Japan offers potential for Indian IT firms

IRIS

Nasscom (National Association of Software and Service Companies) and McKinsey on Wednesday previewed preliminary findings of the Nasscom-McKinsey Study 2002 at its annual business conference held in Mumbai. Nasscom and McKinsey are currently working on a revised version of the 1999 report, with the aim of helping Indian companies restrategise for ‘Sustaining Growth in the Downturn.’

Myiris.com spoke to Noshir Kaka, principal, McKinsey & Company, about various issues relating to the IT sector.

Speaking about the potential of Japanese market and reasons for low penetration of Indian IT firms in Japan, Kaka said that the Japanese market has massive potential and has not been leveraged fully by Indian IT industry.

About the reasons for low penetration he said, ‘Language is a strong barrier. Japanese culture is more conservative compared to the US, hence outsourcing is not that popular, and whatever little happens is taken care of by local and regional players. The last factor is the general recession in Japan.’

When asked about what India needs to do to tap this market, he said, ‘Firstly, Indian corporates should be embedded into Japanese culture by way of local presence through its own entity or through alliance or joint venture. Secondly, they should enter the Japanese market the way Chinese did. Lot of Japanese companies have started outsourcing and offshoring from China.’

Speaking about the threat from China, Kaka said China certainly had a few advantages over India such as low wages, more favorable regulations, growing demand by Japanese corporates for offshore services and rising quality of talent. However, strong Indian companies such as Tata, Infosys Technologies, Wipro and Satyam Computer will act as significant entry barriers to Chinese software companies. What we have to do is to further strengthen of these brands.’

‘All the four strategies - sub-contracting, joint venture, consortium and merger and acquisition — in the Indian IT industry should look forward for growth,` he said. ‘Indian corporates could enter different kinds of alliances such as system integration partnerships, contractual execution partnerships and partnerships on deal-to-deal basis. A consortium of companies for execution projects is also a possibility,’ he added.

Commenting on the performance of Indian IT sector, he said, ‘Slowdown is a fact. However, Indian IT industry is growing at 30 per cent compared to 100 per cent few year ago which is still extraordinary in international comparison.’

About the de-risk model and niche market strategy he said, ‘Big companies such as Infosys could go in for a de-risk model, while small players, as they have to compete with big players, could concentrate on 2-3 niche areas.’

Source: myiris.com