Japan’s technology analyst business turns the corner
The technology analyst business in Japan – long constrained by weak economic & IT spending growth as well as some cultural challenges related to the use of external advisors – appears to be enjoying its most positive period in several years.
During a visit to Tokyo last month, I met with senior executives from the major global IT analyst firms, Gartner and IDC, as well as local advisory firm ITR, and found them all positive about business growth as the economy continues its recovery, although sentiment did vary from bullish to cautiously optimistic.
This is in stark contrast to previous visits over the past couple of decades, when the analyst business seemed weighed down by the weak performance of the Japanese economy and the challenges of adapting a “western” concept of external advisory to a culture much more reliant on peer networks & hierarchies.
Japan is, was & always will be a complex technology market. It is huge – only last year surpassed as the second largest country market by a fast-growing China, according to IDC – and has a strong cohort of domestic technology vendors which have tended to dictate technology adoption much more than the large group of global multinationals which have operated in Japan for decades.
Native language support, the ability to innovate to meet the needs of the Japanese business & consumer markets, and tight relationships between local suppliers and end-user organisations have all shaped technology adoption & behaviour in Japan, and impacted on how analyst firms with “western” business models have engaged with Japanese clients, whether they are vendors or users.
Notwithstanding their enthusiastic reliance on technology, Japanese companies have not tended to see IT as strategic, or to elevate its role as a business driver or differentiator. According to analysts I spoke to recently and over previous years, no more than 20 to 30 per cent of Japanese enterprises employ a CIO, and very few of those have an IT background, coming mostly from HR and finance, so they tend to be heavily influenced by their suppliers, including the local SIs.
And while Japanese IT vendors have a voracious appetite for data – market size, market share & forecasts, not to mention any number of segmentations – Japanese market taxonomies don’t always map neatly to those defined by the global players such as IDC & Gartner, so this has represented a barrier to penetration of those accounts – in some cases requiring duplicate products to meet local & global requirements.
For their part, most analyst firms in Japan have maintained their investment in the market and are starting to see the dividends. IDC Japan is the oldest player, established in 1975, while Gartner ended its agency representation to establish a subsidiary in the late 1990s. That agency – ITR – has had information-sharing arrangements with Meta, Forrester and Constellation Research since, but has mostly relied on its local services to drive its business.
There are other local players, most of which are focused on providing local market share data to Japanese vendors. Some are technology specific, such as MIC Research, MM Research & Techno Systems Research while others are generic market research firms which cover technology segments along with other vertical markets, such as Fuji Chimera, Mitsubishi Research & Yano Research.
Forrester has maintained a sales office in Japan for many years, but has had no resident analysts in the country since the departure of its one representative earlier this year, while Frost & Sullivan has a good presence in some vertical markets, but a relatively low focus on IT.
But there are many signs that things are changing. Following is a snapshot of the state of play, based on my recent discussions.
Gartner has been investing steadily in the Japan business for the past few years with the addition of significant sales & support resources, evolving it from a sell-side market sizing organisation to one which now derives more than 60 per cent of its revenues from end-user organisations. According to Gartner’s Japan country head of research, Satoshi Yamanoi, the penetration of end-users remains quite small, particularly when compared with the US and EMEA, so the market opportunity is considerable.
Gartner now offers a complete portfolio of services in Japan, including research; consulting – which competes with likes of Boston Consulting & McKinsey; events – including Symposium/ITxpo & five summit events; and the EXP CIO peer networking program. The EXP program is approaching a critical mass, but Gartner hopes to increase this over the next couple of years.
Like other analyst firms in Japan, Gartner has very strong analyst retention, with many analysts having worked with the firm for several years. Headcount has remained stable at about 30 analysts for the past few years, but the research teams are now more tightly integrated with the global organisation, with the team leaders for infrastructure, applications & sourcing/IT management now reporting into global peers rather than working in isolation.
According to Yamanoi, Japanese CIOs and other executives are increasingly looking to understand global best practices for technology & business adoption and integration, so are more open to external guidance than previously. As well, other countries are looking to engage more closely with Japan, with Gartner working with government & business customers from China, India, Brazil & Japan.
Similarly, IDC Japan has been enjoying some solid business growth without increasing its analyst headcount, which remains at about 35. Analyst retention rates are high, and according to managing director, Masato Takeuchi, it is difficult to recruit quality analysts due to the specific mix of skills required.
As in most other countries, IDC’s revenues are heavily dependent on quarterly market share trackers (which are often purchased at a corporate level by US & European vendors), but IDC Japan is also able to generate local language reports to meet the needs of Japanese vendors at both local & global levels.
The strong position of Japanese vendors in some technology segments means that IDC Japan is more actively involved in driving IDC’s global research agenda than most country offices. Several of the world’s leading printer vendors are Japanese, for example, while Japan’s strong manufacturing base across many segments means that IDC Japan is providing considerable input into defining the methodology around IDC’s research into the Internet of things (IoT).
According to Takeuchi, Japanese CIOs recognise that their role needs to change to one which acts more as a strategic advisor to the CEO, which opens up buy-side opportunities in some vertical markets, although IDC has not yet put significant focus on developing the Insights business in Japan. Retailers starting to explore the implementation of big data as they move to omni-channel is just one example of how IDC might leverage its global expertise for Japanese end-users.
Established 20 years ago, ITR has carved out a comfortable niche in the Japanese research & advisory market. With a comparatively small roster of 10 fulltime analysts plus about half a dozen contractors, it services about 300 clients, about one-quarter of which are end-user organisations and the balance are Japanese & multinational IT vendors.
ITR delivers buy-side advisory services to end-users through its subscription-based Strategic Partnership Service (SPS), plus undertakes short-term consulting engagements to help clients with vendor selection, IT strategy and IT architecture development. At the same time, it works the sell-side by producing market sizing reports for local vendors, primarily focusing on segments which aren’t addressed well by the bigger firms.
Originally a data-gathering partner for Gartner, ITR has a long history of partnering with global research firms, often translating selected content into Japanese to share with its local clients. Having also worked with Meta Group & Forrester, ITR is now aligned to US-based Constellation Research, which focuses largely on disruptive technologies.
According to ITR general manager, Hiroshi Yamamura, Japanese companies are slower to adopt disruptive technologies than their counterparts in the US, but there is a trend to technology purchasing moving away from the IT department to lines of business. Interest certainly seems to be growing – an ITR conference in May keynoted by Constellation founder & principal analyst R “Ray” Wang attracted 1,200 attendees.
There is growth at many levels in the Japanese analyst business. While revenues from existing services look healthy, there are new opportunities opening up as end-users more actively engage with external advisors, which means that the influence of Japanese analysts working for both local and global firms is increasing.
Japanese analysts rarely have influence outside of Japan, but they are significantly more influential in the domestic market than any foreign analysts will ever be. While IT spending growth remains moribund, Japan remains a huge market for multinational IT vendors, who would be well-advised to review & upgrade their level of engagement with analysts in the world’s third-largest market.