Philippines competes for Japan"s outsourcing market

23.08.2005
Von Lawrence Casiraya

Next to China and India, the Philippines is competing with emerging offshore services provider Vietnam, for Japan"s software development market valued at ¥7 trillion (US$63 billion).

Japan"s software development industry outsources only about 1 percent offshore, according to Tae Abe-Abion, general manager of Spiceworx, a Philippines-based consultancy firm providing business information to trade organizations in Japan.

Based on information gathered by Spiceworx, the Japanese software market outsourced services in 2002 valued at ¥20 billion, and increased by more than double to ¥49 billion in 2003. The Philippines accounted for 9 percent or around ¥1.9 billion of the market in 2002.

Local software firms servicing the Japanese market made about ¥2.5 billion in 2003, but the country"s total share dipped to 5 percent as other countries ate into the Philippines" market share. Japan outsources more than half of its software development work to China, while India is the next biggest earner and corners 15 percent of the revenue pie.

This still leaves room for one more offshore provider and the country is competing strongly against Vietnam, which is emerging as an outsourcing destination.

"Vietnam is getting a lot of attention because it is perceived to be more politically stable and offers lower labor costs. The Vietnamese are also perceived to be more familiar with the Japanese way of doing things," Abe-Abion told Computerworld Philippines via phone interview.

The good news, though, is that both countries have a huge potential market to serve. On its Web site, the Japan External Trade Organization (JETRO) reported that Japan"s information and communication industry is expanding at an average of 5.6 percent yearly, becoming the largest of Japan"s major industries in terms of market scale.

By 2002, the sector had grown to become a ¥116 trillion market, and further growth is anticipated with the advent of the so-called "ubiquitous network" society, an environment connecting computers and other devices, thereby opening up the market for software-based applications. JETRO also reported that Japan"s ICT industry focus has also expanded to the creation of digital content to support this near-term scenario.

JETRO is currently engaging Spiceworkx"s services in providing up-to-date information about the Philippine software development industry, primarily for business-matching purposes with Japanese companies.

Over the next seven months, Spiceworkx will gather information on three industries: software development, animation, and engineering services. "Information about the Philippines? IT industry is very limited," Abe-Abion stressed.

She estimates there are about 20 to 30 local companies currently providing offshore work to Japan. On the other hand, there are some 5,500 companies from cities like Tokyo and Osaka, not including smaller software development companies in other provinces, she added.