Selling services in Japan is very different than selling products or software.
Everyone knows that relationships are important in Japan, but not many people understand why they are so important, and how you can use that understanding to build a successful business here.
Today Sriram Venkataraman explains how he grew InfoSys Japan from a one man operation to over 1,000 employees and how understanding why Japanese enterprises must trust their vendors far more than companies in other developed countries.
And we dive into what that means for the new generation of SaaS startups.
Our conversation is basically a blueprint for how to grow a startup from nothing to thousands of people in Japan, and I think you’ll enjoy it.
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Welcome to disrupting Japan straight talk from Japan’s most successful entrepreneurs.
I’m Tim Romero and thanks for joining me.
I’ve got another great Disruption Japan Selects show this week. And this show, well this was one of those conversations that have really stuck with me over the years. In fact, if you are interested in selling to large Japanese enterprises, then this might well be the most insightful conversation that’s ever happened on the topic in English.
Over the course of a decade, Sriram Venkataraman grew Infosys Japan from one employee to well over 1,000 before retiring to work with startups. In this episode, we cover why so many foreign companies have trouble selling to Japanese enterprise, and the one critical thing you need to do if you have any hope of building a long-term business.
And afterward, I’ve got an update for you. I caught up with Sriram the other day and I mentioned that the recent popularity of SaaS products seems to contradict some of the advice he’s about to give. But it turns out it doesn’t.
The successful Japanese SaaS companies are playing by very similar rules to those we outline in our conversation. and I’ll give you that update at the end of the episode.
So please enjoy the show.
Today we’ve got some amazingly good advice for anyone who wants to sell services in Japan. Selling products or software is challenging enough, but selling services where relationships mean everything and where the quality expectations for service is perhaps the highest in the world, that provides a host of very special challenges.
Today we sit down with Sriram Venkataraman, as he explains how me manages to scale Infosys, which provides outsourced Indian development services, from 2 people, to over 1,000 people in Japan. In a very real sense, he did it with a strategy that is pretty much the opposite of what you would expect from an Indian software services company.
This is a real insight into the mind and the buying decisions of Japanese enterprise customers and Sriram has a different, very compelling perspective, on why so many foreign companies have trouble gaining real trust in the Japanese market. We talk a lot about finding the right people here in Japan, and how to avoid the hiring traps that western firms commonly fall into. Really, this interview is basically a blueprint of how to grow from nothing to 1,000 people in Japan.
But, you know, Sriram Venkataraman explains that much better than I can. So let’s hear from our sponsors and get right to the interview.
Tim: I’m sitting here with Sriram Venkataraman, of Infosys, and you have been with Infosys from the very beginning in Japan, and you’ve seen it grow from a tiny team to over 10,000 employees here now, haven’t you?
Sriram: Not 10,000.
Tim: No? That was on the website.
Sriram: Our total Japan business is probably about 1,000 people today. But given the business model, not all of them are here. Roughly 65 to 70% of the teams are in India and the balance are here.
Tim: Okay, let’s actually back up a bit to 20 years ago. The Japanese market is obviously a very big one but system integration is always a very local game, so what attracted both you and Infosys to the Japanese market in the first place?
Sriram: So Infosys was founded by 7 people. The senior founder, I think he’s a true visionary. So one of the important dimensions for Infosys was, “How do we move away from a large dependence on the market of the United States?” Because our business is quite dependent heavily on the mobility of people’s ideas. If you are dependent only on one market, if there is a regulatory change, or if there is something else that happens, then you are not going to be able to sustain the productions that you make.
Tim: And back then, what percentage of the revenues were coming from the US?
Sriram: The year I joined, this company had a global revenue of $26 million. I was I think sales employee number 10.
Tim: But that was—so this was ’96?
Sriram: And ’97.
Tim: So this was at the very start of this global outsourcing—
Sriram: Absolutely. And at that time, we were at what, 78% of our revenues, or something like that, was from the US. We had just started Europe a couple of years ago, and we had just started some stuff, and the next extension was to figure out Asia. Japan, obviously, was of interested, just given the GDP size. And the company tried to do some experimentation through some remote sales, if you will. People came, then they realized it was simpler to have somebody here. And that was in ’96. Through a strange set of circumstances, I got introduced to this company.
Tim: How strange? Is this something you want to talk about?
Sriram: Yeah, I can discuss. So I was doing very well in another Indian company, and I had been there for almost 6 years, and I was responsible for new product development and new businesses. We were developing the computer peripheral business in India and India deregulated in ’91, and then the economy really started picking up. I think IT is the only industry where India has always kept pace with the global level. Every other industry, we started from behind. I think it was just perfect timing that when India started to open up, computing was also getting democratized thanks to the PC and stuff like that. So my job was to manage our technical partner, who was over in Japan. And I visited Japan a couple of times, and when I came to Japan, one of the things that really struck me was how is it that a country, which lost everything in two wars, come up like this in 50 years? It is not that Indians, on an average lack an intellect—also, they work very hard. What is it that makes this county so successful that we are not able to duplicate in India?
Tim: I’ve got to ask, did you manage to figure that out?
Sriram: Yes and no. lot of it has to do with how well they work with the cultural context that they have. And the notion of common good being more important than a private good, I think drives this place pretty well. Economically speaking, I think METI did a brilliant job of figuring out what this country identity is going to be from from an economic sense. They went from ship building, steel, automobiles, electronics, semiconductors, and so on. But all of it I think was a very carefully planned, orchestrated resources allocation, managing the industry in such a way that there is limited competition, which is incentive enough for everybody to stay competitive, but at the same time, not so unlimited that nobody is making money.
Tim: And they were highly competitive in the global markets.
Sriram: And they would go together as Japan Inc.
Tim: It worked incredibly well until about 1990 or so.
Sriram: When I was doing this printer business, obviously we had a relationship with one of the Japanese companies and there was this other Japanese company that had something very interesting. And it is almost sacrilegious to even think that you would even talk to the other company, but I did, just to explore because the technology was changing, and the other company was a little ahead in the new stuff. But before I knew, the other guys knew that I had met these guys. And it goes on from our side.
Tim: The relationships in Japan are so important. And actually, let’s dig into this because I think what Infosys was selling, these relationships and services—it’s fundamentally different from coming into Japan and trying to sell hardware or consumer brands, or enterprise software. When you first came to Japan, how big was the team and what did your first deal look like?
Sriram: Before that, let me just finish the moving story. I was doing very well and because India had deregulated a whole bunch of multi-nationals who were coming in, one of my customers actually left his job and started a headhunting firm. And this guy was calling me every day, saying this company wants somebody, that company wants somebody. And I kept telling no to this guy and one day he called me and he said, “What do you want to do?” And I thought I would get him off my back by saying, “The next thing I want to do is I want to work overseas, and in Japan only, thinking that this guy would never call me. The next morning, at 6:30, he calls me. He said, “Infosys was looking to do something in Japan, you promised me, so you will go and meet these people.” I said, “Yeah, a promise is a promise; I will go and meet these people.” And usually people say you should never change your job, your home, and city all at the same time, and I did all of that. And I also changed industries. I had no idea about what the software business was. But I just had this foolish energy in me that said, “How bad can it be? How hard can it be?”
Tim: I think in some ways, coming to Japan with no preconceived notions at all might be an advantage.
Sriram: Yeah. Then I joined the company and I was told that, “Could you please learn Japanese in India before you go?” Then I started learning and I had two tutors—one in the morning and one in the evening. Intense classroom for 3 months and then somehow I managed to convince these guys to call my boss and say, “This guy is okay. Beyond this, he won’t improve in India. Send him to Japan.” Then I came here, I landed at Noreda, heard the train announcements, and I couldn’t understand anything. But then, by then, I had already come with one suitcase and a bag, so I had to make it work. We had one more guy here and that goes back to how we tried to enter the market. So I was running the independent influences operation, then they also said there was an opportunity created by the famous consultant, Kennedy. He wanted to bring India and Japan together, so he created a company with 4 Indian companies as investors and some Japanese investors called Jastic Park.
Tim: So is this consortium of—
Sriram: Yeah, but they created an entity, they hired people, so our management decided to do that as well. So at one point in time, we had two operations: my operations, independent influences operations, and this.
Tim: Were there cases you were kind of bidding against each other? You were after the same business?
Sriram: No. I always kept track of that and the market was so big, there was enough for us to do our own ways. The first six months was very hard. I think that was the only time I’ve cried as an adult, as to what I had gotten myself into. I didn’t know anybody here, I didn’t speak the language. But fortunately for me, that year, December, I closed three deals.
Tim: What kind of deals were they?
Sriram: One was thanks to my company that I used to partner with. They had a software business, so I went to them and I said, “I have already worked with your company in a different capacity. Can you please introduce me to somebody who is doing this?” And through that, I was lucky to find the right set of people, and they needed something, and that was in the software space. But the first one I got was from a large manufacturing company, which was deploying ERP at that time. In ’97, ERP had just come in and they were trying to deploy ERP to global subsidiaries.
Tim: Was it a Japanese client?
Sriram: Yeah. I thought it would be easier to do business with multinationals, so I actually looked at our existing multinational customer business here in Japan, but I quickly found out two things: one, a lot of them probably did not have enough local decision making to drive some of this.
Tim: So the IT decisions remained in New York or San Francisco.
Sriram: And our business has always been about you work with one customer for very long, very deep, and very wide. Practically, I really wanted to go after the Japanese companies, because one thing I felt was it may be worth the effort to create a long-term, sustained relationship with the parent organization of a Japanese company.
Tim: Absolutely. I think your experience here—and I really want to dig down, and I know it was a long time ago—but Japanese companies have to be very relationship-based, even when you’re selling products. When you’re selling services, I think it’s even moreso, and the Japanese systems integrators have a very tight grip on their customers. The Japanese enterprises will defer to their system integrators for technology decisions. What you’re describing, making it sound like just going on sales calls and pounding the pavement, is incredibly difficult to do. So how did you forge those relationships? How did you get Japanese enterprises to consider you guys and shift away from their existing vendors?
Sriram: Part of it was from the parent. I think there was no substitute for that because we had no existing relationship. So I would pick up the phone and call. I have actually done telephone cold calling. Through that process, I realized a few things work well. So if you tell a company in a certain industry here, that you are working with their global competitor, there is an immediate interest to know what is it that we’re doing for the other guy. So that was a very good hook I discovered very early. The second thing was Japan was also looking at India, in a very strategic sense, in terms of what should we do with India. So there used to be a number of visitors to India trying to figure out what India is. And one great thing our founders realized very early in the life of a company—and India still had a very impoverished, dirty, no infrastructure, crowded—he said, “Look, no, the customers are not going to come. We will have a world class facility. I don’t think anything compares to with what Infosys has built.
Tim: So Japanese potential customers would come and visit, they would be blown away, “There’s nothing like this in Japan.”
Sriram: Right. And that was a very good way for me to get people to visit us. The other thing that I think was a good thing in hindsight, I always made sure that the senior people of our company, including the founders, got an opportunity to visit Japan in some context or the other. Part of it is because of my own selfish interest, because it was important for me to convey what this place is. And no matter how we explain, unless they come here and see for themselves, I don’t think they really understand how different this place can be. That allowed me to connect with companies at a really senior level, because I’m bringing my global CEO.
Tim: Right. No, it’s—having the global CEO visit is, it opens doors.
Sriram: Right. And I think I leveraged that very extensively. I used to make sure that at least 3 or 4 senior level visits to this country one way or the other. I think that really helped. The second thing that helped—that was not by design initially—to go back to your point about this Japanese local system and the way they were having a tight grip, I realized that I had to find a hole in that. And that was always, for us, new technology that is still not coming to Japan. And ERP was exactly that in ’97.
Tim: Now that’s really interesting then, because in the Japanese market and the US market too, outsourcing to India has the image of being the low cost competitor. People do it to save money, but your proposition for the Japanese companies wasn’t cost savings. It was unique expertise.
Sriram: It was also cost savings at that time. And that was an easier sell. But the success of a company, by proxy, is reflected in how comfortable that company is. So for us, the combination of a lower cost and new technology expertise actually allowed us to command significant premium, and we made fairly good money. One thing that I am very proud of, except the first year when I was just starting off, we always made nearly company average or more here.
Tim: So when you were getting started, how long did it take you to make those first deals? How long were you pounding pavement—
Sriram: In April I came. I signed the deal on December 3rd or 5th, or something like that, which was actually, in hindsight, pretty solid. But because those first two or three, which we did right, I think it gave us a lot of confidence that it could be done, and it could be done on our terms.
Tim: So the initial deals—were they subcontracting through large Japanese SIs or direct—
Sriram: No. I had a religious belief that I will not do subcontracting. Because if I’m anyway going to work very hard, I’m going to work hard for my brand. In the early days, I was told, “Can you please use some Japanese advisors?” So I met a few of them and I remember a conversation I had with this gentleman. He said, “Look, you cannot do at all directly,” I said, “Why?” He said, “You guys don’t know Japanese well, you don’t know Japanese this, that, and the other.” I said, “So, how will you help me?” He said, “I know all these people. I can introduce you,” and I said, “What will you convey about us to the prospect? He said, “I will say these guys are from India; they will do it for cheaper.” I said, “No, just stop. This is exactly why I don’t want people like you.” He said, “No, no, but you could never succeed.” And like I said earlier, I was probably foolish I guess. I told him no. One of my inspirations to do business in Japan is this photograph in Akira Morita’s book where he is leaving Haneda to go to the US and Morita didn’t speak a word of English. So I said, “Look, you don’t need this Sony. Sony still gets premium and in my mind, I think we are Sony of the software services. So we’re going to try this and if it fails, it fails.”
Tim: And Murito, coming into the US, had exactly the same strategy. He had many opportunities to subcontract and to produce for other suppliers and he refused.
Sriram: So I said if he can do it, why can’t I do it? I think it was incredibly irrationally stupid I guess, but I think it was some kind of courage.
Tim: It seems to have worked out for the both of you.
Sriram: Right. But at the end of the day, one lesson I have learned in building a business, you have to do it for the right reasons. Money is actually one important dimension, but it is not the only dimension. I think you build a company because your employees depend on the company, your customers depend on the company, you’re doing something useful. Why would you sell yourself cheap?
Tim: It makes a lot of sense. If you’re selling yourself as a low cost producer, there is always somebody that can deliver at a low cost.
Sriram: People used to, customers used to push me, saying, “You guys are very expensive. Other Indian companies are doing this.” I said, “Please work with them. It’s all right. You do right by your logic.” And there were times I actually turned down deals, saying we can’t do it.
Tim: But the deals you were turning down, was it because of the cost, or you didn’t feel like you could deliver the quality in that area?
Sriram: No, because we wouldn’t make money. Quality was always a difficult exercise here. It continues be difficult because I think they Japanese sense of quality is quite different.
Tim: How is the Japanese perception of quality different than it is in, say, the US?
Sriram: I think there are two or three important differences. I think one is Japan will not compromise completion for speed.
Tim: You have to hit the deadline?
Sriram: And you have to complete it. You cannot do a 90%, but 110% faster. There is no value to that in this country, whereas American’s sense of competitiveness is if I can do it faster, even if it is not completely complete, it is still okay because I want to be first in the market. The Japanese mindset is very hard to understand for people from our side. That’s one. The second is the process of getting to that is also a dimension of quality. So, for example, let’s say you have two airlines. Both take you from point A to point B. But there is one airline, which is super laid to travel in, but both take you from point A to point B, both use the same type of plane. So if you go from here to Singapore, it takes you 7 hours. It doesn’t matter whether you fly airline A, airline B, because that’s what it takes because of the plane. But yet, there is one airline which does a tremendous job of customer service. You can’t say, “No, I am all functional, as long as it takes me from point A to point B. I don’t care. I’ll choose the lowest.” I don’t think that’s the case here.
Tim: So many western companies are interested in the result, in what you deliver, but the Japanese companies also care very much about the process?
Sriram: Correct. A good example of that is let’s say you messed up. They expect a process which will help them understand what you have done to figure out the real root cause of why this mess has happened. They are actually not so worried about fixing that mess. Fixing the mess is anyway your job. The expectation is, “Do you know why this happened? Do you know what you are going to do to make sure it does not happen again? What are the mechanisms you are going to put in place to make sure that you can observe this for whatever length of time before it is internalized in the system?” Coming from outside, you say, “What is wrong with these people? I fixed it right. Get out of my life, man. Stuff happens.”
Tim: Doesn’t that slow down the project overall?
Sriram: Maybe not. But I think the perception of quality is also built on these kind of experiences. You know, one thing I keep telling my people, until you sell your own emphasis side, once you have sold your own customers side.
Tim: What do you mean?
Sriram: Because until I’m selling, I’m obviously representing emphasis, so I have to do the right thing for the company. But after that, I have to do the right thing for the customer. I am the customer’s advocate in the sale. I think that is the fundamental in building a long-term relationship with a customer. They have to have this confidence that, “If I call this guy, he will do something for me.”
Tim: And it is very personal, isn’t it?
Sriram: Yes it is. But it is also a company to company thing. For example, in Japan, they have organizational changes every 3 years.
Tim: Right. People get rotated out of positions.
Sriram: Right. So you know this personnel, just because that guy has moved out, this customer isn’t going to wait for another 3 years to build that new relationship with a new guy. But that is a company to company thing. The expectation is you can have your own change, we don’t have any issues. But we expect you to have a process in your organization which makes sure that there is no knowledge loss when this guy comes in. Because I’m not going to start from zero again.
Tim: You know, this actually explains why the large Japanese clients don’t have a lot of technical expertise. They really rely on their vendors to maintain that institutional knowledge.
Sriram: I don’t know whether that is a good thing. In my opinion, Japan is actually probably last start because of that model.
Tim: I don’t think it’s a good thing but it’s an important thing to understand if you’re trying to sell services.
Sriram: Sure. You’re absolutely right. In the early years, people would ask me, “How long are you here? How long have you been here?” I could really not understand the real meaning of that question, then I figure out that they are very worried, “If I start something with this fellow, and if his contract is for 3 years, and if he’s going to go home 6 months from now, do I even start?”
Tim: Well, another thing that I’ve realized over the years in Japan, and I’m sure became obvious to you very quickly, is that in the standard western model, is when the salesman closes a deal, he hands off the project to the project leader, who hands off—but in Japan, that point of contact, the salesmen themselves, the main point of interaction, will be—Japanese clients expect you to be responsible personally for how the whole thing is going.
Sriram: Absolutely. I think that is the right way to do it. Japan obviously expects it but I find this notion that somebody sells and somebody else is responsible a bit weird actually.
Tim: I do too but I think it’s maybe because we’ve just been here so long.
Sriram: India also is the same thing. I think as you come more east and east, a lot of this is an implicit expectation. I elevated the company. It’s like, “Why are you spending so much time on delivery related stuff?” I said, “No, he is my customer, my friend. I have to.”
Tim: Or he won’t stay my customer. Those close relationships, either between individuals or between companies, both really are very important, but how do you scale that? So you started in the market, you had your beachhead, if you will, doing ERP systems. That got you in the door, you delivered the results, you started building relationships and you—how do you build from that and get the right people that can carry on that culture?
Sriram: That’s been the toughest challenge. The strength of the business model allowed us to scale in the backend in India. If we wanted to hire 20,000 people a year, we could do it. But then, when it comes to Japan, and because our business process is such that everything is tied at the hip to India, so there is no separational layer that says, “This you do only in Japan, and this you do only in India,” right from the time you source the deal to the time you finish delivering to the customer, people in India are always connected to the deal. And that’s the reason why the offshore model has been very successful, because I think the Indian companies figured out how to execute that. But when you do that in a multi-lingual scenario, because guys in India don’t speak Japanese, it’s a very hard challenge. And what happens is then, the front part actually becomes in the true sense a bottleneck because this is very hard to scale.
Tim: So I’m going to interrupt you just for a second because I want to clarify one thing here. So, culturally, India and Japan are very different. Did you try to train the Indian engineers in what the Japanese customers expected or did you and your team here in Japan sort of act as that interface, as sort of cultural translators, as it were, to manage the expectations on both sides?
Sriram: It was actually a bit of both. So in the first 4 years, I did not do too much because there was business to deliver, and we were fighting, struggling with that, but after understanding that for some time, in that period, I realized this is not scalable. Then we did two things. We did what we call an immersion program and reverse-immersion program. I hired a bunch of reasonably experienced Japanese folks, sent them to India for a year.
Tim: A year?
Sriram: Yeah, it could be between 6 months to a year. You could just go there, you work as a part of that team, because you have to understand the ethos of this company, the ethos of the other set of people who work with you. You have to know what are their constraints, you have to understand what is important to them. I think that was a very, very good investment. Even today, a whole bunch of those people form the core of the business here.
Tim: So they’re still here 20 years later?
Sriram: Yeah. 15 years. I started that 4th year or 5th year into the company.
Tim: The standard way of doing things is you send people to headquarters for like a two-week training course. But what did these people pick up in those 6 months to a year? Something stuck with them, obviously.
Sriram: Yeah. One thing I think people learned was to appreciate the bunch of constraints that drive the other people. I’ll give you a simple example. Let’s say somebody has some trouble here at 9 in the morning. India is 3 and a half hours behind. That’s 5:30AM. If somebody has to come to work at 5:30AM in India, it’s not an easy job. But they could see all of that and foresee. So when they come back and talk to the customer and the customer says, “9:00, I expect somebody, they know what the issue on the other side is.” I’m giving a very trivial example. But these things mathematically explain, you know, if they’re just sitting there, they won’t get it.
Tim: No. These little things add up.
Sriram: Right. Second thing is, I think they learned what is the value of a disciplined process of software development? How do you intelligently break down a large project into small pieces and make sure that it is done in the same manner independent of who is on the team.
Tim: Were your processes considered a competitive advantage here? Do Japanese systems integrators also have these rigorous processes?
Sriram: They do have, but I think our fundamental difference is ours is geographically distributed, so the process has to take care of that. It also leveraged time zone differences to advantage. So, for example, if I throw the ball at something to India when they open, then by the time I come back tomorrow morning, it is actually a substantially large number of hours. But the Japanese have taken, I think, a slightly different cut on how they do development piece. We have always believed that it is really hard to separate upstream and downstream in a software project. You can’t have one bunch of people talking to the customer who think they understand what the customer wants, and a completely different bunch of people who are building stuff.
Tim: But at a high level, that seems like what Infosys is doing. You’re collecting requirements and building the high level relationships here in Tokyo and the execution is being done in India.
Sriram: Well, that’s over simplifying. All our processes are tied to hip with folks in India. Some of the relationship building is also with folks from India. So when we say, for example, go meet a customer and understand what they want, we will actually have flying people from India to sit with us. They may not understand a word of Japanese.
Tim: But they’re in the same room.
Sriram: But it’s important.
Tim: Yeah. Yes it is.
Sriram: It is very, very important. Then these guys go back and they form the core of the team that is actually doing execution piece that you talked about. So it’s not like two separate. So it’s not like two separate bottles which are connected by a telephone wire and that’s why, I think, duplicating services model is quite hard. Because if you’re doing a product, you can actually do this two separate bottles connected by a wire kind of a thing. But services, because the value is perceived, delivered at the point of contact with two sets of people, it is very, very hard to be able to deliver value if you don’t understand the cultural nuance, the perception of quality, the perception of value being different, and so on, and so forth.
Tim: Quality is a much more vague concept for services. With a piece of hardware that’s manufactured in China or Japan, you spec it out and that’s what it is. But services, it’s vague.
Sriram: It is a series of moments of truth. So I think the reverse also. I got bright, young Indian engineers to spend 6 months in Japan to learn Japanese. So we went to a Japanese school, we worked a special curriculum. We said the goal is not for them to go and order a beer in a restaurant, so we programmed that content in such a way that it is actually complete related to the business we do. And those are the folks who are still in the core on the other side.
Tim: Still, even after all these years?
Sriram: Even after all these years.
Tim: It sounds like you built a pretty amazing team, if you’re having this core team to stay with you, with each other, for 15 years.
Sriram: Yeah, because I think one good thing the company did was I was always here. I think it makes a lot of difference when they know that there’s going to be a reasonable amount of certainty in terms of the leadership. That is why it is very nervous for Japanese to work with foreign companies when they know that the CEO is going to change every 3 years. And every new person comes with his own set of beliefs, his own set of experiences. Well, I think I’m the longest serving in the Indian company here.
Tim: 20 years is a long time. So are these programs something you undertook proactively, or was there a case of a bad misunderstanding where you decided, “No, I’ve got to get ahead of this and prevent this from happening again?”
Sriram: We realized that we can’t scale the business. We also realized that you need a solid bunch of core people who can then propagate a similar thing to the next set of people. So we did, what 5, 6 programs while there, and we trained a whole bunch of people. Some of them left, but fortunately, that was very few. Most of them are still here. But what I have found hardest here is to get “ready-made people” who will fit.
Tim: Is the problem finding people who are a cultural fit or finding the skill sets you need?
Sriram: Both. First of all, this is not a very highly mobile labor market. Secondly, I think this is the lesson I have learned by making so many mistakes, hiring mistakes if you will. I think the normal tendency is for us to hire somebody who looks and talks like us because we are comfortable with that.
Tim: Yeah. People want to hire people who are like them. People want to buy from people who are like them. It’s human nature.
Sriram: That can be a big mistake. Just because a guy speaks fluent Japanese does not make him good at the job. Same way that a Japanese who speaks good English does not make him good at the job. But I think the selection processes are not geared to calibrate this piece very well. For example, let’s say I’m interviewing a Japanese candidate in English. He’s obviously going to struggle, but am I going to make the extra effort to still understand what he’s trying to answer? Or am I going to judge him based on the fact that communication is so painful?
Tim: Recruiting the right staff is something all foreign companies in Japan struggle with. So is there any specific advice you have for other country managers who are trying to build the right team here?
Sriram: I have made so many mistakes that I can write a book called How Not to Do Business Here. So I don’t know if I have a solution, but I would think that they should take time and effort to engage with candidates for a sufficient length of time. You cannot judge a guy based on 3 conversations you had, out of which, two are on phone, other a video call. I don’t think the other foreign companies are investing enough in that process. For example, we don’t send a prospective CEO candidate of a country manager to the home country and say, “You spend one week with multiple people,” because we think it is too expensive, it is so elaborate, and the thing I learned is I think it costs you 3 years, a wrong choice. It takes you a year to find out that it’s the wrong choice, it takes one year to figure out if there is an opportunity to fix it, and it takes one year to actually get it corrected one way or the other.
Tim: So it makes sense to take the time to get the right person.
Sriram: Number one. Number two, I think it is also important to have an honest conversation. There is no point in each other, each side trying to oversell to each other. There is no point in me saying I’m a great company without telling him the dirty things. Because once he comes in here, he’s going to find out the dirty things. So I’ve tried so many experiments. I tried hiring Japanese who were raised outside Japan. That had a different problem. Customers will very quickly find out that these guys do not grow up here.
Tim: Ah, so he did not know the proper business protocols? Right. And we foreigners can get away with making these mistakes, but Japanese cannot.
Sriram: Then I tried hiring fresh graduates and that was a complete no-go because the mothers will not allow them to join an unknown Indian company. They would rather have them go to a known Japanese company or even unknown Japanese company. That’s when we realized that we should hire 2-year-old to 5-year-old experienced people, bring them into our program, and over time, we will create our own set of people with the DNA that works for our business. It’s a very, very long process and it’s not an immensely scalable process.
Tim: I could understand that, taking time; you’re really investing in the future of the organization. I mean, it’s obviously paid off based on the retention you have. But you have managed to scale it and you’ve gone from 2 people to thousands of people.
Sriram: It’s not enough.
Tim: It’s never enough. Was it a gradual scale out from just getting more business with your customers and a few more customers, or was there like a pivotal deal that really propelled you to success here?
Sriram: No, I think it was always, for us, in an organic way. It was not that there was one pivotal deal that forced us to do something. Because I realized this was a one and only time process of the minimum, so if I want something next year, I’ve got to start doing this stuff now. And that’s where I think staying profitable is very important, because you can do all of this.
Tim: You can be unprofitable for a short period of time, but yeah, it’s not sustainable.
Sriram: You know, on a different dimension, one of the lessons I have internalized is a subsidiary of a branch of a foreign company in Japan, you should never give grief to the head office. You don’t have to give them happiness, but you should never give grief to head office because then you can do all of the experimentations on the side. But if you start giving grief, then people are just going to come after you.
Tim: Well, they’re going to start looking into things and giving you advice that you may or may not want.
Sriram: That’s why it is important to stay within the overall frame of a company, in terms of what is important to a company. But as long as you’re doing that, I think all eyes are away somewhere else, you can do other stuff here. So if we treat the number of our processes to suit for Japan, for example, earlier, we used to write very wordy proposals. Very soon I realized that no Japanese customer wanted to read this thing. We tried to make everything visual. So then we created one program here with an illustrator. We ran this program of how to convey everything visually, because it doesn’t come naturally to Indian people. We were not trained like that in school. Slowly, it percolates, but it’s an organic process. But you keep doing it over a period of time, now that’s how we do it. It is those kind of small things that make a difference when you do the services piece.
Tim: You mentioned that early on, being able to implement ERP systems to be able to do something, be able to implement new technology that the Japanese systems integrators couldn’t, was a real advantage. Is that a strategy you’re still using today?
Sriram: Yes. Even today, a lot of our business, our entryway is always something like that. Once we get in, we can still figure out the other stuff, but I still think the entryway is stuff where we completely defer. Otherwise there is no reason for them to look at us. Why would somebody go through all the pain of working with a bunch of foreigners when there’s an easier option available? But then you continuously come up with something.
Tim: Well, that’s the great thing about technology is it does move so quickly. There is always something new.
Sriram: It’s been a very tough journey but it’s been a very fulfilling journey. I don’t think I met my own original goal of how big this needs to be.
Tim: But there’s still time. It’s still growing.
Sriram: Yeah. It’s still growing. I think we’ll have to do something different yet again to get to the next level.
Tim: Looking back on it, if there was one thing you could do over or do differently, what would that be?
Sriram: You know, one thing I would have probably done very differently was to have figured out how to get younger Japanese people into our system early enough. I don’t think we are still doing enough of that.
Tim: Why is that important?
Sriram: Because no matter how hard you look, I just don’t think there are enough people who are comfortable straddling two cultures and doing this. I think we are kidding ourselves if we are saying that it’s there. And if it’s not there on the India side, also it’s not there here. And that’s why the service business is so hard to scale in a non-home country market, if you will. I think I should have done a lot more of what I did in a very small scale. Probably I should have done that much earlier and in a much larger scale.
Tim: Targeting on the young Japanese with 2 to 5 years’ experience?
Sriram: For example, I think we should have started a development center here, say in Fukuoka or Sapporo or somewhere else, which is like the incubation piece for people. I think I could have done it at that time but somehow, I scaled it down, because we were also doing it for the first time. Maybe I should have done more of that at that time.
Tim: So you would have invested in the future sooner, in future employees sooner?
Sriram: Correct, because the company could afford it at that time. In today’s scenario, given all the uncertainty that is in the world, it’s not easy to make some long-term bet like that for anybody, I guess. The second thing I may have done differently is probably added far more sales people than I had.
Tim: Because that would have allowed you to make more sales or because it takes more salesmen to close a deal in Japan?
Sriram: No, I think you just need more coverage. I think we are still very under penetrated and underrepresented, considering the potential. But people in my sales team, my other team, a whole bunch of them have worked here with me for 10, 15 years. So that’s why I think I am quite happy that we have created a good core group that had done this together for so long.
Tim: It is very unusual to have that core team together for so long, especially on two continents like that.
Sriram: I guess we just got lucky.
Tim: You did something right. Hey, listen, before we wrap up, let me ask you what would be the most important advice you could give to a new CEO country manager coming into Japan, trying to sell services?
Sriram: I think first and foremost, they have to make a sincere effort to understand what is the definition of value as seen by the customer. I think the concept of value here is very very different.
Tim: Before you mentioned that a lot of the perceived value is in the process. Is there anything else you can dig into on that?
Sriram: So I’ll give you an example. Let’s say you develop something. If you do a transaction with the customer which goes the following lines, “I will deliver it faster, but you will pay me more.” Actually, I don’t want it faster because this is only one small piece of something else that I am trying to do. Even if you delieverd this piece faster, I don’t have the bandwidth to train my people on this until this point in time, so I actually don’t want it faster.
Tim: It would be inconvenient. They just want it exactly when they want it.
Sriram: Correct. If you don’t understand that the value of the delivery is around some other pieces that he or she needs to move, I think you will end up antagonizing the customer, or at best, you will become a very abrasive person in that other person’s eyes. I think, “Why are you pushing me? I don’t want this!”
Tim: It’s an easy mistake to make because you’d be thinking you’re trying to provide very good service and be annoying the customer.
Sriram: Correct. You know, it is okay for here for us to go to the client where they look at this whole thing. I think this is a very big risk, whatever that risk is—it could be from our side or it could be from their side—but this is the way to plug it and this is going to cost. A lot of times, customers will actually give you that and they are grateful for the fact that you have identified the risk. Now, that is part of the value of that relationship that the customer is actually expecting.
Tim: Right. It’s a deeper relationship.
Sriram: Because you actually understand whatever they are trying to do whatever they are doing.
Tim: That makes a lot of sense.
Sriram: I think my only advice to the new CEO would be to understand that and make sure that the head office expectation is set properly.
Tim: Well, listen, before we close up, is there anything else that you want to talk about? Is there anything should have asked you but forgot?
Sriram: You know, when I look back, what helped me the most was a genuine effort to understand the people here as people. I spent a lot of time reading Japanese history in the beginning. Why do they do what they do? There has to be something great. If they are doing something, there must be a reason for it, and I think it is important to make the effort to understand why this is like that, rather than commenting as to how weird this it. That really helped me to have an honest conversation with a customer and new employees.
Tim: It sounds very much like advice you are giving for dealing with the customers, trying to understand the bigger context, trying to figure out what’s the meaning, the real meaning, of this requirement, and this project, and this activity.
Sriram: Correct. I think if somebody is going to come here saying that, “I’m going to spend 3 years and put one more tick on my resume,” I don’t think it’s going to work, at least not for the services piece.
Tim: No. It’s long-term commitments, long-term relationships.
Sriram: In fact, I keep telling people, if you want to come here, don’t come on 3 years on all of that.
Tim: So plan on staying 20 years.
Sriram: Or more. I think it takes time, and because it is services, it is all the more important to understand. Because product, you can still depend on the distributers, this, that, and the other, to make something happen. But service, you are the product. The human being is the product. I think that’s a very hard piece.
Tim: Well, I imagine that’s a big part of what makes maintaining that corporate culture so much more important for services than for hardware. Listen, thanks so much for sitting down to talk with me.
Sriram: I hope it was very useful and I hope your business will get something out of this.
Tim: They definitely will.
And we’re back.
What stood out most in our conversation with Sriram was his understanding of the importance of commitment in Japan. He and his core team have been at the helm for more than 15 years in Japan. And while they have built up many strong personal relationships during that time, this demonstrates a kind of stability that only the most successful foreign companies can match.
You see, most large Japanese enterprises rotate their management through a wide variety of positions every few years. As a result, these firms must rely on their vendors for a lot of their institutional knowledge. The vendors’ staff are the ones that have been working on those systems the longest and understand it the best, which resulted in a hollowing out of the technical expertise at many of these firms, and it’s a real problem for them. But this goes a long way to explain the importance Japanese enterprises place on trust and why a foreign company changing their Japan head every few years will have a very hard time building that trust in Japan.
Sriram’s point about hiring and retaining the right people is important. The fact that Infosys has kept the same core team here in Japan for more than 15 years is pretty astounding retention, but it’s also important that early on, he decided to counteract the very human tendency of people to hire other people who are just like they are. Understanding this is important for all companies, of course, but when hiring for a Japanese subsidiary, you need to be especially careful, or you might end up with either a team of Japanese who reject the global corporate culture, or a team who will always be out of step with the Japanese market. In any event, it seems Sriram and Infosys are only looking forward to expanding to their next 1,000 employees in Japan.
>As promised, let me bring you up to date on my recent conversation with Sriram about how SaaS plays into our enterprise sales model.
The SaaS companies that are succeeding in Japan are not actually changing the model, they are simply doing it more efficiently. For example, successful Japanese SaaS companies are still expected to and still are playing the role of being the client’s institutional memory. To do so, however, SaaS companies need to show that they understand best practices, and most importantly, that they will be around in 10 years.
It has not been a completely smooth transition, of course, many enterprises still demand extensive customization, and smart SaaS startups strongly resist those demands. But the two factors that seem to consistently break in SaaS’s favor are:
First, enterprises and systems integrators alike are having trouble hiring enough developers to build these large projects, sometimes SaaS is the only practical option.
Second, and this is perhaps most important. The SaaS product already exists and it’s already being used by other companies. And more and more often Japanese companies are starting to question whether they really need all that customization. Data privacy and security concerns, and sometimes exaggerated concerns seem to be the largest sales roadblock today.
But that’s the sales side. Once you make the sale SaaS vendors are still held to the Japanese support expectations Sriram and I talked about. You need to spend more time with your customers, you need to be very careful about rolling out changes or new features without warning.
So the B2B SaaS business is booming in Japan. The only losers in this transformation are the system integrators. There aren’t many ways they can pull a win out of this. Sure, they can do the integration work for SaaS products, but that’s one-time work. The real money has always been in the monthly services contracts, and all that money is now going to the SaaS companies.
But as Sriram and I discussed. Large Japanese customers were never really paying for services. They were paying for long-term, and I mean decades-long-term, support and institutional knowledge.
Once Japan’s SaaS vendors prove they can provide that, the Japanese software market will change forever.
If you want to talk about selling SaaS in Japan, Sriram and I would love to hear from you. So come by disruptingjapan.com and let’s talk. If you leave a comment I guarantee you I’ll respond, and Sriram probably will as well.
If you get the chance, check us out on LinkedIn or Facebook, but even better. If you like the show, tell people about it. Disrupting Japan has grown not by social media marketing or advertising, but because listeners like you enjoy it and tell their friends about it.
>But most of all, thanks for listening, and thank you for letting people interested in the Japanese market know about the show.
I’m Tim Romero and thanks for listening to Disrupting Japan.