IT Services Industry Faceoff: China vs Japan 2021
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Introduction to IT services

The global IT services market is a rapidly developing industry that is transforming the world through technological advancement. These advancements have moved the world forward and created a large industry, with the global IT services market projected to reach $1,137.57 billion by 2025 and a projected compound annual growth rate of over 8% between 2021-2025. China and Japan are two countries that offer numerous opportunities in the IT services field. Though they are geographically close, they in fact offer different advantages and should be independently considered for any corporation planning to expand their operations into East Asia. This article presents the economic and strategic advantages of each country and explores a comparison of the two.

 

IT Services in China

The technology Surge

The Chinese economy is already the second largest in the world and is on pace to become the largest in the near future. As the economy continues to grow it will require greater levels of IT infrastructure. The increased complexity of developed economies necessitates IT services that provide more accurate data and greater efficiency.

 

China is in a unique position, in that its unprecedented GDP growth is slowing down as the country attempts to transition into a developed economy, while still maintaining the living standards of its exceedingly large population.

 

China’s IT industry is large and complex. The industry covers a large range of products, companies, and subdivisions. China already has the largest population of internet users in the world, growing from nearly 22 million in 2001 to over 880 million today. This rapid development in technological adoption and education has created a generation of skilled labor in technology, while still requiring comparably low wages.

 

Currently, IT services in China has a market share of $180 billion, with 23,214 businesses employing over 1.8 million people. The Chinese market is one of the largest in the world and is projected to continue growing over the near future.

 

The main components that make up the IT industry in China are Electronic Equipment (29%), Software (19%), Semiconductors (18%), Tech Hardware (17%) and finally, IT services (11%).  China is aiming to lead the world in IT innovation. The areas within the industry that are most heavily researched and encouraged are 5G, Internet of Things, cloud computing, hardware equipment, and other cutting-edge technology. Owing to this large goal for expansion into these areas, China is welcoming both foreign investment into domestic companies and foreign enterprises to physically establish operations within the country.

 

Where is China’s IT scene

The three areas within China with the most promising protentional for development in the IT industry are Guangdong, Jiangsu, and Shanghai. Guangdong is already home to technology giants Huawei and Foxcom. In the future, other technology companies are planning to establish themselves in this region, owing to the strategic advantages of the location and current technological opportunities Guangdong presents.

 

Jiangsu is home to Nanjing, one of the fastest growing and most established sectors of the IT industry in China. Because Nanjing is home to several academic centers, it enjoys fresh graduates with skills that transfer well into the IT sector.

 

One of the most prominent areas with high value in the IT industry is Shanghai. Shanghai is home to several academic institutions, has a long history of international businesses, and is the financial and economic center of mainland China. IT companies with aspirations of establishing a headquarters or office in China should consider one of these three locations to take full advantage of their position in the country.

 

Why Enter China’s IT Services Industry

Establishing a presence in China should be a key consideration for corporations in the IT industry. Although past economic growth will not likely continue at the same pace into the future, economic growth in China will still create market opportunities at a scale much larger than any other developing company.

 

As China currently has over 880 million smartphone users, this provides the perfect environment for other technologies to flourish. China’s use of mobile payments, e-commerce, and AI is already among the world’s best in terms of scale and efficiency. Economic output in the IT sector of the Chinese economy was over $580 billion. The IT market in China is projected to continue growing alongside its growing educated workforce and increasingly open market.

 

IT Services in Japan

Japan is a highly developed economy with an established IT industry. The IT industry in Japan is one of the key drivers of its growth. Although Japan has lost its position as the global center for the IT industry and is experiencing greater levels of competition from corporations outside its borders, it is still home to several leading companies that hold a dominant global position.

 

Japanese companies and the Japanese government are both making efforts to increase the competitiveness of domestic companies and attract more foreign enterprises to Japan. Change has already taken place in the Japanese economy due to the implementation of IT services throughout the country. However, there is already more change being planned to expand the role IT plays in daily life at both the professional and consumer level.

 

Where IT Services in Japan is Headed

In 2016, the Japanese Council for Science, Technology, and Innovation released their fifth Science and Technology Basic Plan, detailing these plans and how they will enable these changes.

 

The market size of the IT industry in 2020 was about 13 trillion yen, or about $122 billion. There are three main areas in Japan driving the IT industry: Internet of Things (IoT), advancements in cloud native, and the growth of new platforms.

 

The Internet of Things – IoT has traditionally been used in manufacturing and distribution but is now being used in other industries as well. This includes the power industry as well as consumer facing industries. In the near future, the competition for IoT applications is expected to increase, resulting in cheaper products and greater market penetration.

 

Cloud Native Applications – Also known as the architecture of applications, is an area that is developing quickly. The advantages this technology presents us with are primarily more efficient processing of data that can better inform management and assist with decision making.

 

The Growth of New Platforms – In the past, many networks were client-server based, restricting the growth and applicability of platforms. In the near future, big data, mobile, and other growing technologies will remove this limitation and create pathways for new platforms.

 

Why Enter Japan’s IT Services Industry

Japan has a developed economy and a well-established IT industry. Considering Japan’s population, Japan’s IT industry is one of the most competitive in the world. As the Japanese government continues to facilitate economy growth in the IT industry, the competitive nature within the country will increase and many economic opportunities will arise.

 

A Comparison of China and Japan’s IT Services Industries

China’s IT Landscape

Japan and China represent two different types of opportunity for the growth of IT companies in East Asia. China, on the one hand, is much bigger with a much larger population. It is still developing its economy and is making the necessary changes to facilitate internationalization and fair competition for foreign companies attempting to enter the Chinese market.

 

This developing economy presents both challenges and great opportunities. Some of these challenges are a developing legal system for IP protection and changing expectations of economic growth. However, China has already made public plans addressing each of these areas.

 

The opportunities China presents are the growing population of an educated workforce, comparatively cheap wages, and incentives for IT related corporations to establish themselves there.

 

Japan’s IT landscape

Japan, on the other hand, has a well-developed economy with a n established IT industry. Corporations that intend to enter this market will have a clear understanding of what to expect from the industry here and have access to labor and infrastructure that already exists.

 

The potential for corporations with operations in Japan is promising. However, domestic Japanese companies have already established strong identities within the company and will present greater competition for labor and have a more detailed understanding of daily operations and legal requirements than foreign companies.

 

In summary, entering either (or both) countries will present both great opportunities and challenges. The difference between these two countries lies within the natural differences inherent in a developing economy and a developed economy. China presents more opportunities for growth, but like every potential investment with great promise, there is also more risk. On the other hand, Japan presents less risk with more predictable growth.

 

How INS Global Can Assist you

Ins Global has helped a number of IT services companies in their expansion around the world. We have assisted IT services companies in China and Japan, to hire staff, administer their payroll, as well as recruit top talent in their respective sectors. Get in touch with us today to learn more about how we can help you hire and pay staff, recruit employees, and invoice clients.

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