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Japan Outsources Big Projects to India

Outsourcing from Japan was always considered a notoriously difficult proposition for Indian outsourcing companies. Its difficult language, clannish corporate culture, and steep service expectations kept Japanese companies and Indian outsourcing vendors away from each other.

What changed this situation, in a matter of months, was a global recession in 2008 -09 of ‘Godzillan’ proportions. Japanese companies, reeling from a record export slump, unemployment, and cost pressures, have now shed their centralized approach to business. They want to outsource service processes to third parties to save costs.

Japanese outfits are not worried so much by improving services, or any of the other reasons for outsourcing, as they are about wanting to save cash. Though what’s unusual is that Japan usually prefers to outsource such contracts to companies within the country, and the rest to China and Korea.

But since the need for saving costs is severe, Japanese companies want to outsource the really big projects in automotive, banking and engineering areas to India, while smaller project-based tasks are offshored to China and elsewhere.

Eyeing the Japanese market for many years, the Indian IT and office outsourcing industry has welcomed this sudden demand wholeheartedly. Worried as they are about the shrinking US outsourcing market, Japan offers them long-term opportunity for future growth.

These days, Indian IT professionals are flying to Tokyo in hordes. This is a sea change, considering that till recently, Japan used to be an insignificant revenue generator in global outsourcing.

The Japanese market was so impregnable that blue-chip IT and outsourcing giants such as TCS, Wipro and Infosys, only had small teams working in Japan.

But the outsourcing deals, those inked and in the pipeline, give an idea of the commitment shown by Japanese companies in forging a deeper business partnership with the Indian outsourcing industry.

Toshiba is looking to outsource engineering services worth $50 -100 million. Sony wants to outsource engineering and customer-related contracts worth $60-100 million. TCS, along with Infosys and IBM India, are currently pursuing this outsourcing contract.

A Mumbai-based BPO firm WNS is presently negotiating with Japanese firms who want to outsource logistics, shipping processes, high-tech work, and contracts in entertainment.

There is a huge interest in outsourcing to India in Japan, according to a senior representative of one India’s major outsourcing companies Patni.

The company claims to have the highest revenues from Japan among Indian IT companies. It attributes its success to the fact that it started addressing the Japanese market as recently as mid-2005.

Hitachi, Fujitsu, Daiwa Securities SMBC, and Olympus Corp currently outsource software development to India, and are likely to renew their contracts.

Japan’s third largest automaker Nissan has invited TCS, Wipro, IBM and Mahindra Satyam to bid for an application development and maintenance deal worth $250 million.

The UK-based BPO consulting firm Avassant says that Indian firms are seeing massive interest from Japanese firms. It adds that all major BPO players, like Genpact, IBM India, Accenture and WNS, are already talking to Japanese firms.

Avassant itself is currently engaged in structuring at least three big BPO deals involving some Japanese automakers and BPO firms in India.

A panoramic view of this emerging Indo-Japanese outsourcing partnership shows that two major factors are likely to keep this relationship flourishing in the next five years.

The first factor concerns Japan’s aging population

which is the world’s largest. This graying population will drastically reduce the inflow of a new generation of engineers into its economy.

The Indian economy has no such worries. It’s awash with young, qualified and experienced engineers and other professionals to service contracts that Japanese firms may outsource. The second factor relates to the global economy and the resultant pressure that’s bound to remain on input costs in Japan. To stay competitive and stabilize its domestic economy, the Japanese government and companies will have to outsource cost-sensitive processes to India.

Nevertheless, it’s going to be a two-way street, as Indian outsourcing firms will have to understand and surpass Japanese expectations in every aspect – be it language, culture or service standards.

US, Indian outsourcing’s golden hen, is no longer golden:

Turning to Japan, and Japan in turn turning to India for outsourcing, came about primarily due to the recession-hit US economy.

For long the prime outsourcer to India, the US is giving way to Europe and Asia in filling India’s outsourcing’s revenue gap, depleted by the US.

Outsourcing contracts grew at a rate of 70 per cent and 35 per cent respectively in Europe and Asia. But outsourcing growth in the US has halved over the past year—from 60 per cent to 30 per cent.

Indian companies, therefore, need to increase their investments in emerging markets, such as Japan, to keep outsourcing growth intact.

Japan will outsource to India but will also demand accountability:

The fact that the Japanese market does not represent more than three to four per cent of the global outsourcing clientele, tells its own story.

The traditional strengths of the Indian outsourcing industry are a no-show when it comes to the unique expectations of potential Japanese clients.

a) Lackofknowledge: With the exception of IT and a few areas in outsourcing, not many Japanese companies want to outsource service processes to India – simply because they are not aware of the possibilities in other areas of outsourcing.

b) Servicequality: Japanese companies expect high quality from their vendors. This expectation is bound to be intact when they outsource critical tasks to Indian companies.

Indian outsourcing companies can expect Japanese companies to send out local staff to India as their companies are not satisfied by just compliance with standard procedures.

c) Processstandardization: Compared to Europe and US industries, Japanese companies don’t have such a clear distinction between different jobs. Business is divided between direct and indirect divisions within the company itself so it seems difficult to quantify a specific business and outsource it.

Therefore, standardization of a business (process) would be a pre-requisite before the Japanese outsource to India.

To outsource to Japan, cross barriers of language and culture:

Language is still a barrier while expanding business in Japan. Since most young Indians tend to take up French, German or Spanish as their favored foreign languages for study, there’s a paucity of young professionals proficient in Japanese.

It works the other way too. Most Japanese don’t know Hindi or English, hence don’t get into communication-dependent outsourcing deals with Indian companies.

Some Indian companies maintain that the biggest impediment is the prevalent corporate culture in Japan that prevents local business owners not to outsource part of their business to others.

Therefore, Indian IT and outsourcing firms are not taking any chances. The larger Indian companies are putting their employees through Japanese-language and business-culture courses.

China is India’s biggest competitor for Japan’s outsourcing contracts:

In India’s efforts at courting Japan, China remains the biggest competitor. Every year, Japanese companies outsource IT jobs worth $8 billion to other Asian countries including India, China, Korea, and Vietnam.

China alone bagged $5 billion worth of outsourcing work, whereas India’s share was $1.5 billion.


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