Competition in Japan's IT Market: Domestic Giants vs. International Startups
The Japanese IT services market, valued at USD 70.22 billion in 2023, is projected to grow at a compound annual growth rate (CAGR) of 9.8% through 2030. This substantial market presents both opportunities and challenges for domestic IT powerhouses and foreign startups alike. As Japan continues its digital transformation journey with increasing focus on artificial intelligence, cybersecurity, and emerging technologies, the competitive landscape is evolving in fascinating ways. This article examines the current state of competition between established Japanese IT companies and international startups attempting to gain footholds in this lucrative but complex market.
The Japanese IT Market Landscape
Japan's IT services market represents one of the most technologically advanced economies in the world. The market is driven by increased deployment of IoT-based devices across various industries, including consumer electronics, agriculture, construction, and military applications. The Japanese government has been actively supporting the development of advanced infrastructure, while major domestic players have solidified their positions through decades of market dominance.
Japan is home to influential IT organizations including Fujitsu, Sony, NEC, Panasonic, and Toshiba, which have traditionally shaped the country's position as a major technology hub. The rise of e-commerce and digital payments in Japan has created new opportunities for IT service providers to develop solutions for online retailers, payment gateways, logistics management, and cybersecurity protection. These market dynamics have attracted both established international players and ambitious startups seeking growth opportunities.
Domestic IT Giants: Shifting Hierarchies
The competitive landscape among Japanese IT companies has seen notable shifts in recent years. According to 2023 market share data from Gartner published in August 2024, NTT Data claimed the top position in Japan's domestic IT services market with revenues of 1.611 trillion yen
(7.7% year-on-year increase), capturing 11.0% market share. NEC secured the second position with revenues of 1.3011 trillion yen (13.1% increase), representing 8.9% market share.
Perhaps most significantly, Fujitsu-long considered the leader in Japan's IT services-fell to third place with revenues of 1.1875 trillion yen (7.7% increase), holding 8.1% market share. This reshuffling of positions reflects the evolving dynamics within Japan's IT industry as companies adapt to changing technological demands and market conditions.
By market capitalization (as of April 2021), the top Japanese tech companies were dominated by telecommunications giants, with Softbank Group ($188.26 billion), NTT DOCOMO ($114.18 billion), and NTT ($100.76 billion) leading the pack . This dominance by major telecom players
has remained consistent for over a decade, with e-commerce and gaming companies following in their wake.
International Startups Entering Japan
Foreign startups and companies are increasingly drawn to Japan's market due to its size and economic importance. However, entering this market presents unique challenges that require careful navigation and strategic planning. The obstacles that international companies face are numerous and substantive, requiring dedicated resources to overcome.
Key Obstacles for Foreign Entrants
Foreign startups attempting to enter the Japanese market typically encounter three primary
challenges:
- Cultural differences, especially regarding business customs . Japan's business culture emphasizes relationships, hierarchy, and consensus-based decision-making, which can be markedly different from Western business practices.
- Language barriers create significant communication challenges. Despite efforts to increase English proficiency, Japanese remains the primary language for business interactions, requiring foreign companies to invest in translation services or Japanese-speaking staff.
- Regulatory complexity and market-specific requirements necessitate careful navigation of Japan's legal and business environment.
Essential Steps for Market Entry
For foreign startups to successfully penetrate the Japanese market, a deliberate approach is necessary. The process typically involves understanding the Japanese market dynamics, conducting thorough market research, and customizing products or services to meet local
preferences and requirements.
Successful international entrants often establish local partnerships or hire Japanese staff who understand the nuances of the business culture. This approach helps bridge cultural differences and navigate the intricacies of relationship-building that are crucial for business success in Japan.
Advantages of Domestic Companies
Japanese IT giants benefit from decades of established business relationships, deep understanding of local market preferences, and strong brand recognition among Japanese consumers and businesses. Companies like NTT Data, NEC, and Fujitsu have extensive client networks spanning both private and public sectors. Their long-standing relationships with government entities provide advantages when bidding for public sector projects. These established players also understand the Japanese approach to decision-making, which often involves multiple stakeholders and consensus-building processes. This cultural alignment allows domestic firms to navigate business negotiations and partnerships more effectively than many foreign entrants.
Strengths of International Startups
Foreign startups often bring innovative technologies, fresh business models, and global perspectives that can disrupt traditional approaches. Many international companies, particularly in areas like artificial intelligence, cloud computing, and digital transformation, leverage cutting- edge technologies that may not yet be widely adopted in Japan.
International startups can sometimes move more quickly than larger Japanese corporations, which may have more hierarchical decision-making processes. This agility can be advantageous in rapidly evolving technology sectors, allowing foreign entrants to introduce innovations before
established players can respond.
Growth Opportunities
Several factors are reshaping the competitive landscape in Japan's IT market, creating opportunities for both domestic and international players.
Digital Transformation Initiatives
The increasing adoption of digital technologies across Japanese industries is creating demand for IT services that support transformation efforts. In November 2022, Accenture strengthened its position in Japan's data science market by acquiring Albert Corporation, enhancing its capabilities to help clients reinvent their businesses using artificial intelligence. This acquisition demonstrates how international firms are strategically positioning themselves to capitalize on Japan's digital transformation journey.
Data Center Expansion
International companies are investing heavily in Japan's digital infrastructure. In November 2022, Equinix, Inc., a digital infrastructure provider, invested USD 115 million in a new data center to expand its footprint in Japan. This investment aims to strengthen connectivity for global networks, cloud service providers, and enterprises seeking to exploit Japan's growing digital economy.
Cloud and AI Services
The growth in cloud adoption and artificial intelligence applications is creating new competitive dynamics in Japan's IT market. Both domestic giants and international entrants are focusing on these high-growth areas, with cloud services becoming increasingly important as Japanese companies modernize their IT infrastructure.
Future Outlook: Collaboration and Competition
The future of Japan's IT market will likely feature both intense competition and strategic collaboration between domestic and international players.
Partnerships and Acquisitions
Acquisitions have become a key strategy for growth among Japanese IT companies. NTT Data, which claimed the top position in the domestic IT services market in 2023, has pursued an aggressive acquisition strategy, purchasing companies like Sierra Systems Group Inc, Cognosante Consulting LLC, AWS partner Flux7, and ServiceNow partner Acorio between 2018 and 2020. These acquisitions have strengthened NTT Data's capabilities and expanded its service offerings.
International companies may similarly pursue partnerships or acquisitions of Japanese firms to gain market access and cultural understanding. These collaborative approaches can combine the technological innovations of foreign startups with the market knowledge and relationships of
domestic players.
Emerging Technology Focus
Both domestic and international players are increasingly focusing on high-growth technology areas. The Japanese IT services market is projected to expand at a 9.8% CAGR through 2030, driven by growing focus on artificial intelligence, cybersecurity, digital technology, robotics, and healthcare IT. These areas represent opportunities for companies that can deliver innovative solutions.
Conclusion
The competition between domestic Japanese IT giants and international startups in Japan's technology market presents a fascinating study in contrasts and adaptations. While established Japanese companies maintain significant advantages through their entrenched business relationships, market understanding, and cultural alignment, international entrants bring innovation, agility, and fresh perspectives.
Success in Japan's IT market increasingly depends on finding the right balance between respecting traditional business practices and introducing innovative approaches. For domestic companies, embracing global trends and technologies while leveraging their local advantages will be crucial for maintaining market position. For international startups, investing time to understand Japan's unique business culture and developing strategic partnerships may determine whether they can successfully establish themselves in this challenging but rewarding market.
As Japan continues its digital transformation journey, both domestic and international players that can adapt to the evolving competitive landscape while delivering value through technological innovation will find opportunities for growth in one of the world's most technologically sophisticated markets.
Citations
1. https://www.grandviewresearch.com/industry-analysis/japan-it-services-market-report
2. https://xtech.nikkei.com/atcl/nxt/column/18/00848/00149/
3. https://blog.btrax.com/top-10-japanese-tech-companies-in-2021/
4. https://www.47and.com/post/obstacles-that-foreign-startups-and-companies-run-into-when-starting-u
p-in-japan
5. https://nexthub.jp/8-essential-steps-for-foreign-startups-to-enter-the-lucrative-japanese-market/









