“What company would put their trust in a fly-by-night foreign software firm?”– Overcoming the trust deficit with Japanese enterprise customers | An interview with Naoki Togawa, Nikkei Business Publications

Japan Cloud Influencer Interviews

This is the first in an infinite number of interviews we plan to do with opinion leaders in Japan’s IT and business circles. Our hope is that these conversations will yield valuable insights for enterprise cloud companies and investors with an eye on Japan–the second largest enterprise software market in the world.

“What company would put their trust in a fly-by-night foreign software firm?”– Overcoming the trust deficit with Japanese enterprise customers

“Japanese companies are perfectly justified in being cautious about working with global software companies…[they] have been burned so many times by companies that promise everything but don’t deliver! You need to look at things from the customer’s point of view.”

-Naoki Togawa, Manager, Intelligence Group, ICT Innovation Research Institute, Nikkei Business Publications

I recently had the opportunity to chat with Mr. Naoki Togawa from the Intelligence Group at the ICT Innovation Research Institute at Nikkei BP. Previously an editor and reporter for over 20 years, Togawa-san covered the nexus between business and IT for Japan’s leading publications such as Nikkei Business and Nikkei Computer. He is known for his in-depth features on massive software deployments at companies such as Toyota, NTT, Panasonic and consumer products giant Kao, among many others. More recently, as a producer and researcher, Togawa-san launched The IT Innovators Conference, a highly curated annual event bringing together Japan’s top Chief Information Officers and Chief Digital Officers. Togawa-san also compiled The DX Surveys, a two-volume compendium of survey responses from over 900 Chief Information Officers on how they are leading digital transformation at Japan’s most influential companies.

The country manager conundrum

Aruna: Thanks so much for your time Togawa-san. Moments earlier we were chatting about the ideal profile for country managers at global enterprise software companies in Japan. Global firms struggle with hiring good people. What is your take on the ideal profile of country managers?

Togawa-san: I understand what you are saying, and yes, hiring good country managers is a big problem for global software companies in Japan. It’s hard to attract good people to companies that few people have heard of.

Over the past 20 years, many country managers were alumni of IBM Japan, and more recently you see people from Salesforce and Microsoft. These executives tend to be hard-charging sales and marketing people. They can sell high to senior executives. They themselves do the selling, not just their teams. They’re salespeople to the core. Some last a couple years at one company and then move on to the next. Companies like SAP, Oracle and Salesforce, which were all run by ex-IBMers in their early days, are exceptions.

This seems so obvious that it may not seem worth mentioning, but global companies can’t just hire good salespeople and leave the rest up to them. It comes down to balance. They of course need to hire country managers who can sell to senior executives but they also need to attract good people and develop them. How do they expect to scale? This is true for all companies. I don’t know if you can find one person who can do all these things, but I do think there needs to be more balance in the type of people they hire.

Be ready to sip the muddy water

Aruna: I think it comes down to long-term commitment. Companies can’t gain the trust of Japanese companies if they keep hiring and firing, which is often the case. Which brings me to my next question. There is a perception that Japanese companies are very risk averse when it comes to working with global vendors. Do you think this is true? If so, how can global cloud companies prove their commitment and build credibility with customers early on?

Togawa-san: Japanese companies are perfectly justified in being cautious about working with global software companies. As you point out, churn at the country manager position is one of the reasons why. What company would put their trust in a fly-by-night foreign software firm? The fact is, Japanese companies have been burned so many times by companies that promise everything but don’t deliver! You need to look at things from the customer’s point of view.

If companies want to build credibility with customers, they should partner with established systems integrators, like NTT Data, Hitachi or Fujitsu, as well as with emerging cloud specialists such as Uhuru or Classmethod, that have trusted relationships with Japanese companies. They should work with them not just for sales but to really understand their customers’ needs and provide solutions. They need to leverage partners to provide post-sales support and make sure their products integrate with their customers’ environment. They need to sell and support “with” them, not just “through” them.

I realize this may be a hard pill to swallow for cloud vendors that are accustomed to working directly with customers. I understand that they may be reluctant to bow down to partners and give away margin on top of that.

But I’m not saying global companies should depend entirely on partners to establish themselves in Japan. They absolutely should develop a direct sales strategy and work directly with customers as well. I’m just saying global companies need to work with Japanese systems integrators and become a part of the local ecosystem in order to overcome the trust deficit they have with customers. Sometimes you have to “sip the muddy water,” so to speak, in order to succeed.

Localization nation

Aruna: How about localization? Do global vendors need to localize everything, even training materials, marketing content and contracts, to show their commitment to customers?

Togawa-san: There’s no question that companies have to adapt their product to local business processes. Global providers need to get their product right before anything. That’s a given.

As for the other content you mention, I believe they should be localized, the training and marketing content especially. Global companies need to put themselves in the market and see things from the customer’s point of view. They need to understand the issues. Some global issues are relevant to Japan, some are not.

Everything should be in high-quality, idiomatic Japanese. There’s nothing worse than bad translation. It’s easy to tell which vendors know what they are doing and are really committed to the market just through the quality of their materials and programs.

Where’s the money?

Aruna: What are Japanese companies investing in, by industry, over the next couple of years? What are they willing to put their trust in, so to speak?

Togawa-san: I’d rather have you purchase the DX Survey, but I will give you a high level overview (laughs). Digital transformation-related investments will remain steady overall, with some industries, especially those with distributed work environments, investing more aggressively. COVID has been an accelerator in these industries, of course. I’m sure this is the case in the U.S. as well.

Manufacturing is the weakest in terms of investment. Of the 285 companies we surveyed, approximately 20 percent will increase their budget. Around 45 percent indicated their investment level will remain unchanged, while 20 percent said they will reduce their spend. Manufacturing is struggling. Keep in mind, though, that 45 percent will maintain their current budget, which is still significant. It comes down to selling to the right companies.

Industries like Financial Services, Logistics/Distribution and Construction and Real Estate will increase their spend on digital transformation. They are investing in workplace solutions, E-commerce and security as well as ERP. Both large and medium-sized enterprises are investing in cloud solutions. No surprises here either.

Companies are also looking for ways to gather and analyze data, although AI and IoT are low on their list of priorities, which is a bit puzzling. Not many companies are interested in Blockchain.

Overall, the survey results indicated that companies are focused on the basics. I’m sure the situation in the U.S. and elsewhere is similar.

Systems integrators, revisited

Aruna: Are systems integrators doing all the development work? As you know, Japanese companies are known for keeping few engineers in-house, and outsourcing most of their development work, despite the growing need for speed and agility. Do you think Japanese companies are overdependent on systems integrators?

Togawa-san: My thinking is pretty clear on this matter. For core systems such as ERP, or Systems of Record, I think it makes perfect sense to work with systems integrators. Companies shouldn’t outsource indiscriminately, but they should delegate transactional work. In fact, this is key in allowing them to be more agile.

Development work for Systems of Engagement like CRM, Marketing, Content Management or AI is another matter. This should be done internally. There’s a great deal of knowledge to be gained. Companies should also partner with startups to move more quickly. Open innovation is important. It’s probably cheaper too.

The problem with many Japanese companies is that they are unbalanced in how they outsource. There’s nothing wrong with outsourcing but many companies delegate too much to systems integrators and become overdependent on them. This of course is not good.

Walk the walk with Customer Success

Aruna: My last question has to do with Customer Success, which is practically religion for enterprise cloud companies. Do you think Japanese customers understand how Customer Success works and how it benefits them? I think Customer Success is also one of the keys to building trust with customers.

Togawa-san: I know how important Customer Success is for cloud companies, but frankly, I don’t think Japanese customers know the difference between Customer Success and customer satisfaction. My understanding is that Customer Success is all about vendors enabling customers to use their products more effectively so they can derive value from them. If this is indeed the case, then these companies should dedicate more resources to telling stories about how customers succeed with their products. They need to show evidence. They need to walk the walk.

And yes, telling customer stories is the surest way to build trust in Japan, or anywhere else. Customer stories were all I did throughout my career. Maybe this is because I don’t really trust vendors much (laughs).

Aruna: I will let all our partners know that they need to engage their customers in their marketing. I will also suggest that they purchase your DX Surveys!

Togawa-san: Thank you. I’d appreciate that (laughs).