In a notable development that could shape the future growth trajectory of the Indian IT industry, companies ranging from Tata Consultancy Services to Infosys are considering a shift in focus from the North America/UK markets to explore other opportunities.
According to a recent report by PTI, Infosys has expanded its presence in Japan by inaugurating its second office in Nagoya, aiming to strengthen its position in the Chubu manufacturing hub. This strategic move follows TCS’s announcement five months ago about a joint venture with Japan’s Mitsubishi Corp, involving a $5 million investment in a delivery center in Japan. TCS anticipates that Japan will contribute a significant share, at least half a billion dollars, to its revenues within the next four to five years.
The shift towards Japan is driven by its significance in the Asia-Pacific region, where the adoption of offshoring is still relatively low, presenting a substantial business opportunity. Amneet Singh, India head of Everest Group, an IT advisory firm, notes that Japan remains an untapped market, making it particularly intriguing due to its status as a high-cost economy.
Presently, Japan contributes negligibly to the revenues of companies like HCL and Wipro, both of which are considered to have reasonable exposure to the Japanese market, with figures well below 3 percent.
Singh emphasizes that the aging Japanese demographic will create a demand for talent. Despite this potential, Indian companies have primarily maintained a sales presence in Japan, failing to make significant inroads into the world’s second-largest IT market.
However, challenges abound for these IT giants looking to expand into Japan. Language and cultural differences are major concerns, with the language barrier leading Japanese firms to outsource from regional players. Sudin Apte, CEO of Offshore Insights, a Pune-based IT research company, highlights that the unique approach to outsourcing in Japan, coupled with complex ownership patterns impacting decision-making, poses a considerable challenge for Indian companies accustomed to the American business model.
Despite having limited success beyond English-speaking markets like the US and the UK, Japan, along with continental Europe, represents a potentially lucrative frontier. Nevertheless, Indian IT companies must navigate the complexities and nuances of these markets, requiring them to adapt to a different business landscape.
