India's Outsourcing Firms Lure More Japan Business

Source: WallStreetJournal
Indian software and outsourcing companies are starting to crack the tough Japanese market in an effort to trim their dependence on ailing U.S. financial clients.

Wipro Technologies Ltd., Infosys Technologies Ltd. and other Indian information-technology companies that had only tiny teams here five years ago now have thousands of employees dedicated to Japan. And with Japan's aging populace producing few new engineers, Indian companies expect much more business in the future.

"The game is changing," for Japanese companies, says Hiroshi Alley, the Yokohama-based head of Wipro's Japan and China businesses. "They are becoming more open to outsourcing and taking it further and even going offshore."

Wipro just had its best year to date in Japan. Its revenue there climbed 15% to $115 million in the year ended March 31. While that is 2% of Wipro's global revenue, Mr. Alley expects close to 10% of the company's sales to come from Japan over the next few years.

India's software companies are keen to diversify. This year has been painful proof of the problems of overexposure to the U.S. financial industry. Outsourcers have seen their profits plunge because often more than 60% of their revenues come from the U.S., and most of that from the troubled financial industry.

Japanese companies have been reluctant to use foreign companies. Still, some are slowly starting to experiment with sending information-technology work to China and India.

Wipro engineers in India, for example, are helping design car-navigation systems for Toshiba Corp. and medical scanners for Olympus Corp. Infosys is designing software for Fujitsu Ltd., and Tata Consultancy Services Ltd. is designing the on-board systems for some Nissan Motor Co. cars.

Japanese investment bank Daiwa Securities SMBC Co. chose India's Tata Consultancy to build its international automated trading system. Tata had more experience in building this kind of software than its Japanese competitors, and charged half of what they were asking.

"There were concerns about using an Indian company, but we saw what they are already doing in the U.S. and Europe and that gave us confidence," says Masaji Harada, the Tokyo-based general manager of Daiwa's IT department. "To survive, we must become more international."

V. Sriram, the Tokyo-based head of Infosys' Japan business, says he started to look for customers in Japan in 1997 but there was little interest then. It wasn't until the past five years when Japanese companies noticed their competitors using Indian firms that some started to consider outsourcing projects. During the last fiscal year Infosys had sales of $88 million in Japan. It is expanding its Japan team this year even as it cuts back at home.

Japan's interest in outsourcing is part global trend and part local demographics. As its population ages, it isn't producing enough computer engineers to keep up with demand. More than three million Japanese are expected to retire from the service sector alone by 2020, according to India's Nasscom, a software-industry lobbying group in India.

The shortage is already so acute that Japanese businesses had to deal with what they dubbed the 2007 Cobol Problem, when a large batch of older engineers who programmed in the Cobol computer language -- which many Japanese companies still use for their internal systems -- retired.

"They are short of engineers" for technology work, says Girija Pande, executive vice president in charge of the Asia/Pacific business at Tata Consultancy. "They have to look to China and India."

In pursuit of Japanese clients, Indian companies put their engineers through Japanese-language and business-culture courses. They also send their Japanese employees to India to learn how business is done there.

While the language barrier is one of the reasons the outsourcing business isn't bigger, Indian companies say the biggest barrier is corporate culture in Japan. It can be difficult to persuade companies to trust part of their business to others, especially when that company's model is to do most of the work half way around the globe. Japanese companies also expect perfection, the Indian firms say, even if that takes time. The Indian software model, meanwhile, leans more toward delivering software quickly, testing it and fixing it along the way.

"They want absolute completion and absolute robust reliability," says Mr. Sriram of Infosys.