forwarded

1. 1
Opportunities for Indian IT
industry : Japan
EMERGING MARKETS SERIES
PRESS CONFERENCE
New Delhi, October 20, 2008
Mr. Som Mittal,
President, NASSCOM
Mr. Ambarish Dasgupta,
Partner and Head of Consulting practice,
PricewaterhouseCoopers

2. 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 client’s expectations
• Initiatives need to be taken by Japan
• NASSCOM’s role
• Advantage India, Advantage Japan

3. 3
Overview
• India’s 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 India’s 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. 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. 5
Size of the offshoring market
• Japanese IT services market at USD 108 Bn is the second largest in the world.
India’s 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. 6
• 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
Key findings – IT Landscape in Japan
BFSI and Manufacturing are the highest spenders

7. 7
• 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.
Strong traditional preference for custom
built applications
Increasing demand for package products
Key findings – IT Landscape...
Most Japanese companies
continue to operate legacy
mainframe

8. 8
• “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
The Japanese IT Services Pyramid
Key findings - Who serves the market in
Japan?

9. 9
• 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
Keyfindings – Japanese offshoring
experience

10. 10
• 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
Keyfindings – Limitations of the
traditional IT management model

11. 11
• 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
Keyfindings – Indian presence in Japan

12. 12
• 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 doesn’t encourages
entry of new players
JLPT 2007 applicants by country*
China 254,893
Korea 108,795
Taiwan 62,223
Thailand 15,793
Vietnam 13,377
Indonesia 8,547
India 7,375
Singapore 4,805
Brazil 3,654
Others 49,759
Total 529,221
* countries besides Japan
48%
< 2%
Keyfindings – Challenges that Indian
players face in Japan

13. 13

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

15. 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. 16
Recommendations - Manage client
expectations
Client expectations What Indian companies offer/ expect
Partnership towards a common goal of product
development
Client-vendor relationship with clearly
demarcated scope of work. Project centric
approach
“see the larger picture”
Trust : Japanese value trust and loyalty above
other aspects, especially when they are
dealing with ‘outsiders’
Indian vendors view the inadequately defined
contracts as potential risk area which also
translates in their interactions with the client.
“develop trustworthiness”
Value proposition: Technology expertise Value proposition: Low cost services
“target transformational change projects”
Help them understand their requirements Look for clearly defined scope of work
“expect long sales cycles and scope changes”

17. 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. 18
Recommendations - NASSCOM’s 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. 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. 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. 21
Questions