Japan:Indian IT's next goldmine.

After the US Financial crisis, what could be the next market place for the Indian IT companies. The European market is one of the option among the markets which is opened for Indian IT companies. As India is a leader in the field of IT many more doors are opened and in the same series of countries cames JAPAN, coming up with the advancement in the Information Technology. Here are some of the opportunities in the world's second largest economy where Indian IT may see a diversified market.

1. Opportunity 1: Second-biggest market-With IT services market worth $108 billion, Japan has the second largest information technology market in the world. India’s share in this market ranges between mere $1 to 1.5 billion. Incidentally, offshoring is limited to 8-10 per cent of the total market. Japan is also the world’s a second largest economy and is highly dependent on technology. Presently, Japan makes for only 2 per cent of India’s exports.
2. Opportunity 2: Application development-Japan has low overall IT spending with spend/sales ratio being around 1-1.5 per cent for most industries as compared to around 3.5- 4 per cent in the US. BFSI and manufacturing are the highest spenders amongst all industries. 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. Japan witnesses heavy preference for custom-built applications over packaged software with most Japanese companies continuing to operate legacy mainframe applications, requiring extensive COBOL skills to maintain and enhance their systems.
3. Opportunity 3: Implementation opportunities-There has been an increased willingness among Japanese companies to adopt packaged products over custom development in the wake of global competition. This change offers huge implementation opportunities for Indian companies. Also, there is opportunity for Indian IT companies to establish themselves as the high-end service providers, with differentiated service offerings compared to their Chinese counterparts.
4. Opportunity 4: Manpower shortage-The aging Japanese economy in its expansion phase is facing acute manpower shortage and strong global competition in terms of cost as well as innovation. This is forcing companies in Japan to look for alternatives for sourcing services as well as to look for newer markets. India is a natural ally, complementing the needs with its excellent service delivery expertise and a huge consumer market Indian IT vendors are regarded high on technology and domain competence, with fast ramp-up capabilities. The companies are also seen as low on cost and with a better IP protection environment than China. There is respect for Indian culture as well as recognition of the prowess of the Indian IT sector in Japan. Along with these ample opportunities, there are also some challenges that threaten to offset this huge opportunity for Indian IT. Next three pages talk about the same.
5. Challenge 1: Chinese monopoly-So far China is the biggest offshoring partner for Japan, accounting for over 50 per cent of the total offshoring. Cultural homogeneity is the single biggest factor for choice of China as preferred offshoring partner. Services offshored to China are low-end IT services of coding, testing and BPO. However lately, there have been concerns over offshoring to China due to its limited capabilities to manage large complex projects, lack of high-end domain and technical expertise, inadequate data privacy and IP protection and high-attrition rate
6. Challenge 2: Oligopoly culture-The Japanese IT service provider industry is organised based on the Keiretsu model where the supply chain is vertically integrated with interlocking business relationships and shareholdings. There is oligopolistic control on clients and most clients do not have a credible alternative. Also, incumbent IT services hierarchy offers little incentive for Indian IT companies keen on working at high-end technology levels.
7. Challenge 3: IT regarded cost centre-Another challenge is the general perspective towards technology spending. IT is often viewed as a cost centre and not as a strategic enabler by Japanese companies. In fact, there is almost no concept of the CIO office. There are also high barriers to entry in terms of language and cultural compatibility. Having served global clients, most Indian IT companies struggle to cope with the immature IT project management practices followed in Japan.

So the opportunities and the competition are going hand in hand. Now the Indian IT players can be the winner of the race if they can provide the best of the product in the minimum price with the superb value additional features. They also need to do the business after a deep and through understanding of the Japanese culture...