IT Outsourcing: Japanese Telecom Service Provider market

Japan is the second biggest IT market in the world with an estimated market size of $130 billion. The Indian IT companies are focusing on markets like Japan to reduce the excessive dependence on the North American and West European markets. The telecom industry in Japan is in a mature stage. The growth rate has slowed down and the challenge for the telecom service providers is to develop new areas and business models to increase their revenues.

The telecom market in Japan is dominated by three service providers. NTT is the pioneer of the Japanese telecom industry. It was the first telecom service provider of Japan and was under Government ownership. The two other major players were KDDI and Vodafone. In November 2005 the MIC awarded three new licenses, two of which will utilize FDD technology and one that will utilize TDD. With the taking over of Vodafone Japan, SoftBank has emerged as the third big player in the market. IP Mobile and eAccess are the other two new entrants in the market. This increased competition is likely to lower to lower the rates of services and will put pressure on the established players to devise new strategies to cut costs in order to preserve the profit margins.

The Japanese IT market is currently controlled by the five major companies: Fujitsu, IBM, NEC, Hitachi, and NTT Data who control almost fifty percent of the IT market in Japan. The rest of the market is shared by some 5,500 small vendors. Language and cultural barriers make it one the toughest markets to enter for the new vendors. The business and management practices in Japan are significantly different from those of the Western markets. The challenge for the IT firms is to get a share of this huge IT outsourcing pie of the Japanese TSP market.

The increasing acceptance of the package application software as compare to the custom built application has opened the gates for new system integrators. This has resulted in reducing the dependence of the Japanese TSP’s on the Big Five local IT vendors for the development and maintenance of IT applications. The immediate opportunity for Indian vendors exists in areas like package implementation and system integration since the TSP’s are looking to replace their legacy custom built applications with standard software packages.

SoftBank Corporation is the best bet for Indian IT vendors to approach the Japanese TSP market as it is the latest major player in the market and is growing very fast by providing the services at lower prices than the other players. Hence it is more likely to offshore its information systems to India.