Three Types of Japanese Customers – Part 3: The Risk-Averse Outsourcer Implications for Foreign Software Vendors

No Comments Business in Japan,Three Types of Japanese Customers

office buildingsWhen it comes to choosing a software vendor for a project in Japan, there are three types of customers. It all boils down to defining which player bears responsibility for the decision…

Let’s see how they differ, which is more frequent, and what that means for a foreign IT company wishing to do business in Japan.

In this short series, we consider each of these Japanese customer types, starting with The Independent Thinker and The Self-Confident Outsourcer. This third and last part is about The Risk-Averse Outsourcer. Enjoy your reading!

The Risk-Averse Outsourcer

Copyright IAEA Imagebank

Copyright IAEA Imagebank

The Risk-Averse Outsourcer is the foreign IT vendor’s most challenging customer and the reason why vendors frequently say, “The Japanese market is difficult.” But vendors shouldn’t give up too early on this customer type: Risk-Averse Outsourcers also represent the largest market share, so the challenge is worth the effort!

Risk-Averse Outsourcers come from a long tradition of Keiretsu (set of companies with interlocking business relationships and shareholdings) and Sogo Shosha (general trading companies). Typically large, rich, old companies, they have developed into a strong contender within their market while maintaining a very traditional internal organization.

Risk-Averse Outsourcers’ most striking characteristic is, as you may have guessed, risk aversion. With considerable assets to protect, these companies favor immobility to change. This creates a culture that favors avoiding situations where the responsibility of the company (or the individual) is engaged.

When it comes to an IT project, the Risk-averse Outsourcer will come to rely on the long-standing relationship with a system integrator (if possible, from the same conglomerate) to make the project happen.

For a foreign IT vendor, the most striking aspect of the relation between the Risk-Averse Outsourcers and their system integrators is that the customer will not specify which software/solution should be used to fulfill the project’s needs. The logic behind this is simply a matter of responsibility: the customer gives full responsibility to the system integrator, which needs complete control of the project implementation in order to bear this responsibility.

The fact that a customer is empowering its system integrator with the software selection (i.e., relinquishing the power to decide what will be deployed within the company’s own organization) is a bit disconcerting at first for an outsider. I remember meeting with one of the top three Japanese banks to introduce the ideal product for them and being told that, even though it was indeed a perfect match for the company’s needs, the bank could not and would not influence the system integrator’s decision on software choice. So much for end-user lobbying…

This is quite frustrating, and even more so when you understand that a large portion of the market is represented by the Risk-averse Outsourcers. They are the large and rich companies with big budgets, which you want as a customer, yet you will have to convince another company (the system integrator) to use your product for those projects.

As a result, establishing a real partnership with the system integrators is crucial in Japan, as a large part of the business goes through them. Once you convince a system integrator of the benefits of your product (not just for the customer, but also for THEM), they will leverage their extensive sales force to promote your solution, provided it helps them win profitable projects.

Stay tuned for another article about establishing partnerships with system integrators and resellers in Japan!

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