No outsourcing please, we're Japanese

Mike Galbraith
10 Aug 2009

Telecom carriers have long eyed the pot of gold that beckons in managed telecom services in the world's second-largest economy. However, Japanese enterprises have been notoriously slow to follow their counterparts in other countries in outsourcing their IT and networking, even in the current economic downturn.

One often-cited reason is fear about security that has been growing almost as fast as the attractions of outsourcing.

For example, an executive at a major machinery Japanese manufacturing firm with extensive overseas operations told Telecom Asia that his company had never considered the outsourcing option and had no intention of doing so.

He said that there were rumors that "operations were not in good order" in some firms that had been outsourcing network functions and that the only option that his firm might consider would be to outsource to its wholly-owned software and IT subsidiary.

Nonetheless, network and IT outsourcing in Japan is still a big business and showing healthy growth.

IDC Japan estimates the market was worth 815 billion yen ($8.52 billion) in 2008. Its survey of 600 Japanese firms in February 2009 found that 35.2% were using security services, 27.2% network operation and maintenance, and 20.7% backup/storage services respectively.

The figures for both dedicated and shared hosting were around 19% while virtual private server (VPS) services were being only being used by 7.8% of respondents. Roughly 16% were planning to use these services in the future. "In the last year investment in Japan in both hardware and software decreased, but demand for managed services was solid," said Akiko Kawakami, senior market analyst at IDC. "Companies want to use managed services, but budgets have decreased so service providers have to offer more competitive pricing such as infrastructure as a service and help companies increase their efficiency," she said. IDC Japan has revised downward its growth forecast and now expects 11.8% annual growth from 2008 to 2013. Japanese firms are now focusing on overseas business to compensate for shrinking prospects at home and this has also strengthened demand for managed services.

"The global shift is booming," commented a source working for a Japanese global networking firm. "Demand is high but the pressure on pricing is also very high," he said echoing Kawakami's view. Foreign carriers like AT&T, BT and Verizon have also been chasing the pot of gold but, despite occasional flourishes, it still remains far away.

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