Indian Software Services Firms To Take A Hit From Earthquake-Stricken Japan

April 6, 2011

Prior to the recent earthquake and tsunami in Japan, the country was home to a $108 billion IT services market. Since the country is still tackling the ongoing crisis, Indian software services firms may not be able to tap into this lucrative market, until Japan’s infrastructure has returned to normalcy.

This comes on the heels of attempts by Indian software exporters to open up Japan’s closed outsourcing market. The catastrophe is likely to affect deals negatively. At the moment, Japan is the second biggest global IT services market for India’s outsourcing giants with revenues of less than 1.5%. the U.S. is still the top revenue provider in the industry. Japan provides about 2% of the total IT export revenue of $50 million for India.

According to industry analysts, Japan’s infinitesimal investments in offshore outsourcing  is one of the major obstacles to penetrate its market. Noentheless, the offshore business has been gradually catching on in the last few years with Indian outsourcing firms like Infosys, Wipro and TCS climbing up the value ladder. The decline in the Indian currency has also influenced more import of IT services in foreign countries. Indian IT firms are in the process of seeking potential acquisitions in Japan, reports indianexpress.com.

In the past, Japan had a sealed IT market with almost 92% of IT work being done by large Japanese corporations comprising of the top tier of the IT market. It was a common practice for these firms to sub contract to Indian and Chinese firms. On annualized basis, China has a monopoly on the outsourced contracts with the leftover 8% of Japan’s IT services and India comes in second with $1.8 billion in IT business.

Kumar R Parakala, IT advisory, KPMG boss said, “There has been a change to this in the past few years and Japan is looking at alternatives to China,” adding, “In order to cut the chain short, Indian players have set up operations in Japan itself and are focusing on localising by improving their language capabilities, which is one of the biggest barriers for doing business in Japan.”


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