Tata Consultancy Services (TCS) and Mitsubishi Corp on Monday announced a joint venture that could be a trendsetter for Indian companies in addressing a huge Japanese market that has been by and large not tapped by the nation’s IT industry.
The venture involves TCS Japan and Mitsubishi’s own software arm merging to form a new company that is expected to see $600 million in annual revenues in the first year.
TCS Japan, IT Frontier Corporation — a Mitsubishi subsidiary — and Nippon TCS Solution Center will now be merged to create a new company that would focus exclusively on Japan’s $108 billion (Rs 6,54,200 crore) IT services market. TCS has not yet named this new firm due to start in July.
TCS Japan will initially hold a 51% stake in the new company while Mitsubishi Corp will hold 49%. TCS Japan has the option to later raise its stake to 66%.
The initiative by TCS may be a precursor for similar such deals in the near future as Indian IT firms look to expand their presence beyond the traditional markets of US and Europe. For Japan’s ageing economy, India could be an ally in both innovation and cost reduction.
The venture is a signal of India and Japan coming closer as the Far Eastern nation rides on “Abenomics” — Prime Minister Shinzo Abe’s economic stimulus programme to pull Japan out of a prolonged economic slide.
“This strategic transaction signifies our serious commitment to the Japan market. TCS will now have scale, strong local presence…to serve the Japanese corporations effectively and accelerate our growth in Japan’s market,” said TCS chief executive N Chandrasekaran.
“Japan is a very good market to work in local partnerships. For Indian IT firms this will help them break language barriers and get culturally aligned with Japanese firms,” said Akhilesh Tuteja, India head for technology practice at consulting firm KPMG.
TCS, Wipro, Infosys, Zensar, Mastek and NIIT Technologies have been in Japan for about two decades but earn less than 3% of revenues from Japan.
A recent study by industry association Nasscom estimated that IT services expenditure ratio for Japanese firms is still around 1 to 1.5% as compared to 3.5 to 4% in the US. Only a small share of firms have utilised IT for strengthening competitiveness.
Japan’s manufacturing companies are also looking to expand in India through dedicated corridors, and IT ventures may be strategically positioned to exploit related opportunities.