Japan Could Be A Large IT Market: NASSCOM

Monday, October 27, 2008

Japanese IT services market at $108 billion is the second largest in the world with India's share in the market being 1 to 1.5 billion. Offshoring is limited to 8-10 per cent of the total market with China being the biggest offshoring partner, accounting for over 50 per cent of the total offshoring. NASSCOM and PricewaterhouseCoopers have released a report on Japan titled Opportunities for Indian IT Industry: Japan. The report presents key opportunities and outlines potential strategies for Indian IT companies to tap the $108 billion Japanese market.
Speaking at the launch, 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 per cent of the exports happen to United States and Europe with rest of the world contributing just 10 per cent. These markets are investing in information technology (IT) offering huge opportunity."

"Japan as a second largest country economy and highly dependent on technology currently constitutes only 2 per cent 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," added Mittal.

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 centre. 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, further adds the report.

Some of the key opportunities for Indian IT companies as well as potential strategies to tap the Japanese market are also been identified in the report. According to the report, owning to a strong industrial and market base for embedded products in Japan, embedded systems and engineering services present quick win areas for Indian due to their high market requirement, low language dependence and high offshore ability. Alliance with the top and second tier players is a good entry strategy, as well as 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, mergers and acquisitions is a viable alternative indicating strong commitment to Japanese clients.

Embedded systems development and engineering and R&D services are the prospective quick win service offerings for Indian vendors. Application development and maintenance are the next big opportunities. Increased willingness by Japanese companies to adopt packaged products over custom development in the wake of global competition. This offers implementation opportunities for Indian companies, says the report.

The report also points out that 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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