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Opportunities for Indian IT industry : Japan

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India and Japan - need for strategic partnership. Offshoring market in Japan ... Fallouts of the traditional IT management model. Recommendations for stakeholders ... – PowerPoint PPT presentation

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Title: Opportunities for Indian IT industry : Japan


1
Opportunities for Indian IT industry Japan
PRESS CONFERENCE New Delhi, October 20, 2008
EMERGING MARKETS SERIES
Mr. Som Mittal, President, NASSCOM
Mr. Ambarish Dasgupta, Partner and Head of
Consulting practice, PricewaterhouseCoopers
2
Agenda
  • Introduction and overview
  • India and Japan - need for strategic partnership
  • Offshoring market in Japan
  • Key findings of the report Opportunities for
    Indian IT industry Japan
  • IT Landscape in Japan
  • Who serves the market
  • Indian presence in Japan
  • Challenges for Indian players in Japan
  • Japan offshoring experience
  • Fallouts of the traditional IT management model
  • Recommendations for stakeholders
  • Service to target
  • What should Indian vendors do
  • Manage clients expectations
  • Initiatives need to be taken by Japan
  • NASSCOMs role
  • Advantage India, Advantage Japan

3
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 a major challenge
    for the Indian IT companies.
  • Indian companies looking to de-risk themselves
    from dependence on the US/European markets market
    have long tried to establish themselves in this
    market.
  • Indian players have found nominal success. Only
    breakthrough being in the embedded systems space
    where they could work directly with the end
    customers
  • India, with its large technically qualified
    manpower base and IT service delivery expertise,
    has a big role to play as the aging Japanese
    economy makes choices to stay 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 the
    potential strategies for success in this market

4
India and Japan Need for strategic partnership
  • 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 delivery expertise,
    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

5
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

6
Key findings IT Landscape in Japan
  • IT usage has focused on improving the business
    efficiencies in administrative and intra 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 as compared to
    around 3.5- 4 in the US

BFSI and Manufacturing are the highest spenders
7
Key findings IT Landscape...
Strong traditional preference for custom built
applications
Increasing demand for package products
  • Reasons for preference to custom built
    applications
  • The innate closeness of Japanese businesses
    stressing on maintaining the uniqueness of
    processes
  • Low employee mobility
  • Relatively less cases of corporate takeovers and
    mergers with low need for integration
  • More than 53 of Japanese IT services constitutes
    customised software development
  • Drivers for change COBOL skills shortage, need
    for increased flexibility and cost pressures
  • Top 3 ERP vendors SAP, Oracle, Glovia
  • Other ERP vendors Gemplanet (Hitachi), COMPANY,
    Superstream, Flexprocess, SCAW, ProActive, SSA,
    IFS
  • Highly fragmented ERP products market. Top 3
    vendors occupy only 40-50 of the market share.

Most Japanese companies continue to operate
legacy mainframe
8
Key findings - Who serves the market in Japan?
The Japanese IT Services Pyramid
  • Keiretsu of IT service providers
  • Top tier work as partners to clients. All major
    IT services contracts are signed by the top tier.
  • Top tier then outsource pieces of work to a
    number of small and midsize providers
  • Secondary service providers further break each
    module and outsource components
  • Modularisation continues till more than 4 or 5
    levels
  • Indian and Chinese vendors often find themselves
    at the base of this hierarchy with no visibility
    of the main customer

9
Key findings Japanese offshoring experience
  • Only 8-10 IT services are offshored
  • China is the largest offshoring partner for the
    Japanese accounting for over 50 of the total
    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

10
Key findings Limitations of the traditional IT
management model
  • IT is viewed as a cost centre and not a strategic
    enabler. Most Japanese companies lack the concept
    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 to push.
    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

11
Key findings Indian presence in Japan
  • Indian companies have ventured in this market
    from as early as the mid nineties
  • Several of them have established Japanese desks
    and have made significant investments 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 have opportunity
    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

12
Key findings Challenges that Indian players
face in Japan
  • Struggling to offer the right value proposition
    and positioning themselves
  • Barriers to entry in terms of language cultural
    compatibility.
  • Low Japanese language skills available in India.
  • There are around 71,000 Chinese students enrolled
    in Japanese universities as against only 480 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 undefined project management
    practices
  • Keiretsu Japanese business model doesnt
    encourages entry of new players

48
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14
Recommendations - Services to target
  • Target services which have high market potential
    and at the same time allow Indian players to
    build on the existing capabilities
  • Embedded systems
  • Engineering and RD
  • Application development Maintenance
  • Package Implementation

15
Recommendations - What should Indian vendors do?
  • Avoid opportunism. Have a strategic long term
    view of this market. Market is large and would
    need patience to develop
  • Establish right value proposition start small
    and build trust. Understand the business
    difference in contractual terms.
  • Showcase partnership based relationship for
    mutual advantage rather than client-vendor model.
    Target transformational change projects
  • Localise, localise, localise invest in
    understanding context
  • Develop strengths in Japanese language and be
    more sensitive to cultural issues

16
Recommendations - Manage client expectations
17
Recommendations Initiatives need to be 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 culture cannot continue
    to be barriers they need to be broken
  • Japanese government should proactively encourage
    industries to look beyond the service provider
    pyramid and engage with global players.
  • Accept that global players can offer substantial
    value through domain expertise and service
    delivery maturity,
  • Facilitate inflow of foreign skilled workers and
    their acceptance in the Japanese social as well
    as business setups.
  • Industries in Japan, to truly realise the
    benefits of IT need to re-evaluate their
    traditional attitude 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 help organisations
    mature on the global IT project management best
    practices

18
Recommendations - NASSCOMs role as a facilitator
  • Run programs to sensitize Indian IT industry on
    specific requirements of this market
  • Open a Japan desk to facilitate sharing of
    information and provide access to Japanese
    companies
  • Work with Governments both sides to increase
    spread of Japanese language and culture
  • Develop strong bonds with METI JISA JUSA JETRO
    to promote common interests
  • Evolve embedded and application area strategies
    as independent strategies

19
Advantage India
  • Japan market is a prospective alternative to
    Indian IT industry to reduce its dependence on
    US/European markets
  • Indian IT vendors are regarded high on technology
    domain competence, with fast ramp-up
    capabilities, low on cost and with a better IP
    protection environment.
  • Japan and China also suffer with the historical
    mistrust amongst the nations. Most Japanese
    respect Indian culture and recognise the prowess
    of the Indian IT sector,
  • Indian IT companies have an opportunity to
    establish themselves as the high end service
    providers, with service offerings differentiated
    from the low end Chinese providers.

20
Advantage Japan
  • As with the US and the UK, the Indian IT sector
    would contribute immensely and help accelerate
    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 associated with the
    best minds in IT in the world
  • India is first a natural partner for innovation
    led high end product development and then an IT
    outsourcing vendor
  • Japanese companies would be able to increase
    profitability by cutting costs , help the economy
    fight recessionary pressures and compete globally

21
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