Japan Report Oct 20

8/8/2019 Japan Report Oct 20

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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

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Japan Report Oct 20

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