Japan’s global services market is undergoing a quiet transformation. Known for its leadership in high-tech manufacturing and research, the country is now seeing a shift in how organizations are evaluating service delivery, both in terms of location strategy and talent management. From the rise of ER&D centers in Tier-1 cities to the government’s push for expat-friendly policies, several forces are shaping the next phase of growth.
A shift in workforce strategy and demographic trends
A key part of this transformation lies in Japan’s approach to talent. Between 2021 and 2023, the country’s foreign resident population grew by approximately 23%, pointing to a clear increase in international talent inflows. This rise has been supported by improved employment opportunities and Japan’s reputation as a safe, high-quality place to live. The foreign talent base is also increasingly diverse, with professionals from China, Vietnam, South Korea, the Philippines, and Brazil – an indicator of Japan’s growing relevance across Asia and beyond.
To build on this momentum, the Japanese government has introduced targeted programs aimed at attracting and retaining global talent. Two key initiatives stand out:
- J Skip is a fast-track residency pathway for highly skilled professionals
- J Find is designed to allow international graduates to stay in Japan while seeking employment or launching entrepreneurial ventures
These policy measures aim not only to ease immediate workforce shortages but also to establish a sustained pipeline of professionals. As these programs gain traction, they are positioning Japan to better manage demographic headwinds while nurturing a more diverse, resilient, and future-ready workforce.
Urban centers continue to anchor service delivery
Japan’s Tier-1 cities – Tokyo, Yokohama, and Osaka – remain the epicenter of service delivery. These cities offer excellent digital infrastructure, established academic institutions, and access to talent, making them ideal for both new setups and enterprise expansions. Enterprises and service providers are increasingly focusing on these cities, capitalizing on their ability to deliver scale and sophistication across service lines, particularly in digital transformation, IT operations, and ER&D.
While Tier-2 cities are beginning to emerge as lower-cost alternatives, adoption has been gradual. Locations outside the major metros offer cost advantages in terms of salaries and real estate, but challenges around talent scalability and infrastructure persist. Many professionals continue to migrate toward Tier-1 cities for broader opportunities, reinforcing the dominance of urban centers in the delivery landscape. For now, Tier-2 cities remain a secondary lever rather than a primary growth engine.
Engineering-led growth and offshore realignment
In parallel, Japan is strengthening its position as a strategic hub for ER&D services. Building on its global reputation in automation, robotics, and advanced manufacturing, Japan is seeing increased enterprise demand for specialized R&D capabilities. This is further amplified by government support for next-gen technologies, including AI and sustainability-linked innovation. As these investments scale, Japan’s relevance as a high-value ER&D destination continues to grow.
At the same time, rising domestic costs and labor shortages are prompting Japanese enterprises to look outward. Offshoring of non-core and non-voice functions to countries like Vietnam, India, and the Philippines is accelerating. This trend reflects a need to preserve operational efficiency while focusing local resources on more strategic and complex activities. The result is a more balanced delivery model – one that blends offshore scale with onshore specialization.
Final take: Japan is quietly reengineering its global services playbook
Japan’s population is shrinking, and its workforce is aging. Through a combination of policy, global engagement, and high-value investment, the country is navigating a critical transition. For businesses, this means success in Japan will depend on welcoming international talent and building teams that combine local and global skills. Adapting to this shift will be key to staying competitive in Japan’s changing market.
Learn more about Japan’s growing technology and ER&D services market in this report: https://www2.everestgrp.com/reportaction/EGR-2025-37-R-7074/Toc
Reach out to Vipin Alexander ([email protected]) and Shivam Arora ([email protected]) to discuss the topic further.
