The earthquake-stricken Japan’s over $108-billion IT services market may continue to remain elusive for India’s top-tier software services companies for the time being, with the ongoing crisis likely to slow down deals and hit plans to grow inorganically after years of trying to establish a foothold in the country’s closed market.
Globally the second largest IT services market after the US, Japan currently contributes to less than 1.5% of revenue for the top players in Indian IT sector and some 2% to India’s total IT exports revenue of $50 billion. The minuscule size of the offshore outsourcing business and language hurdles are the major hurdles in penetrating the market. But the share of business has been gradually increasing over the past couple of years as Indian firms have climbed up the value chain and are now scouting for Japanese acquisitions, according to industry watchers.
Japan has traditionally remained a closed IT market with nearly 92% of its IT services handled by a few Japanese conglomerates that form the top tier of the market and which sub-contract to the secondary and tertiary levels where Indian and Chinese players have a presence. China garners a bulk of the remaining 8% that is outsourced directly to non-Japanese players and India comes second with around $1.8 billion worth of business annually.
“There has been a change to this in the past few years and Japan is looking at alternatives to China,” said Kumar R Parakala, head, IT advisory, KPMG. “In order to cut the chain short, Indian players have set up operations in Japan itself and are focusing on localising by improving their language capabilities, which is one of the biggest barriers for doing business in Japan.”
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