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Rightly or wrongly, the outsourcing – in particular offshore outsourcing – sector in Japan has tended to be viewed as being markedly less developed than the equivalent sectors in North America and Europe. A range of contributing factors can be considered to be behind this situation – but as the global economy continues to drift through troubled waters even traditionally offshore-averse institutions in Japan are having to reassess their perspectives.
We spoke recently with Shinichi Yamada, of NTT Data Corp., Japan’s largest software services firm and an organization considered by many as being among the country’s foremost proponents of offshoring. A twenty-year veteran of NTT Data, Yamada is now the company’s executive vice president and chief technology officer, and played a key role in the acquisition of Pune, India-based Vertex Software, a move which NTT Data hopes will both increase its own competitiveness and enhance its credentials as a provider of outsourced services to Japanese as well as to US and European companies.
Q: NTT Data has a reputation as being an offshoring pioneer in Japan. Can you tell us a little about the company’s offshoring strategy and how it has developed in recent years?
A: As a measure of our cost reduction, we have organized an Offshore Development Promotion Office since 2003 to encourage company-wide organizations to promote offshoring. Beijing NTT Data (a 100% subsidiary), which was originally a business specializing in the Chinese domestic market, has changed its policy to focus on offshore business. In the meantime, we have actively invested in Chinese offshore companies, and made a plan to promote offshoring not only in our company but also in our business partners. Our offshore ordering cost will be more than ¥7 billion ($64.5m) in 2008, and we expect it to reach ¥10 billion ($92.2m) by 2009.
Q: Your initial forays offshore were into China, but recently you’ve invested heavily in India, in particular in your subsidiary Vertex. Why is this?
A: Although our offshoring has been growing as planned, the degree of dependence (offshoring ratios divided into countries) on China as of 2006 was over 95%. To avoid country risk (i.e. currency, laws, disasters) in China, we researched other offshoring destinations, such as India and Vietnam, and determined that Vertex had the ability to take partial charge of Japanese offshore, so we invested capital in the company. With 250 employees, Vertex takes on projects from Japan and USA – 50-50. A development team for Japan can make specifications, coding and communications in Japanese through their own special Japanese study system, and holds high-quality technology that has been developed from US business.
Q: What do you see as the main differences between China and India as locations for doing business?
A: As compared with China, which is located very close to Japan and has a time difference of only an hour, the distance to India is a considerable wall for us to work with them. The inconvenience of flying to India (because there are few direct flights from Japan) makes us feel India is very far away. Actually, some project managers in our company sometimes hesitate to send out their orders due to that barrier. Also, a halfway time difference – 3½ hours – might feel annoying when we set an audio conference with them.
Q: What are the biggest challenges, and the biggest advantages, for a Japanese company moving into China? And India?
A: For China:
Advantages Challenges Because we both use kanji (Chinese characters), the design draws in Japanese can often be used without translation.
Chinese and Japanese look alike because we are in the same ethnic group, but our sense of values seem to be very different. Especially it is quite hard – and takes time – to make Chinese people understand our obsessiveness with the highest quality in detail.
China is quick and easy to reach from Japan, so we can save time to solve problems. Because Chinese government has a great power, the government’s shifts in policy tend to influence our business easily. The law in China is complicated and difficult to understand, also (there is a gap in practical use, too).
And for India:
Advantages Challenges India has lots of human resources in technologies, and many of them are good at logical thinking. Since companies in India are mainly focused on business with European and American companies, they are not familiar with the style of business in Japan (i.e. Japanese development style, the Japanese language)
Process is usually well managed. (i.e. CMMI certification) It is not easy to come and go between Japan and India (because there are few direct flights), so it takes much time and energy to fix specifications
The infrastructure in India hasn’t been provided yet, so we need to bear the cost of promoting their infrastructure.
Q: Where will be the next big offshoring destination for NTT?
A: Vietnam and Brazil would be the next candidates, but each outsourcer in NTT Data will independently select its offshoring destination from now on.
Q: And for Japan in general?
A: Considering their understanding of Japan, and the personal expenses, Vietnam would be a good choice. Many Japanese companies have already started to move there, or considered moving.
Q: NTT is looking, through Vertex, to attract outsourcing from Europe, North America and the Japanese domestic market. Do you think these three regions have very different outsourcing philosophies and, if so, how do you plan to provide successfully for all three through the same provider?
A: In general, North America and Europe have similar outsourcing philosophies – except their languages and contract forms – but these are very different from the Japanese one. In the west, they fix the specifications completely and then entrust the development, while in Japan the specifications can be changed even during the development. It is the crucial difference between them. Vertex has [different] development teams for US and Japan respectively. Its advantage is that they can do the job understanding the different ways of development. Since NTT Data holds subsidiaries in Europe (Itelligence) and in the US (Revere), Vertex can be utilized for those subsidiaries’ outsourcing in India.
Q: Japanese companies in general are not renowned as particularly active outsourcers. Do you think this reputation is justified, and why – or why not?
A: A few years ago, Japanese companies were not so active in outsourcing. The principle to provide all functions by their own company or group companies has taken root deeply in lots of Japanese companies. Besides, in companies adopting lifetime employment, outsourcing which involves organizations and human resources is not so easy. Q: And do you think this situation is changing?
A: Yes. I think it is changing rapidly – especially in the IT outsourcing field.
Q: What are the factors driving this change?
A: The intensification of economic pressure; a high degree of development, maintenance and management, with rapid complication of IT infrastructures; and the high-speed change of environment surrounding the companies
Q: On a wider level, how robust is the Japanese ICT sector – and more broadly still, Japan’s economy – in the face of the current global economic climate?
A: The Japanese ICT sector – which has established its special development style to a certain degree – can be considered robust in a sense. However, most IT basic technologies depend on overseas now. We are worried about the deterioration of Japanese IT-sector technology and the outflow of capital. I believe it is necessary to discuss, as a whole IT sector, how to ensure Japanese competitiveness and develop global business with Japanese-oriented technology.
Q: Do you see major threats to that robustness emerging from either China or India at present?
A: It is definitely a threat to Japanese IT companies if China and India keep on growing and come to understand about Japanese business customs and the relationship between Japanese companies and IT. My concern is it might be possible in the near future that Chinese or Indian companies acquire Japanese medium-sized IT companies and move into the Japanese market actively.
Q: Finally: a contributor to our network said recently that within only a couple of years there will be no “outsourcing” or “offshoring” or “near-shoring” – there’ll only be global sourcing where every company is competing with every other company for resources regardless of their national origin. How far do you agree with this statement?
A: I do agree with that. As I mentioned previously we consider the possibilities of offshoring to Vietnam after China and India as a way of reducing cost, but the situation is changing slowly with a rise in the currency of each country. It will turn to ‘global sourcing’ in the future, as you say. The key will be: what are the strong points of companies’ business fields, including their capabilities of proposing, and qualities of their technologies, regardless of their national origin. However, we have a difficult situation in Japan at the moment. We have to reform the Japanese development method first, which means it is necessary to reform our customers’ mindsets. Changing customers’ minds is not easy, so this won’t happen until five years from now. On the condition that we cannot fix specifications before starting development, it is still necessary to discuss face-to-face. Therefore, near-shore may last for a few years in Japan.
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Source by Jamie Liddell
