4. Group survey
3. Fuji trip
2. Homestay meeting notes
Now we will move to the plan announcement of group survey.
1. Structure of the software industry (JapanTraining#4)
This graph shows the labor cost ratio to the revenue in each Japanese industry. The manufacturing industry has a very low labor cost ratio. But wholesale/retail has higher percentage. Software development has a quite high percentage of labor cost to revenue. You can see most of the revenue is gone with the labor cost. This graph shows 75%. In this software industry, 75% of the revenue is paid for labor. The rest of the 25% is allocated for other expenses, such as administration and communication fees. I told you in the beginning that company that has a large office goes bankrupt. This is because such company has a higher ratio of administrative fee, so in the final analysis, they cannot pay for good salary to the personnel, so the personnel quit company one after another. Several times a year, I have an interview with people who would like to be hired on a mid-career hiring. Some people said they have not been paid their salary for example three months in a row, or they are paid only half of the promised salary. And then I asked why then you do not quit such company, and they always answer that they cannot afford to leave the company until the project is completed. So you may think such people are quite a fool because they are working with no pay, it's p to your judgment. In fact, there are several software development companies which do not pay promised salaries to their employees. This is because huge percentage is spent for the labor cost, so if they spend more expenses, other expenses, then they cannot afford to pay for their salary. In the case of dispatching personnel to another company, then the software development company can receive commission on a regular basis from the client. However, in the case of the custom-made development inside the software development company, you cannot receive any money from the client until the development is completed and the software is delivered and accepted by the client. So in the case of custom-made development inside of the software company, it sometimes happens that the software company cannot receive any money for about half a year or even a year. So the software development company with a bad financial situation sometimes can not afford to pay for the salary of the employees. Many software companies prefer to hire personnel from the job placement services when they need some staff. I have listed the reasons why we divide labor in the software company. As you can see, the labor cost is quite high, so the software company cannot retain a large number of employees on a fixed basis, because they have to pay a large amount of salary. If there is no job, the people are left doing nothing. To prevent such situation, companies keep the minimum number of employees in their company. Another reason is that software companies contact any software partnership company because they do not know each other's special fields, so they contact any company which might have that function. With these reasons, the Japanese software development companies work with each other in the hierarchical structure explained in the previous slide. The problems arising from the situation are listed here. The first is people who have completely different skills (not the required skills) are gathered in a team. With the explanation I have made already, people in the team lose motivation to participate in the team. The skills which people acquire in a team do not accumulate inside the software company. In the hierarchical division, people are dispatched from the lower companies to the higher companies, so it sometimes happens that people who are not suitable for the project are gathered in the same team. People who have an experience in Visual Basic but they have a different level of knowledge and knowhow in Visual Basic. The software company which receives the original order from the client wants to have personnel with specific knowledge, but people who are dispatched from the subcompanies might have only very basic knowledge. This kind of mismatch sometimes happens. This type of problems happen in operation. I will give you a specific example. The software company which receives the original order is looking for somebody with experience in the banking industry. But the banking industry is categorized into different areas of business. So the banking industry is subcategorized into foreign exchange, savings account operation, financing, equity management, and so on. So the client might be looking for somebody who is experienced in foreign exchange, but the people dispatched from the subcontractor is experienced in insurance, for example. So in this case the company looking for someone in the banking industry, but the mismatch happened. If the mismatch is discovered in the beginning, then maybe personnel is changed. Sometimes it happens that the person continues to the final stage. I will give you another example. Sogoing back to the specific problems arising from the structure... I will give you an actual example of the problem of mismatching. The recent development trend is short-term development. For example, the software development of a particular cellular phone... How long should it take for a particular cellular phone to be developed? We have to do it in four months. Software incorporated into a cellular phone has a variety of applications inside. Because of the short development period, a huge number of people are gathered. The UCS (our company) is also engaged in developing software for the different cellular companies. About 400-600 people are engaged in development for a particular phone. For example, the Sharp corporation... Cellular company like NTT or KDDI gives a specific order to Sharp corporation. NTT or KDD, the client in this case, set the specific date for the market release, and pre-announce that date to every agency in Japan. So that means market release date is concretely fixed beforehand. So Sharp receiving the order from NTT or KDDI must complete the development of the software and deliver the software by a specific date. Because of the short-term development, Sharp gathers a large number of people--400 to 600--and of course among those people there might be someone without the required skills or experience. But because of the large number of people, several people or unskilled people are not quite as obvious in such a large number of people. Of course the Sharp does not think about any personnel change or skill up of the people because it should complete the software within the specified time. So the people who have good skill have a huge workload. So the skilled personnel have to do a lot of overtime work. Unskilled worker, in turn, do they go home early? No, they don't. If the unskilled worker goes home early, then KDDI thinks there are people who go home very early, so that person is surplus. So because of the short period of development and with limited resources, there seems to be a lot of mismatching of skills of personnel to work. I would also like to give you another problem of the software development in Japan. In the Japanese software industry, actual software development process is begin before the formal contract is made. In the Western countries like United States or other countries, doing the work without formal contract is quite unbeliveable, but in the Japanese case, even the huge project or large software case it will sometimes happen that the software development wil start before the contract is made. Another problem of the software industry in Japan is that they tend to judge the engineer's ability by experience and age. You also know that the ability should not be judged by how long he or she is involved in the industry or how old he or she is. But because the software company have to gather a large number of people, the company tend to judge somebody's ability by statistical data, such as how old he or she is and how long he or she has been involved in software development. This is I think one of the reasons why unskilled people are placed in the development team. Another problem is the quotation provided by the software company does not contain detailed information. That means it is inaccurate. For example, the software development company starts the development before the specification is set. The software company uses the area which it is not specialized in. This result in the software company making lower estimate of the possible expense required for the software development. They tend to make the lower estimation about the money which will be necessary for the software development. This eventually leads to business loss on the part of the software company. And if it incurs large business loss, then the first thing should be cut down is the salary or wage to be paid to the engineers. And by the way, I think the Japanese software companies are divided into two categories: the very profitable and the non-profitable. Profitable companies have something unique, a very strong competitive edge, such as a very high knowledge of a particular technology, or highly skilled people. So the company which says "No problem, we can do anything" is usually non-profitable company. The company which says "We can dispatch people soon", such company is also a non-profitable company. I think in the near future, the company which has at least one strong competitive edge can survive, but others which do not have any competitive edge will be disappeared from the industry. So this time I would like to focus on foreign companies which made a success in entering the Japanese software industry. What kind of companies are successful in entering Japanese software industry? The foreign company that has exclusive skills that cannot be found in Japanese companies. In recent Japanese industry, Java and .NET knowledge is highly appreciated. But only with Java and .NET knowledge, the foreign company cannot compete with Japanese ones. Because Java and .NET are all covered, be able to be covered by Japanese companies within their company. So foreign company which has completely different technology other than Java or .NET, such companies cover high possibility of success. But please do not ask me what kind of specialized technique is promising for Japanese industry. If I know the answer, I would not give you, but do it in my company, Universal Computer. But Japanese quite welcome foreign companies with technology knowhow that is not covered by Japanese companies at the moment. The specific example would be SAP and Oracle in the inital stage. The Oracle was for the first time introduced to Japan by an Israeli company. The Israeli company had a hard time entering the Japanese industry, but it played a very important role in spreading the business. I think the promising area of the technology in Japan in the future is security-related technology. But developing exclusive technology cost a huge amount of investment, so if successful it will become a very profitable area, but if not, it will be a huge risk or burden on the company. More realistic answer for you to consider are the last four points. The company which can make the fast delivery has a higher possibility of success. The company which can offer a reasonably cheap price. Of course, fast delivery and cheap price alone do not make you a successful foreign company. The most important point is here. The foreign company must be accustomed to vague approach by Japanese company in terms of order. Japanese companies give very unclear specifications to company. Those who study Japanese might think the Japanese language is quite an ambiguous language. If you think that way, you will know the basic structure of the Japanese language. I myself have sometimes difficulty in grasping the intention of the potential client, whether he or she is really placing an order or not. I think the ambiguous expressions should only be used between lovers. But in fact, the using very ambiguous Japanese expressions or giving unclear response is quite the normal way of doing business in Japan, so the foreign company should be accustomed to the way of the Japanese people. I always deal with customers with vague orders. I always said to such clients, please give us specific decision. Unless you give specific decision, we cannot make the delivery date. The person in charge always answer to me by saying unless the boss decides, I cannot decide. So then I directly approach the boss of that person. And then the boss says to me like this. Please wait for another manager's meeting. I cannot decide that at the moment. So I wait for another manager's meeting. Then the boss said, there was no consensus made at the meeting, so please wait for a while. So the actually this is a true story, and another manager's meeting happens to be today, this morning, so I now have received the answer. This is a typical decision-making process of a Japanese company. Japanese people do not go forward unless everybody concerned gives a consensus. Everybody gives yes. Then we will start something. If there is only one disagreement or opposition, then we all will wait for the opposition or disagreement to be changed into an agreement. And you have to remember the Japanese word nemawashi. This is to pre-change the opposition before the meeting so that during the meeting, everyone can agree. nemawashi is adjusting the rope of the tree. nemawashi is to make a consensus, we pre-arrange and change the opposition of the people to agree to the proposal before the meeting. At the meeting, everyone can agree. If you remember nemawashi, you may be considered as a Japanese expert. You can consider nemawashi as a kind of lobbying activity in the United States. To give a certain pressure before the meeting. After the nemawashi and the consensus, we reach a final decision and then the project is supposed to be formally started. But with the limited time of the market release, we will proceed on the development first without the formal contract, so that sometimes the specification of the software is quite ambiguous or vague in the contents. So that means the Japanese client can ask you for frequent changes of the specification. If the case of dispatching personnel to the client company, then the client company can direct the dispatched personnel with the various changes. It will be more or less a smaller issue. However, in the case of custom-made development in the software company according to the request of the client, if these types of change in specifications happens, it will give a huge loss on the software company and the client company as well. In the Japanese industry, in the case of custom-made software development, if the client asks for the specification changes, the software company accepts those changes with no additional charge. Originally, software company should change, but in Japan, software companies do not do that kind of approach. This is another reason why custom-made software development results in a loss. Of course Japanese clients know the importance of eliminating frequent specificiation changes, but I myself have not seen any clients do that approach. So when you make a contract of software development with Japanese customers, you have to be aware of the fact that Japanese clients frequently change specification, and they give very vague specification. Let me go into the conclusion. Dispatching a personal with hierarchical structure in the software industry will never stop. Dismatching manpower will never stop because the Japanese software company has a weak management base and the clients ask for frequent specification changes. Anther conclusion for you is that custom-made software development has a huge risk which could result in financial loss. When you work with a Japanese company, please clarify your position. Whether you will be dispatched or not. Thsi is because dispatching a manpow case, the responsibility lies with the client. With the custom-made, though, responsibility is left with your parent company. Please be aware of the fact that the company that deals directly with client is very smalxl in number. Must software companies gtet their business from other companies. I think the software development in Japan only exists in the heavy workload on the engineers and the frequent specificatin changes. Last night, I happeen to talk to one of th engineers in our company which s involved in the development of cellphone. My company is somewhere in the middle. I have dispatched personnel to KDDI. That engineer is making a request. This engineer says he is forced to work until eleven o' clock PM, including Saturdays and Sundays. His reuest is to have one day of the week when he can go home by 9 o' clock. I have conveyed that request of him to the partnership company. The manager listened to my request, but I do not think the manager convered the request. If nothing is done to improve the situation, I think the engineer might quit our company. I advised him not to go to the manager of the partnership company but rather go directly to the compay working with the client. If that company accepts the request, then you can go home. If the situation worsens, there might be some dispute, then I will help you. I do not know if he will. I have another problem which I think is quite disturbing. The thing is, because our company, UC, is one of the subpartnership companies, I myself cannot actually go inside the building of the company that receives the order from KDDI. Because KDDI does not know my company being involved in the software team. And because of the protection of the information, outsiders are not allowed to go inside the building of the software cempan. That means I cannot actually see how much difficulty he is facing doing the work inside the software company, because I am an outsider, and I cannot be let in. I"m not sure if this problem is settled or not, but I would like you to remember this hierarchical structure of the software industry. So finally I would like to once again focus on the hierarchical structure of the software industry in terms of development, and I would like you to remember that there will be a large number of specification changes if you work with a Japanese client.
I seem to have concentrated on the embarrassing aspect of the software industry, but this is only my understanding, and of course there are many good points.
Q: Do you have any way of estimating the cost and the time for particular software development in Japan?
A: No, there is no particular way to estimate cost and time required for development. If the project is quite small scale, then we can give a more accurate quotation. However, in the larger size development such as the mega-merger of two banks, or cellphone development, the calculation will be done between the negotiation of the client and the top software company. So I will give you an example of a rather smaller-size software development project. I am often involved in production control or inventory control. So in developing production control or inventory control software. I consider various elements such as the number of items the client is dealing, the number of processes the client is going through, the number of employees in the client company... With these factors in consideration plus my past experience, I will give an overall figure to the client. Gut feeling. It might be strange for you to see, but if the person in charge of the top software company says one hundred million yen, then the cost will be that.
Q: Why do the top companies have to go through the other companies?
Two reasons. The top software companies do not know the specific situation of the engineers in the other software companies. Another reason is also ease of control. (Why not recruit?) Then the top software company has to be involved in the selection process, which is quite complicated.
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