Philippines plans to tap Japanese outsourcing market

Next to the U.S., Japan maybe the biggest IT outsourcing market for the Philippines. But if the country’s IT outsourcing capabilities are not properly promoted among Japanese businesses, the Philippines may lose this huge market to outsourcing rivals India and China.

There are almost 70 Japanese firms which have already set up shop or outsourced some of their operations in the Philippines. However, there are thousands more in Japan planning to do the same, according to Masaharu Tamaki, a representative of the Japanese government who is acting as an adviser of the Philippine Board of Investments (BOI).

“The market is so big in Japan. But the majority of Japanese companies are unaware of the advantages the Philippines offers,” Tamaki said in an interview during the recent eServices Forum organized by the BOI. While India is recognized for its high standards and China for its close affinity to Japan in terms of language, Tamaki said the Japanese are nonetheless enjoying the good business climate in the Philippines.

“Filipino engineers go along well with their Japanese employers. Philippine companies are known for their flexibility and adaptability,” the Japanese official added.

The BOI recently announced that five more Japanese firms have signified interest in setting up operations in the Philippines, particularly for software development and engineering design.

These are NEC Mobiling, Sanyu Information Systems Ltd., Space Creation Co. Ltd., Swan Corp., and Epson Software Development.

Tamaki noted that more and more Japanese companies are turning erstwhile “cost centers” overseas (outsourcing company processes to generate cost-savings) into profit-driven centers. “The trend now is towards venture capitalism. These companies (set up by parent firms in Japan) are finding business by themselves. Competition has become very stiff,” he said.

It’s not only the big Japanese companies like Toshiba or Epson but smaller Japanese companies that are now looking into this profit-driven business model. “Some manufacturing companies in Japan are diversifying into IT services,” Tamaki pointed out.

One example of a company that has followed this model is traditional hardware provider Fujitsu. The Japanese firm has set up a Philippine arm called WeServ Systems Ltd. which handles outsourced software development work from Japan.

Takashi Nakamura, president of WeServ Systems, agreed with Tamaki that most Japanese companies are not unaware that there is a software industry in the Philippines.

“There is a market in Japan but it is a tough market to penetrate,” Nakamura said.

He also cited the language barrier faced by Japanese companies when looking to outsource abroad, adding that China has the advantage in this area.

Nakamura, however, cited a “deeper” reason why the Japanese are cautious when looking for partners to outsource their operations to.

“As an island country, Japan is not used to having relations with other countries. There is a need to understand its culture,” he said.

However, he said there are certain characteristics common to Japanese and Filipinos such as the concept of “utang na loob” (roughly, debt of gratitude) which could enforce business relations.

He further noted that since most outsourcing destinations are heavily targeting the U.S. market, the Philippines can capitalize on opportunities from Japan.

“There is a demand from Japan and there is a supply from the Philippines but these should match. Both countries should think alike,” Nakamura said.

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