For a long time, the US has been the single largest software export destination for the Indian software industry. This is likely to continue for some time. However, the combination of falling billing rates and under-bidding of software projects due to increased competition has put the brakes on the growth of the Indian software industry. This, says Akhtar Pasha, is where Japan comes into consideration as an alternative market for Indian software exports

Polaris’ Jain says a truly global company needs to have a presence in all three areas US, Europe and Japan

The overall Indian IT software and services industry stood at Rs 37,760 crore ($8.3 billion) during 2000-01. The geographic spread of India’s software exports was expectedly US-centric, with 62 percent of business coming from that country, followed by Europe with 24 percent. Software exports to Japan were about 4 percent at Rs 1,510 crore in 2000-01.

However, this is expected to grow substantially to the level of $500 million by 2002-03, as Nasscom puts it. The Japanese market is fast emerging as the third largest market for software services after the US and Europe. Most of the big boys of the industry Infosys, Wipro, Satyam, Hughes, Polaris and NIIT and 265 other Indian companies have set up offices and subsidiaries, or at the very least, have inked marketing alliances there. These companies are already earning revenues from the Japanese market. Japan could look at outsourcing e-business technology and architecture, engineering services, IT enabled services, quality assurance, embedded software work to India.

Japan is a global leader in the hardware sector, but lags in the software segment. So, the scope for Indian software companies is large in Japan, but it is vital for them to remember that they need to plan their entry with a long-term perspective in mind and not with the intention of making a fast buck through body shopping. Therefore the initial focus should be on growth rather than profitability.

Industry pundits feel that Japan is a big potential market for Indian companies. According to Japan External Organisation (JETRO), the market size for IT in Japan is $100 billion. IDC Japan says that the Japanese market is expected to grow at a five-year compounded annual growth rate of 5.4 percent and reach 6,474 billion yen ($54 billion) by the year 2004.

CII points out that India would require hardware worth approximately $20 billion to meet its software export target of $50 billion by 2008, and this could be one of the areas of Indo-Japanese co-operation. In addition to this, more than 200,000 software professionals will be required by Japan and with increasing demand, this figure is expected to rise. Japan does not have the capability to manage large software projects and will be looking at India to bridge the gap. Embedded systems both in automotive and mobile communication, banking, insurance, and PC gaming software are the areas of growth. Interestingly, 50 percent of Japan’s IT revenues come from the PC gaming market.K G Suresh, CEO and managing director, Indo Fuji says, “Japan is now emerging as a country with tremendous potential in the IT sector and we expect that India can increase its Japan revenues from 4 to 6 percent.”

Suresh of Indo Fuji says Japan’s lacuna on the software front could be a panacea for India’s slowdown blues

Indian companies such as Infosys, Wipro, Satyam, Polaris and others are bullish about this market. V G Dheeshjith, associate vice president and head-Asia Pacific operations at Infosys says, “Infosys views Japan as an integral part of the overall strategy. Infosys has a distinct focus on the Japanese market and the opportunity in Japan is independent of the current market situation in the US. According to a leading industry analyst, IT spending in Japan is likely to go up at about 7 percent CAGR in the next 3-5 years. Hence it is a good opportunity for Indian IT companies.”

Says Arun Jain, chairman and CEO, Polaris Software, “We believe that any company aspiring to call itself as global company must have a presence in all three legs of the triad US, Europe and Japan. For us Japan will be the third leg.” A bulk of Polaris’ A-PAC revenues comes from Japan. He adds that the objective behind creating a subsidiary is to build a strong continuing business base in Japan, and to interface with existing Japanese customers NEC and Hitachi. NEC has been contributing in excess of $5 million to Polaris revenues and the work involves over 250 offshore engineers engaged in developing banking software.” The company’s A-PAC revenues have increased from 21.2 percent in 2001 to 25 percent in the year 2002-03.

Wipro also has a subsidiary in Japan Wipro Japan KK, which accounts for close to 10 percent of its total software export revenues (in both enterprise applications as well as technology services) which stood at $365 million last fiscal. Wipro has worked on projects serving over 22 large Japanese customers like Sony, Hitachi, Epson and Fujitsu across various technology areas. Over 600 Wipro engineers work for Japanese customers from the company’s dedicated offshore facilities in India.

For Hughes Software Systems, Japan contributes 3.6 percent of its revenues. Satyam also earns 4 percent of its revenues from this market. According to company officials, Satyam plans to increase its revenues from this market by 25 percent.

Suresh of Indo-Fuji adds, “Japanese companies don’t have the technical capabilities to handle software projects. Whenever there is a change in the spec within the project, they like to outsource the work to India. We all know that when it comes to managing projects, they will be looking at Indian companies.”

Billing Rates

Infosys’ Dheeshjith says Japan is an opportunity independent of the US situation and should be treated as such

One important differentiation between the US and the Japanese market is that the billing rate in Japan is on a monthly basis. For instance, a Japanese company can pay anything from $2000-2500 per month/per engineer for an offshore development job, as compared to $4000-6000 in the US. For an onsite job, the rate would be around $6000-9000 per month/per engineer in Japan, as compared to $7000 upwards in US.

Strategies

Infosys has the Asia Pacific Operations, which is a dedicated practice focusing on the Japanese, Asian and Australian markets. Dheeshjith of Infosys says, “We are recruiting on a continuous basis and are constantly on the lookout for people with Japanese orientation (language and cultural skills) in our sales and delivery functions. Currently we have a number of employees from Japan and India with Japanese orientation. We also train our engineers in the Japanese language and culture. We have even created Japanese speaking forums in India to enhance our conversational skills. We also have a software development methodology tailored for Japanese projects.”

Infosys undertakes consulting, package selection and implementation, new development, technology re-engineering and maintenance projects for its Japanese clients. It works with several high-tech manufacturing, insurance, banking and telecommunication companies. The technologies range from legacy systems to newer platforms for Japanese clients like Toshiba and Dell. Infosys also has several Internet-based projects, including those in the mobile Internet space. The company is also beginning to work with some software product companies in Japan and its development centre, with a sales and marketing office, is located in Tokyo.

Analysts caution that doing business in Japan is not going to be an easy task as the market differs in culture and the language problem is especially acute. Jain of Polaris says, “Apart from being sticklers for processes and quality control, Japanese companies treat work with a high degree of divinity and devotion. When we come down to professional brass tacks, there is very little that is different in terms of the facilities and infrastructure between the US, Europe or Japan. “

Unlike in the US or Europe, where everything is viewed in a professional format, with the Japanese it is essential to cultivate a definite level of trust before business can actually flow in. And in a way, learning their language and learning a few of their customs and developing an innate ability to respect their culture is a real boost to business prospects.

Suresh says, “Language, culture and business methodologies are key factors given that the Japanese are rather particular about who they do business with. In the US and Europe Indian companies can sell knowledge, but not with Japanese companies, and this could be the major hurdle in doing business with them.” He adds that other factors that may affect the business are that payments are made against delivery with no advances, and that the Japanese are shrewd negotiators. Therefore Indian IT companies wanting to do business in Japan need to watch out, lest they fall short of a win-win deal.

Government support

Both the Indian and the Japanese government are keen to eliminate business hurdles that may hinder growth of a Japan-India IT partnership. Towards this, the Government of Japan has eased visa regulations for IT professionals from India. Under the liberalised regulations, Indian IT experts are now eligible for a multiple-entry visa with 3-year validity, permitting stays up to 90 days during that period. Also, the two countries have agreed on mutual certification of DOEACC, the Indian Information Technology Engineers Examination, and

the Japanese Information Technology Engineers Exami-nation. These steps have been widely welcomed by both Japanese as well as Indian software companies.

Nasscom also launched a project called NINJAS (Nasscom’s India Japan Software Alliance) a year back to increase India-Japan business co-operation. Under this project, Nasscom plans to publish a special directory of Indian companies that can offer services to Japan. It will also organise focussed seminars and road shows in Japan and in India, help identify joint venture partners in India and Japan, assist Japanese companies in setting up distribution channels in India to market their software products to India and vice versa.