Terrie's Take 429 -- Off-shoring to keep up, ebiz news from Japan

Mon Jul 16 09:31:38 JST 2007

* * * * * * * * *  T E R R I E 'S   T A K E  * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, July 15, 2007 Issue No. 429

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

In the news this week was an announcement that NEC and
Fujitsu each plan to increase the number of foreign
software developers they employ to more than 10,000 people
over the next three years. For NEC this will mean doubling
its foreign workforce, adding 3,000 people to the 4,000
already in China, another 1,000 people in India, and more
in the Philippines and Vietnam. For Fujitsu it means
increasing its China workforce from 1,000 to 2,000
engineers, and tripling its Indian staff to 10,000.

These are both significant increases, and obviously
comprise a major trend, following as they do a number of
other companies such as Hitachi and Matsushita who have
already this year announced ambitious off-shoring targets.
The impetus to suddenly go global with their core
workforces is the same, though -- a drastic shortage of IT
engineers in Japan, and the increasing demand for smarter
consumer electronics products and services infrastructure.

Although there are about 700,000 qualified IT engineers in
Japan, according to METI only 190,000, less than 1/3, are
software developers. The number of new software engineering
graduates coming out of Japanese universities each year
numbers just 20,000, creating a current needs gap of more
than 90,000 positions. In contrast, India graduates 230,000
IT people a year and has more than 1.6m software engineers
-- not including the tens of thousands working in the USA
and elsewhere around the world.

[Continued below...]

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[...Article continues]

Compared to Western SI firms, the Japanese are well behind
in off-shoring their workforces, although they have been
experimenting with it for quite some time. Among their
foreign counterparts, IBM already employs 53,000 engineers
in India, and Accenture has around 30,000.

So why are Japanese companies so behind the curve?

Our take is that the problem is three-fold: 1) an
increasing requirement for smart devices, 2) global
competitiveness forcing Japan as a nation to implement
proper infrastructure (ranging from e-Government to Suica
debit cards), and 3) language and culture. Let's look at
these 3 points a bit closer.

According to a recent article in the Nikkei, the level of
software now appearing in HD-DVD video recorders is around
twice as complex and costly to develop as it was in earlier
generation devices. Further, METI says that 70% of the cost
of developing a new cell phone model these days is due to
software complexity. This pace of increasing sophistication
is impacting production schedules for factories turning out
the hardware, and thus is impacting companies across the
board. Indeed, both NEC and Fujitsu have said that cell
phone development was a major motivation for them to expand
their engineering teams overseas. Quite simply, companies
are finding out that the software component can't be ignored
any longer.

Global competitiveness is another deciding factor pushing
Japanese firms to get IT help abroad. In the consumer
electronics sector, although the Japanese have long been
manufacturing hardware off-shore, the costs that can be
coaxed out of the system are now being matched by competing
firms from other nations who are using the same
manufacturing centers. Although there is always another
lower cost destination (e.g., Vietnam), the ability to
compete on lower manufacturing costs alone is starting to
disappear. The new frontier now is improving usability and
functionality.

The problem for Japanese firms though is that they have
traditionally hard-coded functionality into their devices,
with drivers servicing all the buttons and flashing lights.
But with the lowered costs of display screens and the
appearance of superior functionality from competitors
(think Apple's iPod and iPhone), Japanese firms are now
being forced to use standard operating systems on these
devices and write proper applications to drive them. But
with a shortage of such people, off-shoring is the only
quick answer.

Additionally, on an infrastructure level, Japan is going
through a major transformation in computer systems -- all
of which need substantial programming. Although you may
have already taken it for granted, the move by JR and
various other transportation operators in March this year
to create a single commuter card (Suica/Pasmo) has
been a huge achievement in software compatibility and
data interchange. Then there is Seven-eleven's new Nanaco
e-money system, which was rolled out to 11,750 stores in
April and already in June has recorded an amazing 30m
transactions -- making it the most widely used e-money
system in Japan today. Big complex systems like these
need global-class architecting and rigorous quality
control techniques, all of which India is well known for.

Then there is language and culture. Ah, yes, dear readers,
you already know our take on what we think of Japanese
companies' ability in this area. If there was ever such a
basic and obvious reason holding up the development of a
nation -- this would be it. While there are indeed truly
multinational companies, such as Sony and Fujitsu, the
vast majority are not able to integrate their local R&D
teams and marketing people with those overseas. Just look
at the cell phone debacle in Europe and the subsequent loss
of Japanese leadership to Samsung and Nokia to see the
extent of this problem.

At the core of this inability to operate globally is the
lack of bilingual engineers who can interface Japan client
specifications with the foreign development teams. Not only
is the skill-set hard to fill, but the conditions that such
people have to work under are also really tough. The work
typically involves long hours and lots of cultural friction.

By virtue of the need for accurate communication, it
also requires someone who is really smart. However,
smart people don't want to work in a cultural pressure
cooker for peanuts. And as a result, the turn-over
for project interfacing people is high.

Japanese companies trying off-shoring need to realize that
just as you protect your key performers in other parts of
the company, so too, these interface people are worth
rewarding well. Further, these positions should be held up
to other employees as being desirable, so as to create
future supply from within to fill them. Instead, since
off-shoring is usually intended to reduce costs, typically
everyone involved in the project finds themselves getting
squeezed financially. For example, recently we interviewed
an older engineer who upon agreeing to move to China
suddenly found his salary being "normalized" to match the
living standards in that country.

One way to deal with the shortage AND keep costs down is to
employ foreigners with Japanese skills. Increasingly, in
Dalian (China) and Pune (India), such people are starting
to appear. We know of a number of companies and schools in
Pune, for example, turning out hundreds of engineers with
3-kyuu and 2-kyuu Japanese speakers. From this base, they
can be brought to Japan and their skills further polished
to 1-kyuu level. But even after 3-4 years of such programs
being in place, we're still only talking hundreds, not
thousands of bilingual engineers. So one wonders where NEC
and Fujitsu are going to get their language people from.

Private recruiting companies such as Recruit, Caplan, and
Softbridge Solutions, are hoping to be part of the solution.
Last year Recruit started a web site for companies wanting
to recruit foreign students working part-time in and around
Tokyo. According to the Justice Ministry, the number of
foreigners either studying in college or technical training
was about 180,000 in 2004, and is expected to hit 1.2m by
2015. Japanese firms are certainly a lot more willing to
take on foreign employee than they were. A recent survey by
online recruiting firm DIP Corporation found that about 40%
of the companies polled had a favorable view of hiring
foreigners.

...The information janitors/

***------------------------****-------------------------***

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-----------------------------------------------------------

+++ NEWS

- Iran wants payment in yen
- Interesting company stats
- Interest rates to go up next month?
- Tundra and flat panel TVs
- Nomura gets Second Life

-> Iran wants payment in yen

Although Iran is out of favor with the USA, Japan still
(carefully) buys 11% of its oil from them. This last week,
Iran asked Japan to start paying in yen rather than US
dollars. Traders say that the move is because Iran is
concerned that the USA may try to freeze or seize its
dollar assets as retaliation for alleged interference in
Iraq. ***Ed: The problem for the Iranians is that even with
yen, the US only needs to whisper to the Japanese to freeze
payments and they would do so. Better that they start
dealing in Euros or Yuan.** (Source: TT commentary from
japantimes.co.jp, Jul 15, 2007)

http://search.japantimes.co.jp/cgi-bin/nb20070715a1.html

-> Interesting company stats

A recent Nikkei article about how M&A is reducing the
number of companies in Japan, also provides some
interesting statistics on the trend. The article says that
M&A over the last 5 years has reduced the number of
registered companies by 6.3% to 1.51m entities. These
companies maintained 5.91m offices nationwide, also down
about 6.9% from 5 years earlier. ***Ed: These stats
indicate that not only is the base for commercial diversity
taking a severe hit, but the amount of real estate needed
by companies overall is also going down. One wonders what
this means for commercial real estate in the long term?**
(Source: TT commentary from nikkei.co.jp Jul 13, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070713D13JFA12.htm

-> Interest rates to go up next month?

A Reuters poll last week predicts that the BoJ will
increase its interest rates in August, after having held
them steady at 0.5% since February this year. According to
the poll, the majority of market players expect the BoJ to
raise rates to 0.75% in August and possibly another raise
next January to 1%. (Source: TT commentary from
dailytimes.com.pk, Jul 15, 2007)

http://tinyurl.com/23wpsx

-> Tundra and flat panel TVs

According to the Nikkei, Russia has become the great new
frontier for marketing flat-panel televisions. Thanks to
the trickle down of money from energy and other resources,
a new high-worth class of consumers has appeared in the
last 24 months. They are expected to buy more than 3m flat
panel TVs this year, almost double the number in 2006.
***Ed: We expect that this is just the start of a consumer
electronics boom in that country, helping Japanese makers
to diversify from the USA.** (Source: TT commentary from
nikkei.co.jp, Jul 13, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070713D13JFF04.htm

-> Nomura gets Second Life

Hard on the heels of a number of other companies such as
Toyota and Parco, Nomura Securities will become the first
Japanese financial institution to set up its shingle in
Second Life. The highly popular virtual world web site is
attracting hoardes of young Japanese, and consumer-oriented
firms are making sure that they continue to get some
mindshare of the residents. Second Life now has more than
8m subscribers. ***Ed: The big attraction of Second Life is
its high quality graphics and depth of user experience --
it's half between a video game and an SNS, offering people
the best of both experiences. Did anyone notice that NetAge
and Impress Holdings held their respective annual
shareholders meetings last month on Second Life?** (Source:
TT commentary from nikkei.co.jp, Jul 12, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070712D12JFA08.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

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-----------------------------------------------------------

+++ CANDIDATE ROUND UP/VACANCIES

=> LINC Japan Ltd., an affiliate of the LINC Media group,
is actively marketing the following positions for market
entry customers setting up in Japan, as well as other
employers of bilinguals.

** HIGHLIGHTED POSITION

A global brand name technology company is looking for a
Technology Support Manager for their Japanese operation.
Requires a bilingual person with experience both in
Operating systems and open source solutions, as well as
corporate and some management experience. The person will
lead a team of 15-20 technology support people and help
integrate the team into the global operations of the
company. Very stable working environment and all the
technology benefits of working for a large best-of-breed
multinational.

This position would be ideal for someone working as a
mid-level IT manager in a foreign bank, or for a larger
internationally-minded Japanese company, and who
wants to improve their technology and management
experience. Remuneration is commensurate with
experience, but can be expected to be around
JPY12m-14m base. Candidates can contact
keiko.watanabe at lincjapan.net for more information.

POSITIONS VACANT

* Capital introduction sales manager, bilingual -- JPY50-60m
* Medical instruments salesperson, bilingual -- JPY10-12m
* Enterprise software salesperson, bilingual -- JPY10-12m
* Applications support engineer, SQL experience -- JPY6-8m
* Network engineer, bilingual -- JPY5-8m
* IT sales trainee, bilingual -- JPY4-5m
* Java software developer, bilingual -- JPY6-7m
* SME software salesperson, bilingual -- JPY7-8m

CANDIDATES AVAILABLE

* Senior Financial IT Manager
Foreign male, late 30's, with strong background in
financial IT with blue-chip US securities firms. Recently
arrived back in the country and looking for mid- to senior-
position in infrastructure, data center, storage, etc.
Excellent interpersonal skills and references. Native
English-speaker with some Japanese. available June-July,
target JPY18-20m base.

* Senior Storage Engineer, Support Manager or Presales
Mid-30's Japanese male, data storage engineering background
with blue-chip Japanese company looking to change roles and
move into presales or management. Flawless English,
engaging personality, great technology credentials. Looking
for foreign vendor position. Available September, can do
interviews now. Target salary JPY14m plus incentives.

Interested Japanese or foreign candidates may e-mail
resumes to: terrie at lincjapan.net or
keiko.watanabe at lincjapan.net
-----------------------------------------------------------

+++ UPCOMING EVENTS/ANNOUNCEMENTS

-------------------- ICA Event - July 19 --------------------

Speaker: Richard S. Keirstead, CTO,
Ascendant Business Solutions K.K.

Topic: The Best of Both Worlds: A Practically Secure Network

Details: Complete event details at http://www.icajapan.jp/
(RSVP Required)
Date: Thursday, July 19, 2007
Time: 6:30 Doors open, Light buffet and Open Bar included
Cost: 3,000 yen (members), 5,500 yen (non-members)
Open to all - location is Ristorante Conca d'Oro

http://www.websanko.com/b_info/akgardencity/details.html
-----------------------------------------------------------

--------------- Red Herring Japan 2007 --------------------

July 22 - 24
Kyoto, Japan

Red Herring Japan 2007 Technology Summit is fast approaching.
This dynamic, two day event will be true to the innovative,
disruptive reputation of Red Herring. In addition to 36
corporate presentations by hand picked entrepreneurs from
around the world, RH Japan will feature some of Japan's
biggest, most provocative names in Japan-tech including NTT
DoCoMo's Takeshi Natsuno, eMobile's Sachio Semmoto, J at pan
Inc's own Terrie Lloyd and Sony's Nobuyuki Idei.

Contact Jason Sausto today at jsausto at redherring.com
for more information or visit Red Herring's website at
http://www.herringevents.com/japan07.

-----------------------------------------------------------

______________________________________________________
IT events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

No feedback this week.

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+++ ABOUT US

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