Tag: Generative AI

Is Japan on the Cusp of CX Outsourcing Disruption? | Blog

Japan is on the verge of a significant transformation in the customer experience (CX) outsourcing industry. This blog explores how generative AI and other cutting-edge technologies are revolutionizing Japan’s CX market, creating unique opportunities and challenges in a country where tradition and innovation coexist harmoniously. Reach out to us to discuss this topic further.

The CX outsourcing industry is undergoing significant disruption due to generative AI (gen AI) and other advanced technologies. Gen AI is transforming contact center operations by automating interactions, enhancing agent performance, and improving operational efficiency. Meanwhile, other technologies, such as accent neutralization and AI translation, are eliminating language barriers, improving service quality, and boosting workforce productivity. As enterprises look at outsourcing to meet some of the changing dynamics in the market, vendor management strategies are being re-evaluated, with a focus on providers with robust technology capabilities. These trends collectively indicate that the global CX industry is on course to get disrupted.

This blog illuminates how Japan – the Land of Cherry Blossoms – is also on the cusp of CX disruption. In this vibrant country where tradition meets innovation, the CX market presents unique opportunities and challenges, much like navigating the bustling streets of Tokyo.

Before we deep dive, the following image sets the stage some of the unique attributes of Japan’s business landscape.

Distinctive qualities of Japan

Although Japan is known for its innovation, historically, it has been cautious in adopting cutting-edge technologies in the CX space. Factors such as cultural conservatism, hierarchical structures, and a preference for traditional methods of working have contributed to this lag. However, with the advent of gen AI, this scenario is poised to change.

How is the Japanese CX market changing? ­

The Japanese concept of Monozukuri (ものづくり) which encompasses meticulous attention to detail, dedication, and pride in creating high-quality products in-house, makes CX outsourcing less appealing in the world’s third-largest economy. However, AI has found a way to make outsourcing attractive even to the most discerning clients. It further presents an opportunity for Japanese enterprises to save on increasing operational costs onshore, develop capabilities to serve customers through non-voice channels, and leverage technologies such as automation and analytics to deliver superior quality CX.

Tasked with adapting to this evolving market, the country’s outsourced CXM market has witnessed a significant evolution in recent years.

A land of growing opportunities for outsourcing amid some long-standing risks

With a market size of US$4-5 billion and a market share of 26% in the Asia Pacific (APAC) outsourced CXM market, Japan commands attention as a prominent region in the outsourced CXM services industry.

The outsourcing market in Japan stands out due to its traditional emphasis on quality over cost, process control, and unique cultural challenges, favoring in-house over outsourced operations. However, since the early 2000s, a declining workforce and the rise of global outsourcing companies have changed this tendency. Japan, which is still behind some of the other APAC geographies in terms of CX innovation and CX tech, combined with an aging and shrinking workforce, is now starting to grapple with issues of high operational costs and labor shortages in the CX service delivery landscape.

However, Japan’s government is placing a strong emphasis on gen AI; for instance, Japan’s industry ministry invested over US$55 million in AI initiatives in 2023. Furthermore, both central and local governments have introduced tax breaks, grants, and loan assistance to attract foreign investments.

This has made Japan an attractive market for CX outsourcing as various businesses across sectors look to expand their outsourced operations.

Nonetheless, these opportunities come with some risks:

• Economic risk: Despite being the 3^rd third largest economy in the world, Japan has been in and out of short-term economic recessions, and is currently facing an economic slow-down with a growth rate of only 0.6% in the last decade
• Demographic risk: The aging population is another concern, as the majority workforce is between the ages of 45 and 54, making it challenging to find and retain qualified CX professionals
• Geological risk: Japan, situated within the Ring of Fire, makes it one of the most tectonically active places on Earth and heightens the risks of natural disasters such as frequent earthquakes and floods due to its geographical location

Recently, the Bank of Japan (BOJ) ended its negative interest rate policy in March 2024, signaling a stronger economy. Japan’s economy is forecasted to grow by 1-2 % in the second half of 2024, driven by wage growth, consumer spending, and a weak yen. Recent economic trends indicate a potential upswing in spending, further enhancing Japan’s appeal as a destination for CX outsourcing operations. However, companies must navigate through the nuances of these opportunities and risks to gain from Japan’s outsourced CXM market.

Current service provider landscape in Japan

In Japan’s contact center outsourcing sector, there are two distinct categories of service providers: regional firms such as Transcosmos, Bellsystem24, TMJ, and Altius Link (formerly Relia Inc.) and global companies such as Concentrix, Teleperformance, TDCX, and Foundever. While regional providers hold the largest market share in the Japanese outsourced CXM market, global players also have a notable presence, leveraging their established positions in the Asia-Pacific region.

Service Provider	Description
		·       Headquartered: Tokyo, Japan ·       FTEs and delivery centers: 43,000 FTEs across 71 locations ·       Industries served: Manufacturing, BFSI, telecom & media, government, and retail sectors. ·       Transcosmos stands out for its comprehensive suite of digital and traditional CX solutions and delivers cost-effective, results-oriented services. The company provides a comprehensive suite of customer experience (CX) solutions, including chatbots and multilingual speech recognition tools (supporting 25 languages) ·       Their blended delivery model leverages a mix of onshore and other low-cost locations for CX delivery. Furthermore, they demonstrate a commitment to client success through flexible pricing models. These models include outcome-based, output-based, and hybrid options, allowing for risk- sharing and cost-efficiency tailored to each client’s needs
		·       Headquartered: Tokyo, Japan ·       FTEs and delivery centers: 11,000 FTEs across 37 locations ·       Industries served: Manufacturing, BFSI, telecom & media, retail, healthcare, and public sectors. ·       It provides services such as customer service, technical support, CRM, and sales services. Its consulting offerings include CX strategy formulation, contact center operational consulting, VoC analysis, process benchmarking, and end-to-end crisis management solutions
		·       Headquartered: Tokyo, Japan ·       FTEs and delivery centers: 19,000 FTEs across 23 locations ·       Industries served: Manufacturing, BFSI, technology, and public sectors ·       TMJ offers a wide variety of CX solutions, including contact center outsourcing, sales and technical customer support services, and back-office services. TMJ caters to a diverse range of industries in Japan to improve its presence in the APAC region and establish a hub and spoke model with its base in Tokyo
		·       Headquartered: Tokyo, Japan ·       FTEs and delivery centers: 33,000 FTEs across 100 locations ·       Industries served: Manufacturing, BFSI, telecom & media, energy and utilities, government, and public sectors ·       It delivers customer support, order fulfillment, technical support, inbound and outbound sales, and helpdesk services to clients in Japan, China, Vietnam, and the Philippines offering support in 12 languages including Japanese, English, Chinese, Spanish, Portuguese, Korean, and other Asian languages

Japan beckons businesses with its unique blend of tradition and innovation. With a skilled workforce, competitive resource costs, and regulatory stability, Japan offers fertile ground for driving business success and nurturing long-term partnerships.

As these changes take place in the Japanese market, enterprises need to adopt new digital technologies to embrace the growing uncertainty in the market. Service providers and technology partners have a critical role in facilitating this transformation. By integrating advanced solutions and offering robust operational support and a skilled talent pool, they can help businesses navigate the evolving business landscape. Collaboration between enterprises and service providers can prove beneficial for driving innovation and ensuring technological advancement in the Japanese market, which is ripe for CX disruption.

If you have questions or would like to further discuss Japan’s CXM evolution, please reach out to Sharang Sharma at [email protected], Aishwarya Barjatya at [email protected], or Joshua Victor at [email protected].

Watch our Mid-market Digital Transformation: Insights and Outlook for 2025 webinar to learn best-practice recommendations for adopting newer technologies, based on our analysts’ recent experiences.