tm consulting mamoru tsuda · business process operation [accounting, personal affair, sales...

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TM ConsultingTM ConsultingMamoru TSUDAMamoru TSUDA

December. 2006December. 2006

2006 JETRO Bangladesh Seminar

The Strategic Approach to Japanese IT Outsourcing Market

Trend of Offshore Software Development in Japanand

Challenge to Japanese IT market

The Strategic Approach to Japanese IT Outsourcing MarketThe Strategic Approach to Japanese IT Outsourcing Market

TrendTrend of Offshore Software Development in Japanof Offshore Software Development in Japanandand

Challenge to Japanese IT marketChallenge to Japanese IT market


1. Japanese IT Service Market

2. Trend of Offshore IT Outsourcing in Japan

3. Lessons from Experienced Projects

4. Challenge to Japanese IT Market

5. Recommendation

1.1. Japanese IT Service MarketJapanese IT Service Market

2.2. Trend of Offshore IT Outsourcing in JapanTrend of Offshore IT Outsourcing in Japan

3.3. Lessons from Experienced ProjectsLessons from Experienced Projects

4.4. Challenge to Japanese IT MarketChallenge to Japanese IT Market

5. Recommendation5. Recommendation

Table of ContentsTable of Contents



0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1991

1993

1995

1997

1999

2001

2003

2005

Year

Total Sales:K\

0

100,000

200,000

300,000

400,000

500,000

600,000No of Workers

Total Sales(K\)

No of Workers

1)1) IT Service Market in JapanIT Service Market in Japan

Source:METI 2005

Comparison with another industryComparison with another industry

1960,0004,500Electric & Electronics（2004）

719,0004,320Automobile（2002）

210,0001,200Steel（2003）

680,000810Texistyle（2000）

573,0001,455IT Service（2004）

No. ofWorkers

Total sales（M ¥）

industry(year)

Total Sales(2004)

=> 14,555,500 MJ¥ (132,323 Mus$)

No. of Workers:

=> 573,000


2)2) Worldwide Market Share of Japanese IT Service IndustryWorldwide Market Share of Japanese IT Service Industry

Source:WITMA(Digital Planet 2004)


USA40.2%

Japan13.3%

Germany5.7%

UK5.5%

FRANCE4.3%

CHINA3.1%

Italy3.1%

Canada2.5%

Others20.2%

Korea1.7%

Netherlands1.4%

-- USA:40.2%USA:40.2%

-- JAPAN:13.3%JAPAN:13.3%



World's Second-largest MarketTotal sales (2005):： 14,555,500 MJ¥

-Customized software 6,839,700M J¥(46.3%)-Software product 1374100 MJ¥(9.44%)

High QualityHigh ProductivityExcellent process controlAdvanced software development power

3)Japanese IT service Market



4)4)Occupation Category inOccupation Category in IT ServiceIT Service IndustryIndustry

Source:JISA 2005

sales /Mnagement

17%

Researcher1%

Others16%

Programmer21%

SystemsEngineer

45%

sales /Mnagement

17%

Researcher1%

Others16%

Programmer21%

SystemsEngineer

45%


5)5) Structure of Japanese IT Service MarketStructure of Japanese IT Service Market

Source:METI 2005Source:METI 2005

Software Development = Customized Software & Software ProduSoftware Development = Customized Software & Software Products :cts :

55.7%55.7% =>73,704=>73,704 MusMus$$


9.4%19%

13%

2% 2% 8%

46.3%

Customized Software

Software Product

IT Proccessing Sercvice

System Management &OperationDatabase Service

Various Research

Others

Total Sales(2004) :Total Sales(2004) :

14,555,500 MJ14,555,500 MJ¥¥ ((132,323132,323 MusMus$) /110J$) /110J¥¥



6)6) IT ServiceIT Service IndustryIndustry

IT Service industry =

Information service industry + Software Industry

IT Service industry =IT Service industry =

Information service industry + Software IndustryInformation service industry + Software Industry

Information Service IndustryInformation Service Industry--According to customer needs, provide the service of planning,desAccording to customer needs, provide the service of planning,designing,igning,constructing the information system and operate it.constructing the information system and operate it.

--Progressed as an agency industry of the data processing serviceProgressed as an agency industry of the data processing service using ofusing oflarge scale computer.large scale computer.--Has a role of business solution provider or infrastructure solutHas a role of business solution provider or infrastructure solution provider.ion provider.Software IndustrySoftware Industry

--Provide added values through the packaged product of software byProvide added values through the packaged product of software by usingusingproduction and distribution scheme like manufacturer.production and distribution scheme like manufacturer.

--Embody theEmbody the ““Functional parts modelFunctional parts model””..--Has an industrial characteristic similar to the parts manufacturHas an industrial characteristic similar to the parts manufacturing industrying industry--Expected to play a role of platform provider by tailoring a commExpected to play a role of platform provider by tailoring a common businesson businessbasabasa to the platform.to the platform.


132,323

73,762

24,818

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Total Sales

IT Service Total

SoftwareDevelopmentEmbedded Software

M us$

7)7) Importance of Embedded SoftwareImportance of Embedded Software


Software size built into Digitalappliances(Source code)-Mobile Phone:5,000 K lines-Car Navigator:3,000-DVD Recorder:1,000-TV: 600

Reference:- MS Windows 3.1 :3,000- Windows 2000: 60,000- Linux(Redhat):30,000

- Explosive Expansion of Embedded Software Market


-- Examples of embedded software:Examples of embedded software:From Rice cocker to Space satelliteFrom Rice cocker to Space satellite

• Consumer electronics:Rice cocker,Rice cocker, Microwave oven, Air Conditioner,Refrigerator, TV, DVD Recorder, Digital Camera

• Entertainment: Game, Music instrument• Personal equipment: Car navigator, PDA, Electronic dictionary• Computer peripheral: Printer, Scanner, Disc, POS terminal• Communication:Telephone, Mobile phone, Network Device

[PBX,Router,Hub]• Transportation: automobile, Aircraft, Ship, Railway car, Elevator/Escalator• Industrial equipment: Plant equipment, Industrial Robot, Machine tool• Medical equipment:Sphygmomanometer, Electrocardiograph, CT scanner• Aero space: Rocket, Space satelliteSpace satellite


7)7) Importance of Embedded SoftwareImportance of Embedded Software


Linux(Redhat)Linux(Redhat)30 M30 M

Windows 3.1Windows 3.13 M3 M

Windows 2000Windows 200060 M60 M


7)7) Importance of Embedded SoftwareImportance of Embedded Software-Scale of embedded software


Special features of customized software development・Short delivery times・Detailed specifications are often not established at the start of a project・There are often specification changes after the start of a project・Demands concerning quality are rigorous・Demands concerning price are rigorous・Development takes place on a Japanese-language base

Characteristics of Japan’s IT service industry- Centered on domestic market- High share of customized software development

Response of the software vendor in order to meet these needs- Builds relations of trust with the customer over a long time- Accumulates abundant work knowledge over a long time

- Promotes development through close ties with cooperative companies

8)8) Characteristics of JapanCharacteristics of Japan’’s IT Service Industrys IT Service Industry



9)9) Needs ofNeeds of Offshore Software Development in JapanOffshore Software Development in Japan

Situation- Increasing of Personnel expenses in Japan- Challenging for Lower Development Cost- Constant Shortage of Software Engineers

Important FactorsCostTechnical SkillLanguage Skill ( Japanese )Reliable Software Development Process of ISO9001, CMM/CMMIBusiness CustomsSoftware Development InfrastructureAccess from Japan

Offshore Software DevelopmentOffshore Software Development



1) Areas of Offshore IT Outsourcing

Making of Multimedia Contents

Engineering Drawing: CAD-CAM Operation[Plant, Machinery, Ship Building, Construction……..]

Data Transcriptions[Medical, Legal…….]

Data Preparation3

Software Products[Application Package, Middle ware, Software tools]

Software Conversion & Maintenance

Embedded Software[Digital home appliances, Mobile phone, Industrial systems]

Customized SoftwareSoftwareDevelopment

1

Business Process Operation[Accounting, Personal Affair, Sales Management]

BusinessProcessingOperation &Services

2

Call Center

4

Area

Consulting, Research

Category

Others

Note ; ExcludedNote ; Excluded Entertainment : Animation, Game

2.2.Trend of OffshoreTrend of Offshore IT OutsourcingIT Outsourcing in Japanin Japan


2)2) OffshoreOffshore IT OutsourcingIT Outsourcing in Asiain Asia

IsraelIsraelIsrael

EasterEurope

Hungary,Rumania)

EasterEasterEuropeEurope

Hungary,Hungary,Rumania)Rumania)

RussiaRussiaRussia

South AfricaSouth AfricaSouth Africa

MexicoMexicoMexico

BrazilCosta RicaVenezuela

BrazilBrazilCosta RicaCosta RicaVenezuelaVenezuela

IrelandIrelandIreland

EUEU

JAPANJAPANJAPAN

USAUSA

Korea

Philippines

Pakistan

Nepal

Bangladesh

Sri Lanka

Chinese Taipei

IndiaIndia Malaysia

Singapore

Vietnam

Thailand

ASIAASIA

Mongolia

Myanmar

ChinaChina

Indonesia



1st Step: Korea, Chinese Taipei- Similar Culture Background- Japanese Speaking Engineers- Lower Cost

3) A History of Offshore IT Outsourcing in Japan

20102010～～20002000～～19901990～～19801980～～

2nd Step: India, PhilippinesSoftware Development for Global Market [English Version]- Following American && European Offshore Outsourcing Movement- Talented and Well-educated Manpower- English Speaking Engineers- Lower Cost

3rd Step: China, IndiaSoftware Development in Japanese Language Base- Japanese Language Ability- Partnership with a Japanese Firm- Preparation of Business Infrastructure

4th Step: Vietnam, and Others- Expanding to Other Countries



No52%

Yes48%

Direction

131(100.0)Total

21(16.0)N/A

35(26.7)No plan

64(48.9)Depends on situation

11(8.4)Planning120(100.0)Total

4(3.4)N/A

1(0.8)Decline/disusing

19(15.8)Maintaining

45(37.5)Depends on Situation

51(42.5)Expanding

Direction

Source : A Survey of Overseas Transactions and Employmentof Foreigners in Japan. July 2004 (JEITA,JPSA,JISA)

4)4) Experience of Overseas Transaction or Employment of ForeignExperience of Overseas Transaction or Employment of ForeignEngineersEngineers

Total Samples: 251



Note: Results of 120 Firms [Plural choice up to 3]

6N/A9

27Others8

11Security Control7

19Network Technology6

2525Project AdministrationProject Administration55

2828Project ManagementProject Management44

3636C/C++C/C++33

3939Communication Language [Japanese, English ]Communication Language [Japanese, English ]22

5353JavaJava11

No. of FirmTechnology & SkillNo

5) Required Technology & Skill




Note : Results of 251 Firms [Plural choice up to 3]

4Philippines10

5Singapore9

6Thailand8

10Hong Kong7

15USA6

2020Chinese TaipeiChinese Taipei55

3434VietnamVietnam44

6464KoreaKorea33

7676IndiaIndia22

173173ChinaChina11

No. of FirmCountryNo

6) Promising Countries & Regions for Offshore Development

2.2.Trend of Offshore Software Development in JapanTrend of Offshore Software Development in Japan


RussiaMyanmarCanadaMongoliaNew ZealandMalaysiaAustraliaIsrael,GermanyPakistanOthers


Note : Results of 251 Firms [Plural choice up to 3]

7)7) Issues on Overseas IT OutsourcingIssues on Overseas IT Outsourcing



48

39

26

19

16

12

9

3

25

5

3

0 10 20 30 40 50 60

Communication(Japanese)

Cutting out of Offshore segment

Quality

Engineer's Rgsignation

Getting Entry VISA

Security

Customer's understanding

Price

No Issue

Others

n/a

%


8)8) Expected Effect of OffExpected Effect of Off--shoringshoring



Costreduction

68%

Hightechnology

22%

Expansionof globalbisiness

5%

Others5%


9)9) India and China: Scale of the IT Service Industry and Exports 2003Scale of the IT Service Industry and Exports 2003

16,000

19,439

2,005

12,200

0

5,000

10,000

15,000

20,000

25,000

India China

M us$ Total Sales

Export

USA68%

Laien America3%

Europe21%

Asia Pacific6%

Japan2%

Japan60%

SoutheastAsia21%

USA12%

Europe6%

Others1%

INDIA 2003

CHINA2003

Breakdown ofExports


Source：Nikkei Computer、NASCOM、and Others


10)10) India and China:India and China: Offshore Software Development Sources for JapanOffshore Software Development Sources for Japan

Source：Nikkei Computer、NASCOM、and Others

--ManyManyAllAllEnglish Speaking EngineerEnglish Speaking Engineer

89892,0052,00512,20012,200Total Export [M us$]Total Export [M us$]

132,323132,32319,43919,43916,00016,000Total Sales [M us$]Total Sales [M us$]

--58,53358,533[61%][61%]

243243[0.3%][0.3%]

No. of Students in JapanNo. of Students in Japan[Share %][Share %]

9912127373No. of CMMI 5 obtained FirmNo. of CMMI 5 obtained Firm

--ManyManyNot so manyNot so manyJapanese Speaking EngineersJapanese Speaking Engineers

--31,69831,698143143No. of applicants for JapaneseNo. of applicants for Japaneselanguage exam. Level 1language exam. Level 1

JAPANJAPAN[60%][60%]

400,000400,000

Over 10,000Over 10,000

ChinaChina

--USAUSA[68%][68%]

Major Export countryMajor Export country[Share %][Share %]

573,000573,000650,000650,000No. of IT ProfessionalsNo. of IT Professionals

5,5005,500Over 3,300Over 3,300No. of Software FirmNo. of Software Firm

JAPANJAPANIndiaIndiaBased on 2003Based on 2003



11)11) Reasons for ChinaReasons for China’’s Success in Japans Success in Japan--Bound Offshore DevelopmentBound Offshore Development


11.. Development on JapaneseDevelopment on Japanese--language baselanguage base

2. East2. East--Asian similar cultural zoneAsian similar cultural zone

3. Access from Japan3. Access from Japan

4. Abundant human resources with higher academic4. Abundant human resources with higher academic

backgroundsbackgrounds

5. Lower costs5. Lower costs


Not completed on timeNot completed on time・・Delayed deliveryDelayed delivery・・Stop in project due to sudden resignation of engineersStop in project due to sudden resignation of engineers

Finished product differs from expectationsFinished product differs from expectations・・Mixing of wrong functionMixing of wrong function

Poor qualityPoor quality・・Unsuitable to practical useUnsuitable to practical use and has to be remadeand has to be remade

Finished but no economical meritsFinished but no economical merits・・Much reMuch re--doing work and more expensesdoing work and more expenses・・More additional explanations and reviews thatMore additional explanations and reviews that

scheduled consumed time and expenses.scheduled consumed time and expenses.

1)1) What are the results?What are the results?

-- Issues lying in the shadows of the many success storiesIssues lying in the shadows of the many success stories



2)2) Issues to be resolved on offshore vendorIssues to be resolved on offshore vendor

1.1. Different recognition on quality and delivery time betweenDifferent recognition on quality and delivery time betweenJapan and offshore vendorJapan and offshore vendor

2. Resignation of engineers in charge on the offshore vendor2. Resignation of engineers in charge on the offshore vendor

3. Inclusion of wrong elements in the program through the3. Inclusion of wrong elements in the program through thearbitrary interpretation of unclear specificationarbitrary interpretation of unclear specification

4. Weakness of project management capability4. Weakness of project management capability

5. Inadequate Japanese5. Inadequate Japanese--language proficiencylanguage proficiency

6. Technical competence6. Technical competence



3)3) Issues to be resolved on the Japanese sideIssues to be resolved on the Japanese side

11.. Unclear specificationsUnclear specifications2. Differences in software development process2. Differences in software development process3. Poor Management on offshore development process3. Poor Management on offshore development process4. Attention focused on price only (Wrong selection of offshore4. Attention focused on price only (Wrong selection of offshore

vendor)vendor)5. Additional costs on offshore development5. Additional costs on offshore development6. Understanding of language differences6. Understanding of language differences7. Replacing of project manager on the Japanese side, leading7. Replacing of project manager on the Japanese side, leading

to confusion as the continuance of technology could not beto confusion as the continuance of technology could not bemaintainedmaintained



1) A Offshore Development Trend of Major Japanese IT vendors

8039(8)

TIS

851227(18)

Hitachi SoftwareEngineering

98237(19)

NTT DATA

Over 9097561

NRI[Nomura Research Institute]

7510121(77)

Hitachi

Over 906 ~ 8135(92)

Fujitsu

808224(197)

NEC

Share of ChinaOffshore Ratio:%2005 Est.

2004 ResultCompany Name

Source : Nikkei Computer 2005.5.30 Unit: 107¥/$

Unit: M us$

4.4.Challenge to Japanese IT MarketChallenge to Japanese IT Market

TotalTotal：： 628628（（20052005））


2) Price competitiveness of Offshore Software Development

4.4. Challenging to Japanese MarketChallenging to Japanese Market

0

20

40

60

80

100

120

Japan Korea India China Vietnam

RelativeUnit Price Some management cost and other cost

should be added on the unit cost.


3）Wage level in each country in Asia

Unit:( (US $Month)Source：JETRO『JETRO Sensor』 2005.4

Country(city) Worker Engineer ManagerChina(Shanghai) 109-218 269-601 567-1,574China(Beijing) 79-139 121-266 314-1,382China(Dalian) 96-129 171-224 380-579Indonesia 133 229 608India(New Delhi) 133-154 317-387 936-989India(Munbai) n.a n.a n.aMalaysia 202 684 1,892Mynmar 21-50 53-138 168-284Phollipines(Manila) 170 255 619Singapore 432-557 961-1,543 2,215-3,113Sri Lanka 52-81 113-158 233-524Thailand 184 327 790Vietnam(Hanoi) 79-119 171-353 504-580Vietnam(HCMC) 102-138 200-319 611-736Bangladesh 40 121 360



4）Japanese Language Proficiency Test 2004(1Level 1～4 Total)

出典：国際交流基金資料を基に筆者が作成。

82,773

55,692

31,572

7,273 5,855 3,905 3,837 2,913 2,721 1,798 1,215 966 464 488 64 730

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

China

Korea

ChineseTaipei

Thailand

Indonesia

Singapore

India

Malaysie

Vietnam

Myanmar

Sri Lanka

Phillipines

Mongolia

Nepal

Pakistan

Bangladesh

Source: The Japan Foundation



5) Role and Required Skills of Bridge SEs

If assuming the role of field project manager, the following skills arenecessary in addition to above

・ Negotiation skills

・ Project management skills

・ Leadership

Japanese-language proficiencyUnderstanding of Japanese ways ofworking and cultureCommunication skillsA certain degree of work knowledgeProject experience and a certaindegree of technical skill

To support two-waycommunication and accuratelyconvey the specification demands,etc. of the Japanese side

Required skillsRole



Notes: ◎：Excellent ○：Good △：not enough

○○○○◎◎△△◎◎Access from JapanAccess from Japan

◎◎○○△△○○◎◎CostCost

△△△△◎◎△△○○Japanese Language SkillJapanese Language Skill

○○○○○○◎◎◎◎No. of SoftwareNo. of SoftwareEngineersEngineers

○○○○◎◎◎◎○○IT Skills & ExperienceIT Skills & Experience

VietnamVietnamPhilippinesPhilippinesKoreaKoreaIndiaIndiaChinaChina

6) Present Adaptability to Japanese Software Market



7) Target Area of Offshore Software Development7)7) Target Area of Offshore Software DevelopmentTarget Area of Offshore Software Development

Covered area of offshore development

Maintenance

OperationOperation &Maintenance

Test

Programming

Detail Design

Basic Design

Definition of RequirementDevelopment

System Detail planning

System Planning

IT Utilization PolicyPlanning

Process

CurrentCurrent FutureFuture



Japanese Software & IT Service Market :Japanese Software & IT Service Market :

132,323132,323

Customized Software & SoftwareCustomized Software & SoftwareProducts : 55.7% =73,704Products : 55.7% =73,704

Offshore Development Market

5 – 8 % ? => 3,700 – 5,900

Results of 2003: Mus$- China to Japan : 60% of 2,005 => 1,203- India to Japan : 2% of 12,200 => 244- Korea : 11,000M¥ => 102-Philippines: 4,000M¥ => 37- Others : ?

Estimated total : 1,586=>1,600

5,9005,900

3,700

Data : 2004 Unit: M us$

8) Market Estimation of Offshore IT Outsourcing in Japan

1,600

2.3~3.72.3~3.7timestimes

Estimation of Japanese Offshore MarketEstimation of Japanese Offshore Market

Mus$

1 us$¥=110¥



9) Key Factors to successto success

Cost

Software Engineering Technology

Japanese Language Skill

Project Management

Adoption of a Japanese Software Development Method

Mutual Communication

Correspondence for Specifications Change Requests

Quality Control & Management

CostCost

Software Engineering TechnologySoftware Engineering Technology

Japanese Language SkillJapanese Language Skill

Project ManagementProject Management

Adoption of a Japanese Software Development MethodAdoption of a Japanese Software Development Method

Mutual CommunicationMutual Communication

Correspondence for Specifications Change RequestsCorrespondence for Specifications Change Requests

Quality Control & ManagementQuality Control & Management



5.5. RecommendationRecommendation

-- Reinforcement of Offshore Development Business for JapanReinforcement of Offshore Development Business for JapanJapanese Market Estimation:Japanese Market Estimation:

Expecting Continuous Growth [ 1,600 M us$Expecting Continuous Growth [ 1,600 M us$ 2.3~3.7 times ]2.3~3.7 times ]-- Building up a LongBuilding up a Long--term Partnership with Japanese Clientterm Partnership with Japanese Client-- Improvement of Japanese Language SkillImprovement of Japanese Language Skill-- Accumulation of the Development and Management KnowAccumulation of the Development and Management Know--howhow

Project & Quality ManagementProject & Quality ManagementUpbringing of Bridge SE (Japanese Speaking Engineer)Upbringing of Bridge SE (Japanese Speaking Engineer)Internal Education and On the Job TrainingInternal Education and On the Job Training


Thank you very much !Thank you very much !Thank you very much !

Mamoru TSUDA @TM Consultinge-Mail: [email protected] TSUDA @TM ConsultingMamoru TSUDA @TM Consultingee--Mail: mtsuda@Mail: [email protected]

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