Friday, December 24, 2004

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Monday, December 20, 2004

Do Software Outsourcing With Japanese


Here are some opinions and inclusions that I collect and synthesize from Bridge System Engineers Course (ABSR in Yokohama Japan from 27/10/04 to 1/12/04, sponsored by The Association of Technology Scholarship(AOTS an organization belongs to Japan’s Government) – , other sources mostly based on the Internet’s information. Let's see what Japanese say about themselves
Sunday, December 19, 2004

Gaps in joint software projects

Ø Possible gaps arises from differences


* In physical locations

* In culture, society and business customs

* In software development approaches

* In languages

Specialists bridging those gaps are needed and important for project success

ð Bridge systems engineers

Role of Bridge System Engineers

(Role of bridge SE, and business with Japanese IT companies)

The existence of bridge systems engineers who bridge the gaps between the IT engineers in different countries is essential and indispensable for the project success (To promote communications and to make communication gaps smaller)

Bridge SEs Course’s objectives

Train Bridge SEs:

* To be able to understand business customs in Japan, Japanese culture, history and society

* To acquire project management skills

* To be able to read and write “IT Japanese” and “email Japanese”

* To be able to communicate smoothly with Japanese IT engineers in software development projects

Final Goal

Success in joint projects

Successful completion of the joint software development projects between your country’s IT companies and Japanese IT companies


Introduction. 1

Gaps in joint software projects. 1

Role of Bridge System Engineers. 2

Bridge SEs Course’s objectives. 2

Final Goal 3

1. International market research. 5

2. Japan’s market 5

2.1. Whole view.. 5

2.2. Distribution of Information Services. 6

3. What does Japanese think about outsourcing?. 6

3.1. General 6

3.2. Japan’s outsourcing, but not software?. 7

3.3. What they don’t like?. 7

3.3.1. Awareness of Risk Is High. 7

3.3.2. Language barrier 7

3.3.3. Contract’s conditions. 7

3.4. What they like?. 8

3.4.1. Less Transformational Outsourcing Is Preferred. 8

3.4.2. JETRO’s representative opinions. 8

3.5. Partners Ranking. 8

4. Outsourcing players. 10

4.1. China – the main player in game. 10

4.2. Others and Salary Comparison. 10

5. Offshore issues from Japanese side. 11

5.1. Possible problems. 11

5.1.1. Business Custom.. 11

5.1.2. Process. 12

5.1.3. Development 12

5.2. Measures to be taken. 12

5.2.1. Business Custom.. 12

5.2.2. Process. 12

5.2.3. Development 12

5.2.4. Communication. 13

Appendix A – Japanese’s offshore habits. 13

Appendix B - Formal Society. 14

Appendix C – Japanese common email format 14

Reference. 15

1. International market research

According to research firm Gartner Group, the global IT services market is worth $580 billion, of which $19 billion is outsourced – and India has 80 percent of that offshore market. “That’s still a drop in the bucket, less than 2 percent of global IT services,”

2. Japan’s market

2.1. Whole view

The Japanese information services industry clocked in sales of US$ 104 billion (JPY 13,703.9 billion) in fiscal 2001 according to the report released by the Ministry of Economy, Trade and Industry (METI), government of Japan.

This makes it the second largest market for IS services behind the United States. Players from across the world are vying for a share of this huge market which is dominated by domestic players such as NEC, Fujitsu, Hitachi etc., whose software and service operations are about 10-15 times the size of Indian biggies such as TCS , Wipro or Infosys .

Japanese companies have historically looked inwards (either within the company or domestic industry) for their IT systems primarily due to fears of sacrificing quality, confidentiality and timeliness of programs for their businesses.

This new outlook is reflected in the considerable success of MNCs operating in the Japanese market, especially IBM Japan which in recent times has walked away with several multi-year, multi-million dollar outsourcing contracts from top Japanese companies such as Sharp, Honda, Japan Airways, Kobe Steel, Nissan, Meiji Life Insurance and so on.

2.2. Distribution of Information Services

The sale ratio of the information service industry in 2002


35.1 %

System integration service


10.0 %

Outsourcing service


23.0 %

Software development


3.5 %

Development and sales of software products


6.7 %

Computation service


3.0 %

Networking service


5.5 %

Other information services


9.2 %



3.9 %


3. What does Japanese think about outsourcing?

3.1. General

Foreign companies wishing to do business with Japan should note that being a vertical society, there exists a hierarchy in customer-vendor relationships in Japan. Accordingly, vendors are always naturally expected to have a slight subservient disposition towards their customers. Vendors are expected neither to argue nor to directly say no to their customers

Foreign companies should therefore learn to diligently and patiently work harder than their competitors until they have been able to establish themselves and able to gain a mind share of their Japanese customers. Once such a relationship has been established and customers have begin to trust them as reliable partners, only then can they probably slowly begin the process of gentle persuasion and prodding their Japanese customers towards more favorable and accommodative business relationships.

3.2. Japan’s outsourcing, but not software?

An Accenture Research
That is Finance outsourcing
Nearly half of the Japanese companies outsource at least one finance function.

More and more Japanese companies are choosing to place finance and accounting functions with external business partners. A full 48% of the companies in this survey currently outsource at least one finance and accounting function. And 82% of respondents expect finance outsourcing to become more prevalent over the next three years. One reason: a majority of those surveyed find that their current outsourcing arrangements have been successful.

3.3. What they don’t like?

3.3.1. Awareness of Risk Is High

An Accenture Research
What are the barriers to adopting outsourcing more widely? Erosion of in-house knowledge and expertise may be an issue, say 54% of respondents. The risk that costs might exceed expectations is cited by 51%, and the possible difficulty of switching outsourcing providers if necessary, by 49%. Also there is concern that the quality of service might deteriorate over time (41%), and that valuable data might fall into competitors’ hands (32%).

A successful outsourcing arrangement depends on mutual trust between the provider and the company, say 67% of Japanese respondents.

3.3.2. Language barrier

“But cost is not the deciding factor. The biggest problem Japanese businessmen face when they want to outsource services is the language barrier”, said Mr. Horiguchi – JETRO representative.

3.3.3. Contract’s conditions

In the business among the Japanese companies, sometimes a system development project may start before finalizing and signing a contract

(Japan is not a contract-based society).
“Filipino IT workers’ flexibility and creativity set them apart from other IT players, characteristics which are favorable for the Japanese businessmen since most of them do not want stringent contracts and some can even do without it,” Mr. Horiguchi – JETRO representative said.
Japanese often start a project with loose contract. Different from American style, they have a trend to make clear contract, or specification later, not before signing a contract.
I also asked a project manager of NCS, a Vietnam software company, located in Hanoi and it has about 70 employees ( His company is doing outsourcing with Japanese for few years, they also often do without contract, or contract comes after some phases. Most money issues just based on email communication, after all, Japanese always keep their words come true.

3.4. What they like?

3.4.1. Less Transformational Outsourcing Is Preferred

(Accenture Research)
Companies in the Japanese survey are keener on fee-for-service pricing than performance-based pricing. And they prefer to use the outsourcing provider’s people and assets rather than transfer their own employees and assets to the service provider.

3.4.2. JETRO’s representative opinions

China's big advantage is that the common use of Chinese script, or kanji, enables Chinese engineers to understand Japanese outsourcing specifications easily compared with Indian or other competitors.
'Understanding Japanese is the single most important element.'
Other “kanji area” centers such as South Korea or Taiwan are too expensive for outsourcing to be profitable, Mr. Horiguchi said.

While India has superior skills to China in areas such as software design, and also enjoys low costs, many Japanese firms - smaller firms especially - hesitate to approach India for outsourcing because of the language barrier. The same applies to countries as far apart as the Philippines and Sri Lanka that are anxious for Japanese outsourcing business.

If Asian countries want to take advantage of the expanding market for outsourcing of services in Japan, their best solution is to form joint ventures with Chinese companies or to acquire companies in China, said Mr. Horiguchi.
Some are already doing this. He cites Satium, an Indian company that has created a development centre near Shanghai, and also Tata consultancy which has its own centre in China and is seeking work from Japan.

3.5. Partners Ranking

One in three market fields where the Japanese software company has interest and the JETRO advisor official Horiguchi Hironori person called Vietnam.
This appraisal was based on the result of investigation of 120 software companies in Japan. According to this investigation, most as for the market which can give interest is China, continuously India. Vietnam was third rank.
The occasion where it manages in the foreign country, when language ability (Japanese), technical level, cost of the partner and the experience et cetera where Japan worked are precedence of the Japanese enterprise, it became clear.

NEC in its presentation compared four countries: China, India, the Philippines and Vietnam which in its opinion were the most suitable for Japanese companies for offshore outsourcing

4. Outsourcing players

4.1. China – the main player in game

China is one of the character-based, double-byte language countries – China, Japan, and Korea, share language and cultural affinities.

Japan, U.S. and Hong Kong are the main destinations for China software exports, which account for 80.7% of the total software exports. In 2002, the software export to Japan logged in a revenue of USD120.162 dollarsaccounting for 52.28% of the total software exports, while to U.S., USD30.7799 million dollars13.39% and to Hong Kong, 34.5351 dollars15.03%.

Composition of China software exportation

4.2. Others and Salary Comparison

There are some other players in this game: Thailand, Malaysia, Philippine, Korean, Taiwan, Srilanka , Bangladesh, Poland..

All salary information I mention here is for a starter or newly graduated employee.


Average salary per month



200.000 JPY

For starter employee, general fields, not exact IT field




Beijing-Shanghai: 105.000 JPY
Wuhan: 75.000 JPY


200 USD


400 USD


270-330 USD

Currency rate: 1 USD ~ 105 JPY
Information source:

* Japanese salary: from AOTS specialists.

* Thai’s salary information: from Thai ASBR course classmates

* Filipino’s salary information: from Filipino ASBR course classmates

* China: from Mr. Akihiro/ Mr. Koji Manager/CEO of two Japanese software companies that have branch in China(please see Preference for more detail).

5. Offshore issues from Japanese side

5.1. Possible problems

5.1.1. Business Custom

  • Start with loose contract (not very detailed)
  • Tend to assume that what are NOT in contract can be defined or discussed later as the project proceeds
  • Tend to expect that the other party have or learn necessary understanding without saying

5.1.2. Process

Lack of conveying process definition properly

  • Input
  • Do what
  • Output to include what (e.g. review report document)

Tend to assume the other party understands their local process without saying

5.1.3. Development

  • Japanese “waterfall” where everything may not be defined in the beginning of a project, specifications gradually decided or refined through discussions or interactions
  • Accustomed to “teamwork” where information / know-how to be shared and achievement made as a team
  • Expect the same to the other party

5.2. Measures to be taken

5.2.1. Business Custom

  • Include all necessary things in the contract
  • SOW (Statement of work) in detail including documents, evaluation criteria etc. / Schedule / Change management / How to cope with additional tasks / Deliverables / Confidentiality / skill requirement etc.

5.2.2. Process

  • Clear Process definition using standard like ISO 12207
  • Enough explanation of the process definition to the other party

5.2.3. Development

  • Explain Japanese development from software engineering viewpoint
  • Understand the development culture difference (e.g. between “a number of individual professionals” and “team-based”)
  • Promote Japanese way that contributes to better quality

5.2.4. Communication

  • Selection of proper window person(s) in Japanese side
  • Define communication rules clearly

- Communication media

- Format

- Response deadline (e.g. within 24 hours)

- Tracking

Appendix A – Japanese’s offshore habits

Ambiguity: The project may proceed before clearly defining the tasks and responsibilities of project members, and deliverables etc. (In other words, Japanese IT engineers are accustomed to work “accordingly” in such ambiguity situations.)

Changes after started: Japanese IT company sometimes accepts the request for change from the customer company (the company which requested a system development) even after the contract is finalized and signed, and project is in progress, considering the benefit for the customer company.

Decision-making process: The decision-making process in Japanese companies takes time and the project doesn't sometimes start readily. But, once after the decision is made, the project will goes smoothly with the all team members’ commitment. The reason is they do group decision making, not personal way like American style.

In-between lines in specification documents: Japanese IT companies and engineers may expect developers to "read in-between lines” of the specification documents. (“I didn’t explicitly write certain things in the specification document, but I expect the developers who read my specification document to understand my intention by common sense”…)

Privacy protecting: Paying full attention to protect privacy (personal information) is mandatory (requested).

Quality request: The quality request is severe. (“The software can work so that expected tasks can be performed” and “The software should work without errors always, not only for basic operations”)

Appendix B - Formal Society

There are some formal culture in the world, specially are Japanese, Germany culture.
You can see they all wear suit when go to the office (one reason is the weather’s rather cold, but they can wear warm coat instead of suit, like me J )

They have many rules and priorities for behaviors. If you want to take a seat, in meeting room, or even in elevator or in a taxi, where to seat depend on your position in company or in group. When you bow to a guest, who should bow first, or how long and how deep your head & shoulder should be also depend on your position, your age compare to the guest.

Appendix C – Japanese common email format


英語 (English)


Asking for sending ◎◎ information


To: Ms. □□
△△ System, Ltd.


This is ☆☆ of ○○ Software, Ltd. Thank you for your support to us always.


As titled, we would like you to send us the ◎◎ information, concerning the ▽▽ system for the ×× Corporation we are currently working with.

Sorry to bother you, but could you please send it by March 12 (Friday), because of the development schedule requirements.


Thank you in advance for your understanding and cooperation.


☆☆ ××
AAAA Division, ○○ Software, Ltd.
Tel: +81-44-xxx-xxxx Fax: +81-44-xxx-xxxx

These above items which in blue italic are the most often used sentences/phrases of Japanese in business email communication.


AOTS’s specialists and course’s materials.

Mr. Masaru Yamamoto – International Training Consultant(former NEC general manager)
Mr. Masaaki Nakatani – Research Institute of Business Administration & IT – Director
Mr. Koji Takeuchi – Spram Inc - CEO.
Mr. Akihiro Mizushima – Tokyo Headquarters Universal Computer - Manager
Ms. Hiroko Kobayashi - AOTS
Ms. Yuko Miyahara – NEC Training Dept - Training Assistant.

The Internet:

Translation tool from Japanese to English (for whole website):