Sell to Japan

Why Offshoring isn't Catchy in Japan

Author: cyberradical (Guest Blogger)

  So far offshore development (offshoring) trial in Japan market has not been successful. There are a couple of reasons why Japanese clients don't like offshoring. In this short article, at first I want to analyze this phenomena, and then discuss which areas of offshoring are feasible and effective.

  The following is the very interesting chart by "Nikkei Computer" (one of the major magazines on Japanese IT industry). Among the major system integrators in Japan, NEC, Fujitsu, Hitachi and NRI are the big four for utilizing offshoring. Compared to them, NTT Data, Hitachi-Soft, Unisys, TIS and even IBM Japan(!) are not yet successful in their utilization of offshoring.

(Click to enlarge)  * Source: "Nikkei Computer" 2006/07/10

  What makes the difference among these two parties?

  One clear reason is "embedded development (including hardware and software)". NEC, Fujitsu and Hitachi except NRI are all the provider of embedded device for cellular phones. On the other hand, NTT Data, Hitachi-Soft, Unisys, TIS and IBM Japan don't participate in this market at this point. We can think of embedded development as a highly standardized manufacturing method, which is similar to package-based development in the area of system integration.

  Another thing to point out is that they can use offshoring for their internal product development instead of providing services to external clients.

  On the other hand, the latter vendors (NTT Data, etc.) focus on system integration rather than embedded development, and their Japanese clients prefer custom development (highly customized development really) to package-based development. In Japan, you should remember that almost all the clients stick to custom development with eagerness. This put these vendors in difficult position to utilize offshoring.

  Custom development normally doesn't fit in offshoring well. It requires to set seats right next to a client (which ask you to cover expenses for Indian/Chinese bridge project managers and system engineers to come to a customer site for long term), understand their special requirements, develop customized system and test again and again until production release. This model is totally different from offshoring and it makes offshoring nonsense (no profit is expected). These are the major reasons why offshoring has not been successful in Japan market so far.

  However, there are still even more benefits offshoring can provide to clients, even to Japanese 'domestic' clients. The following is the estimated sales by major India-based offshore development companies. Total sales of top three players, Infosys, Wipro and Tata Consulting Services(TCS), are over 150M$ in 2005.

(Click to enlarge)   * same source

  Major Japanese clients for top three players are shown below. There are many international companies including Vodafone, GE Capital, Merrill Lynch, etc. Pure Japanese clients are Sony, Toshiba, Sanyo, Matsushita etc., all of which belongs to the manufacturing sector.

* same source

  In my opinion, there are some criteria that test whether offshoring option will meet your requirement or not.

1. Package-based approach
  The first criterion is whether your project can take advantage of package-based approach rather than custom development, like SAP, Oracle for instance.

2. High requirement of standardized documentation
  Second is whether your project requires to leave documentation through and after development. If your project needs standardized documents for maintenance, system extension and others, offshoring matches well. As you know, offshore vendors put weight on documenting with standard method represented by Rational.

3. Global operations
  The third criterion is whether your company is built on global operations, i.e., an international company. Major offshore development companies have branches all over the world to provide support globally. This is not available when you use a domestic integrator.

4. Profit-driven
  The last criterion may still need more validation, and current pricing model (time and material) need to be changed, but if your project seeks high profit, offshoring matches well because of its low cost service fee.

  So if your company meets these criteria, you'd better try out offshoring as a pilot project quickly. For offshore development vendors, they should primarily focus on clients which meet these criteria.

* This article is licensed under creative commons:

A Guest Blogger will write on IT in Japan!

  I'm thrilled to welcome a guest blogger to this blog. His nick name is cyberradical (He abandoned his first nickname 'yasu' to avoid confusion with me, but call him 'yasu' when you have a chance to meet him face-to-face somewhere ;-).

  He has an extensive knowledge of IT industry in Japan. His strong background as an IT consultant with working experience in the US and Japan will surely bring you interesting readings on the current business climate in Japan.
  His first article, which is about offshore software development business in Japan, will be posted soon. Stay tuned!

Yasu Miyata

How to find the decision maker in Japanese companies

  When you try to sell your products to a Japanese company, who should you talk to? The answer is not simple. That's one of several hurdles you need to leap over in order to start business communication to a Japanese prospect.
  The process to find the decision maker in the prospect’s organization should be part of your selling tactics. The very basic ones are top-down and bottom-up approach.

  Top-down approach is simply contacting the very top decision maker such as a chairman ("Kai-chou" in Japanese), president ("Sya-chou") or CEO. It's not easy to talk to those high-ranking executives at large corporations without particularly strong network, but this is the fastest and very practical way at smaller firms.
  If you successfully seize an opportunity of talking to the high-ranking executive and you make sure he or she is the decision maker about purchasing your products/services, that's great. Go on.
  Reality is not this easy, though, in many cases. Depending on your prospect's corporate culture, the high-ranking executive you contacted might introduce his subordinate, "a person in charge" such as a director or a manager to you. Then, the executive asks you to talk to the person about the matter. In that case, you have no other option. Refusing that request makes the executive lose face, so that's not practical option for you. Now, the game begins. You need to persuade the person in charge (called "Tantou-sha" in Japanese) and, then you also have to know who is the final decision maker, the Tantou-sha, his boss, or his boss's boss. In the worst case, which happens often, you end up figuring out that the high-ranking executive you contacted first is actually the final decision maker after the Tantou-sha agreed on requesting for decision to his boss. You just have gone a long long way around and reached the starting point again. Sigh.
  This seems unreasonable to a sales person who does not know the prospect's corporate culture. From the prospect's viewpoint, this is a great way to avoid a hard sell. The person in charge works as a gatekeeper. More importantly, he can carefully make sure if the purchase is absolutely necessary.
  This worst scenario occasionally happens, because many Japanese companies tend to be cautious of entering into business relations with new supplier, compared to American companies. Japanese firms are generally more careful, if the supplier is not Japanese companies.
  Therefore, you need to have a sharp tactics to avoid this worst case scenario, when you want to sell your products/services to Japan.

  The bottom-up approach is opposite of the top-down one. If you know nobody in your target, cold call could not be avoided. Cold call is not everyone's favorite, but it works if you do it with great preparation. You need to contact someone in your prospect's organization anyway.
  This could be a long time process. If you can use top-down approach instead, stick with it. In some cases, however, you cannot avoid the step-by-step approach to reach the final decision maker, when you don't know who is the decision maker, which division would want to buy your products/services, and which branch/factory/warehouse needs your products.
  Generally speaking, you climb along with your prospect's corporate ladder. The traditional ladder is, for example, staff member ("Buin" or "Kain"), group lead ("Kakari-chou"), manager ("Ka-chou"), department head ("Bu-chou"), director ("Torishimari Yaku"), managing director ("Jomu Torishimari Yaku"), senior managing director ("Senmu Torishimari Yaku"),  vice president ("Fuku Syachou"), president or CEO ("Syachou"), and chairman ("Kaichou").
  These days, though, each Japanese corporation has a different organizational structure and their own title system. Some of them are very flat; some are highly hierarchical as above.  Each industry also has different tendency. Many corporations, especially smaller ones, use unique title system as well. "Chief Yahoo!" would be too unique to ordinary Japanese companies, but some titles can be merely mysterious to outsiders.
  Therefore, someone's title name does not necessarily tell you his/her buying ability. You have to wisely and politely make inquiries and find out the organization's particular approval process. The worst thing is that the person you have negotiated for a long time ends up having no authority at all. You offer him much information about your products, and he kindly conveys it to his group, but the purchase never happens. To avoid this kind of mistakes, you need to figure out who really has the authority.

  OK. You might have already been disgusted. I probably have written too many worst scenarios. I actually just wanted to tell you there are several hurdles you need to leap over. I'm not saying at all selling is impossible in Japan.
  There are great hopes and excellent opportunities in Japanese market, if you make a right effort in a right way. You can make a great success, if you understand not only Japanese culture, but the corporate culture, industry culture and regional culture. I will continue to write more on that.

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