Indian firms hope to cash in on Japan IT services market

Written by Ajay Sukumaran | Bangalore | Updated: May 20 2013, 05:52am hrs
Japan's $200 billion IT services market is now offering renewed hope for Indian companies as the country tries to jumpstart its economy and as more Japanese firms look to expand globally.

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overy, coming after the tsunami crisis of 2011 which crippled the country, could potentially see an increase in IT spend, including outbound investments where Indian companies stand a good chance because of their global presence, say industry experts.

The Asian powerhouse is the world's second largest IT services market after the US but the top Indian IT exporters earn less than 2% of their revenues from the country, thanks to an insular market structure dominated by domestic conglomerates and cultural and language hurdles.

Now, when Japan's government has embarked on a 'three-arrowed economic booster plan' to kickstart growth and drive investment in a economy that has been stagnant for years, many Indian IT companies also seem to be on a better footing in the market, having expanded their presence with local partnerships after more than a decade of setting up operations there.

While both the outsourcing and offshoring models are gaining momentum, Japanese companies have also been leveraging the IT industry in India with the likes of NTT, Hitachi and NEC having acquired local IT firms, according to industry trade body Nasscom.

Culturally and geographically, Japanese companies have been closer to China and have historically invested more in China vis-a-vis India. However, the need for Japanese companies to de-risk their country strategy combined with geopolitical and IP concerns are indicating a move towards considering India as an option, said Ameet Nivsarkar, vice-president, Global Trade Development, Nasscom, adding that an estimated 900 Japanese companies across all sectors have operations in India now.

TCS, India's largest IT services exporter which last year entered into a joint venture with Mitsubishi Corporation, agrees that global expansion by Japanese firms is creating opportunities for it, in addition to the company's push into the local market. The Mitsubishi relationship has helped us explore new business opportunities in Japan. From a brand perspective, TCS has gained huge exposure and leverage, said a TCS spokesperson in a mail. Were expanding our footprint in Japan with plans for new offices in key locations, and we are developing Japan-centric capabilities in other locations.

While the Tokyo-based Nippon TCS Solution Centre caters to the joint venture, the firm's year-old delivery centre in Dalian city, China, has a core agenda of supporting Japanese clients, it said.

After the tsunami, it is only now showing signs of sustained revival after the new policies of Prime Minister Shinzo Abe. We have to wait and see to make sure it is a sustained recovery as opposed to a one-off. Only then the spends in IT will start growing again, said V Sriram, senior vice-president and head, Infosys Japan, which has over 1,000 employees serving the market both locally and through its China delivery centres, besides an alliance with Japan-based Nihon Unisys. He cited an estimate made by technology research firm Gartner that indicates a 1% growth in IT spending this year.

However, the investment pattern in IT is also changing. And I'm hoping that will help firms like us in the sense that a lot of IT investment is now outbound because they want to support their non-Japan subsidiaries, where the growth will come for these companies, said Sriram. They will need companies that have both a footprint in Japan and can serve them globally. We hope to cash in on that opportunity.

With our partnerships and growing presence in the region, we are foreseeing many deals coming to India as Japan gears up after the crisis, said Amitava Ghosh, vice-president, Mahindra Satyam. Japans IT services market is estimated to grow by $1 billion annually, resuming IT investments slowly and opening up to global players.

The top Indian IT players are tapping sectors such as engineering services and manufacturing, telecom, banking and life sciences in the Japanese market. In January, Mahindra Satyam tied up with a Japanese firm, TechMatrix Corp, for providing cloud solutions in the regional healthcare market, besides investing, along with group firm Tech Mahindra, in specific labs for Japanese hi-tech, handset and supply chain manufacturers for deployment and certifications for markets abroad.

Besides the big players, mid-tier and small IT players too are sensing opportunity, Nasscom said. While moderately successful till now, we believe the tide is turning and growth is definitely on the uptrend. Indian IT is well positioned to take this further, said Ameet Nivsarkar.