• Aruna Basnayake

Japan’s Future is Hybrid—Market Entry in the Next Phase of Japan’s Digital Transformation


This is the first in a series of three posts on Japan market entry.


Aruna Basnayake, CEO and Partner, Japan Cloud


There’s an upside to COVID in Japan: the pandemic has disrupted Japan’s formalistic business culture, catapulting workers out of stifling protocol, if not packed trains, into a virtual world where executing to plan and achieving results are all important.


While traditional, physical interactions will of course remain, there is no question that remote work and online services will outlast the pandemic. Japan’s future, like the world’s, is hybrid. The productivity gains for Japan’s businesses will be enormous.


For enterprise cloud companies with an eye on Japan, the opportunity is likewise huge.


Japan is Cloud Ready

Comprising the second largest enterprise software market in the world, Japanese businesses have been pursuing digital transformation—albeit with mixed results—for close to two decades.

They are now embarking on the next phase of their digital journey. They are extending and securing their business processes to empower remote workforces and to deliver seamless customer experiences online. They are gathering and analyzing key data across employee and customer touchpoints to make more predictive decisions.


Indeed, more than 40 percent of close to 1900 Japanese executives said they will boost investments in cloud services this year[1], according to a May 2020 survey. A pre-COVID report from IDC Japan projected the market for public cloud services to grow more than 18% annually to around $20 billion by 2024[2]. Japan has never been more cloud ready.


Being Japan Ready

For their part, enterprise cloud companies looking to enter Japan need to be Japan ready. They need to have the scale and stamina to meet the demands of large, pragmatic customers. Whether they are digitally transforming existing businesses or launching new ones, Japanese customers want to work with market-tested vendors that can help them achieve business outcomes.


While early-stage startups may find an audience in Japan—especially now over Zoom— technology and vision will get them only so far. If global companies want to do business in Japan, they need to show evidence that they can deliver Customer Success.



Paths to Market Entry

Entering Japan is no small feat. Japan is a massive, highly opaque market. The country is second to the U.S. with nearly 15,000 companies boasting revenues of more than $100 million.[3] Japan usually garners 60 to 70 percent of Asia Pacific revenue, excluding China, for enterprise software companies. It cannot be served from a regional headquarter, whether Singapore or Sydney. Japan is its own region. Building a strong local presence is essential.


Cloud companies can enter Japan directly or in partnership with a local organization, whether an industry incumbent, a Japanese trading company or an enterprise cloud specialist such as our firm, Japan Cloud. While I am of course partial toward the partnership model, many industry experts would agree that companies carry more risk when entering Japan directly. The market’s sheer size, dearth of local talent and persistent language barrier—Japan ranks 55th in English proficiency among 100 non-English speaking countries[4]—make smooth entry a challenge.


Companies are often encumbered by weak direct sales capabilities, ineffective value selling to CxOs and an overdependence on resellers as well as highly procedural PR and marketing. Companies often lack visibility into their local operations other than through their country manager. Many companies fail to gain market traction after years of trying on their own.


Partnering for the Long Term

Although partnering by no means ensures success, companies that enter Japan with a partner should, at the very least, benefit from quicker access to local knowledge. customers, potential recruits and vendors. Introductions to trade and business media should also be included in the partner’s go-to-market menu.


Ideally, partners should support companies far beyond market entry—not only with words of wisdom, but also with hands-on execution. They should be bilingual, bicultural translators of the local culture. They should serve as a company’s eyes and ears into their local operations. They should help companies build a local organization that can deliver stable, long-term growth.


The goal should be to build a thriving Japan business that can contribute 10 percent of global recurring revenue—because Japan comprises 10 percent of the global IT market—within 10 years.


For cloud companies that have the will, wisdom and wherewithal to commit to the second largest enterprise software market in the world, Japan’s hybrid, data-driven future presents an enormous opportunity for innovation and growth.


Stay tuned for my upcoming posts on hiring and building a locally rooted Customer Success culture in Japan.


[1] https://www.m2ri.jp/release/detail.html?id=426

[2] https://www.idc.com/getdoc.jsp?containerId=prJPJ46845820

[3] S&P Capital IQ Database

[4] https://www.ef.com/wwen/epi/


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