The future of the Japanese software industry
2014-24-04, by Diana
With the US-Japan trade talks going on this week, we decided to re-visit our discussion of the Japanese ICT industry. Although the talks won’t affect the IT industry, closer economic ties between the two countries are likely to benefit many economic players. Not to mention, it’s hard to think of Japan without thinking about its bustling tech sector.
Japan is the maker of many cutting edge electronics. They’ve left an indelible stamp on the video game industry and they’re making serious strides in advanced fields such as robotics. But with a protracted global economic slump, an aging population and disasters to deal with, what is the current state of the ICT market in Japan?
Japan is among the largest economies in the world, with an estimated gross domestic product of 5.96 trillion USD (in 2012). In January and February of 2014 the Japanese economy topped 1.9 billion USD in production of telecommunications systems alone (take a look at the rest of its electronics industry here). Without consumer electronics Japan is still a huge player on the world market. According to Bitkom Japan accounted for 9.3% of the world’s ICT market share in 2010 (without consumer electroncics), ahead of China (8.1%) and Germany (5.1%) and behind USA (28.7%). The Japanese Internet industry is its fastest growing market, overcoming the traditionally dominant transportation & machinery sectors. In 2011, the value of Japan’s internet sector was around 20 trillion yen, equivalent to 3.7% of Japan’s entire GDP, and is projected to grow to 25 trillion yen by 2015.
Hardware vs. software
Despite growth of Internet and telecommunications, Japan has a history of over-reliance on hardware. In 2011 The Economist reported that since 2008, Japanese software firms lost 20% of their market value, while software firms grew by 15% elsewhere. Japan was also ranked 35th in software spending (on par with Saudi Arabia). Yet with the recent increases in importance of software and growing Internet use, there is a new wave of change in the country geared towards producing software.
Many traditionally hardware companies are looking abroad to secure this transition (like NTT’s acquisition of Californian OpSource). There a couple of reasons to look abroad. One major factor is lack of venture capital in Japan. Another is a lack of a robust talent pool of software engineers which makes creating a software department from scratch expensive. Paired along with the aging population, this creates quite a talent shortage in Japan.
The Japanese software industry is likely to become stronger in the future. While the country works out its internal capabilities, Japanese companies can benefit from looking at other global locations for software development – our new representative office in Japan can be of great help with that.
And with conferences such as the Japan IT Week (the largest IT trade show in Japan) attracting national and international attention, Japan is far from being left in the dust.
Read Next: Adapting to change: Is your business flexible?
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