Thursday, February 21, 2008

As US demand softens, Indian firms eye Japan

Finally...it seems that Japan is getting the attention it
deserves in the mindshare of Indian IT Companies. Lot of data points in this article from Wall Street Journal. Happy reading. Editor
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New Delhi: With a likely softening of demand for their services from buyers in a slowing US economy, Indian tech services vendors such as Tata Consultancy Services Ltd, Wipro Ltd, Satyam Computer Services Ltd and HCL Technologies Ltd are increasing their focus on a market that has until now not believed too much in outsourcing: Japan, the world’s second largest economy.

Traditionally, Japanese corporations have outsourced tech and support units or have relied on services to their information technology or IT relationships built over years with local vendors.

There has been “a lack of competitive element which has not pushed them to think differently,” said Sanjeev Nikore, corporate vice-president and global head of sales and marketing at HCL Technologies. With increasing global competition, “that is changing”, he added.

The Tokyo headquarters of New trend: Shinsei Bank Ltd. The bank, formerly Long Term Credit Bank, has transformed itself into a profitable bank using modern-day banking processes and technologies. (Kaku Kirita / Bloomberg)

According to estimates by India’s largest tech services firm TCS, or Tata Consultancy Services by 2010, spending in Japan will touch $95 billion, or Rs3.82 trillion at today’s IT currency rates, growing at an annual rate of 3.2% from 2005. Currently, work worth around $32 billion is outsourced, a number expected to grow by a quarter to $40 billion by 2010. Around 4%, equivalent to $1.28 billion, of the outsourced work is sent to offshore locations—a market segment that a spokesperson, quoting research compiled internally, said is expected at $5 TCS billion by 2010.

Though it takes time,said Yukihara Yorifuji, IT services group manager at researcher International Data Corp., Japan, some Japanese customers “may delegate even custom development”. Local businesses, Yorifuji said, through a spokesperson, could ship work directly to offshore firms bypassing local vendors.

The top five tech service vendors in Japan are Fujitsu Ltd, NEC Corp., Hitachi Ltd, a local unit of International Business (IBM) Corp., and NTT Data Corp. IBM Japan, set up in 1937, is the only non-Japanese firm with a strong presence.

TCS, which set up its subsidiary in Japan in 2002, today has some 1,800 workers servicing Japanese businesses, including more than 300 based in that country. An offshore delivery centre in Kolkata drives all Japan specific initiatives for the firm. TCS’ revenues from Japan amount to around $100 million (revenues for the company in fiscal 2007 was $4.3 billion), but expectations are high. “We expect this to grow rapidly,” said a company spokesperson adding the focus will remain on embedded systems.

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