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Opportunities for Indian IT industry : Japan


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

Opportunities for Indian IT industry Japan
PRESS CONFERENCE New Delhi, October 20, 2008
Mr. Som Mittal, President, NASSCOM
Mr. Ambarish Dasgupta, Partner and Head of
Consulting practice, PricewaterhouseCoopers
  • 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

  • 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
  • Indian players have found nominal success. Only
    breakthrough being in the embedded systems space
    where they could work directly with the end
  • 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
  • This study strives to bring out the key
    opportunities for Indian IT companies and the
    potential strategies for success in this market

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
  • The current financial crisis is leading Japanese
    companies to look for high quality, proven and
    low cost sourcing destinations as well as newer
  • 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

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
  • China is the biggest offshoring partner

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
Key findings IT Landscape...
Strong traditional preference for custom built
Increasing demand for package products
  • Reasons for preference to custom built
  • The innate closeness of Japanese businesses
    stressing on maintaining the uniqueness of
  • 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,
  • Highly fragmented ERP products market. Top 3
    vendors occupy only 40-50 of the market share.

Most Japanese companies continue to operate
legacy mainframe
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
  • Indian and Chinese vendors often find themselves
    at the base of this hierarchy with no visibility
    of the main customer

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
  • 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
  • Lack of high end domain and technical expertise
  • Concerns over data privacy and IP protection
  • High attrition
  • India as offshoring destination is gaining
  • China is a preferred partner today, only because
    of the lack of alternatives

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

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
  • 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
  • However, even the larger players earn less than
    3 of their revenues from Japan

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
  • Low Japanese language skills available in India.
  • There are around 71,000 Chinese students enrolled
    in Japanese universities as against only 480 from
  • 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
  • Keiretsu Japanese business model doesnt
    encourages entry of new players

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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

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

Recommendations - Manage client expectations
Recommendations Initiatives need to be taken by
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

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
  • 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

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.

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

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