Indian IT pitches for Japan business, but it’s a hard slog

In a tell-tale development which might define the future growth zones for the Indian IT industry, companies, from Tata Consultancy Services to Infosys, are looking to shift their eggs from the North America/UK basket to other markets.

Recently, PTI reported that Infosys opened its second Japan office at Nagoya to enhance its footprint in the Chubu manufacturing hub.

This move comes five months after rival TCS  announced a joint venture with Japan’s Mitsubishi Corp to invest  $5 million in a delivery centre in Japan. TCS also said that it expects Japan to contribute at least half a billion dollars of revenues in four-five years.

Why are the IT bellwethers chasing Japan?
Experts say Japan is a significant market in the Asia-Pacific region because the level of offshoring adoption is low – which signals a big opportunity. “Japan is still an untapped market and is very interesting as it is a high-cost economy,” said Amneet Singh, India head of Everest Group, an IT advisory firm.

Currently Japan is a negligible market as far as revenues go— well under 3 percent for HCL and Wipro who are considered to have good exposure in Japan.
He added that the aging Japanese demographic will pose a need for talent as well. In spite of this, Singh maintains that Indian companies have had only a sales presence in Japan until now and not made enough headway into the world’s second largest IT market.

The challenges holding back these companies are manifold: Language and cultural differences are big concerns. The language barrier has made Japanese firms outsource from regional players. But this is a minor glitch in the larger scheme of things, say some. “In spite of being in Japan for quite some time, Indian companies haven’t been able to meet with much success because the market is not expanding,” said Sudin Apte, CEO of Offshore Insights, a Pune-based IT research company. Apte maintains that it is a tough nut to crack because the companies have a different approach to outsourcing.

“Indian companies are used to the American way of doing business and find it tough to crack the model in Japan. The ownership patterns of companies are quite complex, which impacts decision-making,” said Apte. Indian IT majors have had limited success beyond the English-speaking markets of US and UK. Even in Europe, Germany and France contribute to only 4 and 2 percent of their revenue.
Japan and continental Europe may be the big potential areas, but the Indian IT companies clearly have to dance to a different beat.