How Japanese companies fight shortage of local IT talents

A lot of issues that slow down the Japanese business and unicorn environment originate within the labor market. The country has one of the unhealthiest approaches to hiring and managing employees.

The state of the Japanese tech market can still be improved for the best. In this post, we, Mobilunity - an international outsourcing company, will lay out the main points and challenges that entrepreneurs and tech business owners are facing. You will find out what are the ways to address the issues that loom over and what our take on outsourcing in Japan is.

A Look at Japanese Tech

In the 1980s, Japan has become the world's second-largest economy, thanks to its robust technological innovation. The labels of 'Japan.Inc' or 'Japan as Number One' defined the country as the key trendsetter in all aspects of technology. By industrializing and automating production processes, the country became one of the richest and lucrative environments to bring creative ideas further.

All started changing in the nineties when, after the economic burst, the US established itself as the leading tech hub and Japan's strong contender. In the early 2000s, titles that included 'stagnation' or 'souring system' labels describing the Japanese business landscape were not a rarity.

Now, Japan is no longer a major player in the tech industry. According to CBInsights, Tokyo has ranked 10th on the list of the world's lucrative tech hubs. Japan loses in profit and innovation by numbers compared to other Asian powerhouses - Beijing, Shanghai, and New Delhi.

Japanese Tech Business Challenges

What is the reason for Japan's rather rapid downfall? The thing is, unlike other tech hubs, the country lacks openness and diversity on all levels. The Japanese appreciate stability and tradition - the values, incompatible with today's turbulent business landscape.

Here are the dominant challenges in the Japanese business environment:

The working-age population is declining. Since February 1997, the number of Japanese aged 15-64 started declining at an impressive rate. During the last 20 years, the country has lost over 11 million in the productive population. As a result, hiring crises spread throughout the country. Naturally, there aren't too many people to fuel and empower small businesses.

Labor market dualism. Japan promotes long-term contracts that, for some, result in lifetime employment. As a result, non-regular employees, hired to reduce development costs, are incapable of being treated and paid equally.

High aging population rate. Given Japan's average life expectancy (83.98 years) aging population is a strong pain point for Japan. The country has promoted adult learning initiatives to help aged employees reskill However, according to the OECD's official report, these training systems are not reaching the low-skilled effectively.

Low unemployment rates. In Japan, the unemployment rate steadily approaches 2%. It's a warning sign for the country and an encouragement to embrace diversity and open its borders. The talent shortage in Japan is leading the country to actively engage in the talent war that's already raging all over the US and Europe.

Low diversity. The sprouting growth of Silicon Valley, fueled by diversity, proves that multi-cultural collaboration is the clue to succeeding as a tech startup. Perhaps, it's the lack of diversity to halt Japanese tech progress. There's a strong local IT talents vs. web developers' outsourcing debate in the country's tech sector. Statistically, the country is the second-least diverse one in the world.

Local IT Talent: Average Salaries

As talent shortage becomes a more pressing issue for the Japanese, the remaining workers are increasing their yearly rates. The country has a fairly high average salary estimate across all tech areas, as demonstrated in the table below:

Considering a high average developer salary in Japan, it's worth remarking that the costs for hiring remote developers are way lower. That's why Japanese SMEs and industry leaders are opening up to outsourcing - hiring tech teams outside the country.

Fighting Talent Shortage The Japanese Way

The good news is, the Japanese government is not oblivious to the country's labor market problems. Instead, slowly but surely, the officials are taking steps to make Japan a healthier and more efficient as a working environment.

Here are a few government-backed incentives that aim to fight talent shortage:

Immigration-friendly policies. Japan has recently loosened the grip on its attitude towards foreign workers. By enforcing foreigner support, the country hopes to attract a significant number of working population over the next 5 years - around 300 000. Hiring remote dedicated developers in another approach the country took to fight talent shortage.

Increasing critical reasoning and the business drive of youth. According to the data provided by OECD, Japanese high school students lead the way in terms of scientific and mathematical expertise compared to the same age group in other countries. The same study has also shown that the level of critical thinking, as well as the work efficacy, is low among the Japanese. That's why companies no longer want to rely on hiring college graduates only. The government has finally come to the realization that such a rigid employment system cuts a fair share of workers off and prohibits them from having steady employment.

Luring potential employers from childhood. In Japan, the growing number of companies appeal to kids in order to ensure they would later choose the company as the place of work. That is true for such industry giants as ANA - All Nippon Airways - Coca-Cola, and others.

Workplace automation. The talent shortage is forcing entrepreneurs to consider alternative ways of completing business tasks - the ones that don't require human supervision. Statistically, 15% of jobs in Japan will disappear in the near future and 39% will be approached differently. Automation is a way for Japanese businesses to compete with American or Chinese contenders without having to expand teams.

Outsourcing - A Silver Bullet For Japan?

In the US, outsourcing business activities to dedicated teams from countries with lower wages and maintenance expenses is a commonplace practice. Japan, as a country with severe talent shortage issues, would also be the one to benefit from the practice.

Outsourcing is a significant part of the country's modern tech landscape. In fact, according to Yano Research Institute, the size of the Japanese offshore software development market has grown steadily over the last 5 years and is forecasted to reach over $1.6 billion by the end of the year.

How does outsourcing help Japanese entrepreneurs address the issues they have been struggling with? Here's the list of benefits it brings to SMEs and large corporations:

Improves the company's focus. By outsourcing time-consuming tasks to an outside expert, businesses can fully concentrate on promoting the vision, designing innovations, attracting workforce, and gaining international exposure.

Expands the company's resources. Outsourcing business processes to a market with higher unemployment rates are a way for Japanese entrepreneurs to deal with the talent shortage. While other companies are competing over local college graduates, businesses that embrace outsourcing no longer have to spend a dime on HR campaigns and onboarding.

Reduces operating costs. Maintaining an in-house team comes with massive overhead costs. Working with an offshore remote team, on the other hand, allows companies to reach out to dedicated teams on the project basis. As a result, outsourcing is a cheaper way to test new products and ideas compared to an in-house department.

Instant access to knowledge and experience. Onboarding and training a team takes time and may require a company to slow down its development pace. There are no such risks when outsourcing. A company manager will benefit from a working framework developed by a dedicated team, the methods, and the know-how. This way, you'll be getting a quality product that costs as much or less than an in-house one.

These are some of the benefits outsourcing offers to Japanese businesses. By benefiting from the trend, companies can create a diverse environment, fight talent shortage efficiently, and implement Western practices in their business processes.

Destination to Choose: Ukraine

As the country in the very heart of Europe, Ukraine embodies a synthesis of eastern and western tech practices. Here, developers are well-versed in combining the frameworks that originate in the US or London, with those developed in Asia.

Ukraine is a diverse and multilingual technology hub. By outsourcing hiring a remote web development team, you'll be introduced to open-minded and innovative minds. Also, compared to Japan, Ukraine has a lower average software development salary - $19,200, according to Jaboo.

While most outsourcing companies in Ukraine are geared to work with the US- and EU-based companies, the industry leaders like MobilUnity are expanding their range of services to Japan. Business managers are guided by dedicated developers every step of the way - even if you have no knowledge of how to manage a dedicated development team.

To make sure you make an informed decision when choosing Ukraine as a software destination here are some statistics to introduce you to the market:

The number of IT specialists - 185 000;

Ranks first by the number of 3D Unity, C++ developers, second in PHP, Scala, Magento, and JavaScript;

Ranks among the top 10 outsourcing providers according to the World Economic Forum.

Conclusion

Japanese tech market harbors a ton of opportunities in terms of readiness to produce innovations, advanced technologies, and high automation rates. However, demographics presents businesses with challenges and halts their development.

The talent shortage is a major pain point for Japan, combined with the country's conservative employment system and low job fluidity. The good news is, by embracing IT outsourcing, Japan can get the openness and diversity it lacks at the moment. Hiring dedicated teams is a sensible investment that'll make the Japanese tech hub healthier and more dynamic. It's a brave decision for business owners to make - in the long run, however, it'll pay off in full.