TO reduce costs, Japanese IT companies are very interested in offshore outsourcing to India, but we have language and cultural barriers. Indian companies with Japanese communication ability and cultural flexibility will be very attractive for Japanese IT companies, says Mr. Y. Sato, President of Japan Information Technology Services Industry Association (JISA). In an interview with Amitabha Sen, he said "with highly skilled engineers/services for lower costs from Indian IT companies, Japanese IT industry will be able to sharpen further its global competitive edge".

AS:  Japan today is world's second largest market for Information Technology and service and the country aims to become world's No. 1 IT market within next two-three years time. JISA being the IT industry's nodal agency in that country how do you look at the prospect of Jap IT market overtaking the US? Where lies the attraction of Jap IT market?

YS:  Japanese IT service market is the second biggest next to that of US. However, there is a big difference between US and Japan, and with its big general economy size, it would be difficult for us to overtake the US market within a few years. As domestic demand was over the supply in the past, not much efforts to develop overseas markets were made, which made the Japanese IT service market less competitive internationally and very closed. Japanese are not good at speaking English, which was also very fatal for non-material software business communication.

In 1970s, many large Japanese non-IT companies established IT service subsidiary companies ("user type"), and outsourced their IT related processes to them. Main-frame vendors established subsidiary companies ("vendor type") which provide IT services to their customers as well. And another type "non-subsidiary type" small IT service companies were established. These "user type" and "vendor type" companies has formulated the basic subcontract structure in the Japanese IT service industry, and most of small IT service companies in Japan are mainly doing coding based on their subcontracts with their holding companies or bigger IT companies.

AS:  What is the current IT scenario in Japan?

YS:  According to the data in 2002, the number of IT engineers in the Japanese IT service industry was about 480,000 people. Most of IT engineers in Japan belongs to the IT service industry in Japan, while 90% of IT engineers in US was employed by non-IT companies.

As a result, most of IT service companies in Japan are doing business application software development and maintenance services, and their subcontractors are doing the same. This caused a big gap of software technology between US and Japan. Other than game software, we don't have much good software in Japan.

Not many IT workers in Japan studied computer science or software engineering in universities, because IT related graduates were not enough when the Japanese IT industry suddenly steeply grew. IT companies had to employ social science graduates and educate themselves quickly. This trends is still on at present in Japan. This is another reason that Japanese IT industry couldn't progress its technology level.

AS:  What are major the major barriers to growth in the emerging Jap IT industry?

YS:  As many customers in Japan don't have CIOs or similar person who knows IT systems, contracted system specs are often changed on the way of the development. In Japan, as these changes are recognized as inevitable and vendor cannot say much to their customers culturally, IT companies often have damages because of these changes. Another Japanese cultural characteristic is, Japanese customers prefers software specially customised only for their company, and don't like to fit their company organization/systems to the packaged software like ERP. It is said that introducing ERP packaged software to Japanese companies often costs them more to make it custom made for their own company organization.

Japanese IT service industry has been kept closed by these special cultural barriers and language barrier for many years. These are barriers for foreign companies to enter into Japanese market, and also for us to outsource overseas companies.

AS:  What is the scope of India IT companies in Jap It market?

YS:  To reduce costs, Japanese IT companies are very interested in offshore outsourcing including to India, but we need to solve this problem of these barriers first. Though we are making efforts, it will still take time. When foreign companies need to understand these characteristics and barriers when they enter the Japanese market. It might be easier and quicker that Indian companies get communication ability in Japanese and flexibility with Japanese business culture. Fields would be mainly business application software development and maintenance.

Japanese IT companies are very interested in offshore outsourcing including to India, but we have language and cultural barriers. Indian companies with Japanese communication ability and cultural flexibility will be very attractive for Japanese IT companies.

AS:  How Indian companies can help Japan to strengthen the IT industry in your country?

YS:  With highly skilled engineers/services for lower costs from Indian IT companies, Japanese IT industry will be able to sharpen further its global competitive edge.

January 27, 2004