapanKey findings of the report Opportunities for Indian IT industry : Japan
IT Landscape in JapanWho serves the marketIndian presence in JapanChallenges for Indian players in JapanJapan offshoring experience
Fallouts of the traditional IT management model
Recommendations for stakeholdersService to targetWhat should Indian vendors doManage clients expectationsInitiatives need to be taken by JapanNASSCOMs role
Advantage India, Advantage Japan
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Overview
Indias share of IT exports to Japan is less than $2Bn a year
Penetrating the second biggest IT services market in the world continues to be amajor challenge for the Indian IT companies.
Indian companies looking to de-risk themselves from dependence on theUS/European markets market have long tried to establish themselves in this market.
Indian players have found nominal success. Only breakthrough being in theembedded systems space where they could work directly with the end customers
India, with its large technically qualified manpower base and IT service deliveryexpertise, has a big role to play as the aging Japanese economy makes choices tostay competitive in global markets.
Japan recognizes and respects Indias prowess in IT
This study strives to bring out the key opportunities for Indian IT companies and thepotential strategies for success in this market
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India and Japan: Need for strategicpartnership
The aging Japanese economy in its expansion phase is facing acute manpower shortage and strong global competition in terms of costs as well as innovation
The current financial crisis is leading Japanese companies to look for high quality,proven and low cost sourcing destinations as well as newer markets
India is a natural ally, complementing the needs with its excellent service deliveryexpertise, large spectrum of human resources and a huge consumer market
Governments of India and Japan are aware of this opportunity for a strategic
partnership. Both countries are facilitating increasing number of joint declarations,delegation visits and other business events between the two countries.
India with its large consumer base is a big market for Japanese industries
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Size of the offshoring market
Japanese IT services market at USD 108 Bn is the second largest in the world.Indias share in the market is between USD 1 to 1. 5 Bn
Offshoring is limited to 8-10% of the total market
China is the biggest offshoring partner
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IT usage has focused on improving the business efficiencies in administrative andintra company transactions. Only small portion of companies have utilised IT for strengthening competitiveness of the firm.
Low overall IT spending. Spend/ sales ratio is around 1-1. 5 % for most industries ascompared to around 3 .5 - 4 % in the US
Key findings IT Landscape in Japan
BFSI and Manufacturing are the highest spenders
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Reasons for preference to custom builtapplications:
The innate closeness of Japanese
businesses stressing on maintainingthe uniqueness of processes
Low employee mobility
Relatively less cases of corporatetakeovers and mergers with low needfor integration
More than 53 % of Japanese IT servicesconstitutes customised softwaredevelopment
Drivers for change : COBOL skills shortage,need for increased flexibility and costpressures
Top 3 ERP vendors : SAP, Oracle, Glovia
Other ERP vendors : Gemplanet (Hitachi),COMPANY, Superstream, Flexprocess,SCAW, ProActive, SSA, IFS
H ighly fragmented ERP products market.Top 3 vendors occupy only 40-50% of themarket share.
Strong traditional preference for custombuilt applications
Increasing demand for package products
Key findings IT Landscape...
Most Japanese companiescontinue to operate legacymainframe
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Keiretsu of IT service providers
Top tier work as partners to clients. All major ITservices contracts are signed by the top tier.Top tier then outsource pieces of work to anumber of small and midsize providers
Secondary service providers further breakeach module and outsource components
Modularisation continues till more than 4 or 5 levelsIndian and Chinese vendors often findthemselves at the base of this hierarchy withno visibility of the main customer
The Japanese IT Services Pyramid
Key findings - Who serves the market in
Japan?
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Only 8-10% IT services are offshored
China is the largest offshoring partner for the Japanese accounting for over 5 0% of thetotal offshoring.
Single biggest factor for choice of China for offshoring is the cultural homogeneity.
However, the services offshored are low end IT services of coding, testing and BPO.Concerns over offshoring to China:
Limited capabilities to manage large complex projects
Lack of high end domain and technical expertise
Concerns over data privacy and IP protection
High attrition
India as offshoring destination is gaining popularity
China is a preferred partner today, only because of the lack of alternatives
Key findings Japanese offshoring
experience
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IT is viewed as a cost centre and not a strategic enabler. Most Japanese companies lack theconcept of the CIO office. IT investment decisions are often influenced by the prime contractors.
Oligopolistic control on clients. Clients have no credible alternative
Incumbents have no incentive to offer an alternate model
Usually, Primary partners the integrator and has hardware, middleware, product, solutions topush. Sub vendor has no visibility to end user
Poorly defined IT project governance.
Ambiguous contracts and incomplete scope of work documents.
Unclear specifications
Frequent changes in scope and specifications
Inadequate documentation of the IT applications and internal processes
Low opportunity for cost savings through offshoring
Key findings Limitations of the
traditional IT management model
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Indian companies have ventured in this market from as early as the mid nineties
Several of them have established Japanese desks and have made significantinvestments with local hires.
Prominent Indian companies in Japan : TCS, Wipro, Infosys, Zensar, Satyam, Mastek,Patni, NIIT Tech, KPIT Cummins, HCL Technologies
Most players have found success in embedded systems development where they haveopportunity to deal with the direct customers rather than becoming part of the hierarchy.
Besides this, most players also offer AMD in this market
However, even the larger players earn less than 3 % of their revenues from Japan
Key findings Indian presence in Japan
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Struggling to offer the right value proposition andpositioning themselves
Barriers to entry in terms of language & culturalcompatibility.
Low Japanese language skills available in India. There are around 7 1,000 Chinese students enrolled in Japanese
universities as against only 4 80 from India
Lack of focus: Far too busy serving US and UK
Struggling to cope with the perfectionist attitude of Japanese clients, long gestation periods and undefinedproject management practices
Keiretsu Japanese business model doesnt encouragesentry of new players
JLPT 2007 applicants by country*
China 254,893
Korea 108, 795
Taiwan 6 2,22 3
Thailand 1 5 ,793
V ietnam 1 3 ,377
Indonesia 8, 547
India 7,375
Singapore 4 ,80 5
Brazil 3 ,654
Others 49 ,759
Total 529,221
* countries besides Japan
48%
< 2%
Key findings Challenges that Indian
players face in Japan
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Current situation isdisadvantageous for bothJapanese and Indian companies
Changes in approaches areinevitable
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Recommendations - Services to target
Embedded systems
Engineering and R&D
Application development &MaintenancePackage Implementation
Target services which havehigh market potential and atthe same time allow Indianplayers to build on theexisting capabilities
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Recommendations - What should Indianvendors do?
Avoid opportunism. Have a strategic long term view of this market. Market islarge and would need patience to develop
Establish right value proposition ; start small and build trust. Understand thebusiness difference in contractual terms.
Showcase partnership based relationship for mutual advantage rather thanclient-vendor model. Target transformational change projects
Localise, localise, localise ; invest in understanding context
Develop strengths in Japanese language and be more sensitive to culturalissues
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Recommendations - Manage clientexpectations
Client expectations What Indian companies offer/ expect
Partnership towards a common goal of productdevelopment
Client-vendor relationship with clearlydemarcated scope of work. Project centricapproach
see the larger pictureTrust : Japanese value trust and loyalty aboveother aspects, especially when they aredealing with outsiders
Indian vendors view the inadequately definedcontracts as potential risk area which alsotranslates in their interactions with the client.
develop trustworthinessValue proposition: Technology expertise Value proposition: Low cost services
target transformational change projectsHelp them understand their requirements Look for clearly defined scope of work
expect long sales cycles and scope changes
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Recommendations Initiatives need tobe taken by Japan
For Japanese industry to reap benefits of this opportunity and improve its competitiveness
Japan has too consciously embrace globalization; accept that language and culturecannot continue to be barriers; they need to be broken
Japanese government should proactively encourage industries to look beyond the serviceprovider pyramid and engage with global players.
Accept that global players can offer substantial value through domain expertise andservice delivery maturity,
Facilitate inflow of foreign skilled workers and their acceptance in the Japanese social aswell as business setups.
Industries in Japan, to truly realise the benefits of IT need to re-evaluate their traditionalattitude to IT and view it as a strategic enabler rather than a cost centre.
Establishing a CIO/CTO office to manage IT is a first step, which will also helporganisations mature on the global IT project management best practices
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Recommendations - NASSCOMs role asa facilitator
Run programs to sensitize Indian IT industry on specific requirements of thismarket
Open a Japan desk to facilitate sharing of information and provide access toJapanese companies
Work with Governments both sides to increase spread of Japanese languageand culture
Develop strong bonds with METI; JISA; JUSA; JETRO to promote commoninterests
Evolve embedded and application area strategies as independent strategies
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Advantage India
Japan market is a prospective alternative to Indian IT industry to reduce itsdependence on US/European markets
Indian IT vendors are regarded high on technology & domain competence, with fastramp-up capabilities, low on cost and with a better IP protection environment.
Japan and China also suffer with the historical mistrust amongst the nations. MostJapanese respect Indian culture and recognise the prowess of the Indian IT sector,
Indian IT companies have an opportunity to establish themselves as the high endservice providers, with service offerings differentiated from the low end Chineseproviders.
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Advantage Japan
As with the US and the UK, the Indian IT sector would contribute immensely and helpaccelerate growth of the Japanese economy which is sagging since last decade
Reduce dependency on China as outsourcing partner
Make use of best practices while offshoring with rich Indian experience. Get associatedwith the best minds in IT in the world
India is first a natural partner for innovation led high end product development and thenan IT outsourcing vendor
Japanese companies would be able to increase profitability by cutting costs , help theeconomy fight recessionary pressures and compete globally
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Questions