BT returns to Japan

01 Aug 2006
00:00

BT is getting back into the global services business in Japan, but the scale of the investment will be a fraction of that just a few years ago.
From 1999 to 2003 BT owned 20% of Japan Telecom, and one of its avowed objectives was to create a major Japan-based player in the global services business. In 2003 it sold that stake as part of its reorganization and retrenchment when its debt soared dangerously high. 'We had to consolidate back in Europe in the fixed-line business,' explained Ian Pulford, president and CEO of BT Japan.
This time the focus is global outsourcing and global managed services, and the partner is KDDI, Japan's second largest telco. KDDI predecessor KDD was a leading shareholder in Infonet. And when BT acquired the company in 2005, it acquired the KDDI involvement in Infonet.
Now the two companies will launch a 50-50 joint venture on August 1, which is initially capitalized at 1.5 billion yen. Most of BT Japan's staff will be transferred to the new company and KDDI will move the Infonet business of its KDDI Network & Solutions subsidiary to the new business.
'BT brings its global capabilities and KDDI brings its Japanese relationships, domestic capability and focus on the Japanese market,' said Pulford, who will be COO of the venture. 'Our primary activity will be to address the needs of key Japanese multinationals on a worldwide basis.'
For KDDI the venture offers new opportunities at a time when its fixed-line business is the weakest part of its business portfolio.
Andy Green, BT Global Services CEO, announced that the new company would set a sales target of $1 billion for year five, and put that in the context of Gartner forecasting the Japanese IT outsourcing market hitting $90 billion a year, more than double the rest of Asia-Pacific markets put together.
'That will be very challenging but doable,' insisted Kenshi Tazaki, managing vice president of Gartner Japan. 'The market is still emerging and is fragmented. However, it is growing at 7% to 8% a year -- single digit but still a huge amount,' says Tazaki, noting that the potential of the global portion of this business is around 10%.
NTT Communications is currently the biggest player in the outsourcing business in Japan, but the international part of that business is still relatively small, and it is not even the only NTT player: Last year NTT Data bought 95% of the Japanese operation of Capgemini for over $36 million as part of its own outsourcing strategy.
Fidelity Investment's KVH Telecom is another promising foreign player focusing on Japan since 1999.
Wearing many different hats, BT has pursued the attractive margins in the Japanese multinational global services rainbow ever since it first set up shop in Japan in 1985. Whether this time round it can succeed is likely to depend on how much KDDI is prepared to commit itself and on whether it can effectively develop its sales capabilities for these services.

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