SaaS is growing at an explosive rate.
This is something that we’ve been hearing for a couple of years already and there seems to be no slowing down. As companies continue on their digital transformation journey, they also continue to spend extensively on building their SaaS muscle - Gartner forecasts that end-user spending in SaaS will hit $176.6 billion in 2022 and possibly $208 billion in 2023 (Source: Gartner Forecasts Worldwide Public Cloud End-User Spending to Reach Nearly $500 Billion in 2022).
Moving away from the global landscape, let us now concentrate on the SaaS industry in Japan. You are probably aware that Japan is the third largest economy in the world, but what is the role that SaaS plays? What are the market trends and why is Japan SaaS such an important market to watch?
To help you better understand SaaS in Japan, we've reached out to the team and compiled a short, handy guide based on their personal insights and experiences within the industry! Here are 8 questions to get you started…
Tatsuya Kouzaki, Partner
Despite being the world’s third largest economy, Japanese companies are only starting to gradually adopt SaaS and are at a relatively early stage compared to other mature markets such as the US. However, this also makes Japan a very exciting place to be in right now as there are plenty of opportunities for both investors and companies!
Not only is Japan facing a steep population decline, the population is also aging.
From 125.71 million people in 2020, total population is expected to decrease to approximately 92.84 million in 2060. In addition, the aged population (aged 65 years and above) is projected to form 38.1% of total population by 2060, up from 28.8% in 2020. (Source: Statistical Handbook of Japan 2021).
This implies that going forward, there will be a reduction in available labour resources as the younger workforce continues to shrink.
SaaS is one of the key solutions to tackling this potential labour shortage. At the same time, it will also be a key driver in propelling greater growth across Japanese companies.
Why should you watch the market: There is large market potential for SaaS to grow in Japan
Did you know, based on estimates, the Japanese SaaS market size is quickly approaching $10 billion and is expected to hit $13 billion by 2025?
Following the push for more Japanese companies to embrace SaaS, the domestic cloud services market is also projected to double from JPY 2.36 trillion to JPY 5.4 trillion in 2024 (Source: JETRO ICT Report).
As the market share of SaaS within Japan continues to rise every year, it is also expected to become one of the highest growing sectors in Japan.
Why should you watch the market: The push for digitalisation will lead to SaaS playing a greater role across Japan, especially within traditional industries - and this leads to new opportunities
In recent years, there is an increasing push for digitalisation across the nation as Japan seeks to improve its digital competitiveness. As companies gradually adopt SaaS practices, SaaS is also expected to play a larger role in traditional industries that have yet to embrace digital transformation.
These industries include manufacturing, retail, healthcare and financial services, which together form nearly 50% of Japan’s GDP but are currently not fully leveraging digital services, as shared by McKinsey. (Source: How Japan can make digital ‘big moves’ to drive growth and productivity)
As these companies become more aware of SaaS and the benefits it can bring to the business, we foresee there will be an acceleration of SaaS penetration across these traditional sectors - which will also kickstart a new wave of opportunities that is hard to find in other mature markets that have already fully embraced SaaS.
In addition to a declining workforce and huge corporate IT spendings across companies, it is also observed that traditional Japanese corporations are very used to outsourcing, especially when it comes to technology.
As SaaS becomes more widespread in Japan, for labour-intensive industries such as manufacturing and F&B, or companies that are still laboriously building their own infrastructure, this could be a chance for them to get acquainted with SaaS to increase workforce efficiency.
This becomes both an opportunity and a challenge for many. The opportunity is that companies are willing and desperate to find partners who can help with their digital transformation needs. Yet the challenge is they have very high expectations of the service providers.
Talent is both the key to unlocking greater growth and a challenge that needs to be addressed.
As mentioned earlier, the Japanese SaaS market is still very young compared to other markets, which means there is not enough domestic talent that has experienced extreme high growth in their careers. In addition, there is also insufficient talent inflow, especially across engineering roles. As a result, there’s a lot of re-inventing of the wheel and not enough innovation and new ideas being explored within Japan.
While the market definitely has not stagnated, overall growth remains slow. To tackle this, talent attraction and retention becomes very important.
Besides growing the domestic talent pool, greater access to overseas talent will be equally helpful. Given that many Japanese SaaS companies are still at an early stage of growth, working with seasoned SaaS talents could help to drive knowledge transfer and promote further adoption of SaaS across Japanese enterprises.
As more companies adopt SaaS, there will equally be more work opportunities for people keen to develop a career in SaaS. These talents will then become the drivers behind future progress of SaaS in Japan, which makes it important to build a strong talent pool as early as possible.
Hiro: A mentality for customer centricity and long term growth
Masa: Customer obsession which drives sustainable long term growth
Yuto: Something which values user experiences with the view of customer success
Tatsuya: Giving users a sense of sophisticated hospitality
Hiro: In Japan, we still have many verticals where SaaS hasn’t penetrated much. Many of the verticals are traditional industries such as medical, manufacturing, and finance.
Masa: Fintech x SaaS including embedded finance, healthcare.
Yuto: Vertical SaaS is playing its part in improving traditional industries.
Tatsuya: Vertical SaaS (especially in manufacturing and logistics).
Hiro: We will see $10B SaaS companies.
Masa: There will be multiple SaaS unicorns with a variety of product portfolios such as multi-cloud offerings, FintechxSaaS, Marketplace x SaaS etc.
Yuto: SaaS adoption will increase, and more startups and great unicorn companies will emerge.
Tatsuya: Over 10 SaaS unicorn companies will emerge in Japan.
Hiro: Fanfare, a SaaS company for the waste management industry
Did you know…
Established in 2019, Fanfare utilises AI technology to automate and streamline the process of dispatching waste collection vehicles. This results in greater efficiency across waste management while reducing the reliance on a physical workforce to get things done.
Masa: hacomono, an end-to-end SaaS for Fitness industry
Did you know…
Established in 2013, hacomono offers an end-to-end experience for fitness enthusiasts. Through the app, customers can easily make class bookings and purchases while participating companies can utilise backend data to improve the customer experience and provide more personalised services.
Yuto: PortX powered by JapanFuse, which improves international commercial trading
Did you know…
Established in 2019, JapanFuse offers cloud services that help drive digital transformation across companies through automation of processes. With digitalisation, companies can expect to further reduce logistical and staffing costs, while improving overall efficiency.
Tatsuya: Monorevo, a SaaS company for the manufacturing industry
Did you know…
Established in 2016, Monorevo equips the manufacturing industry with all-in-one digital transformation tools that simplify and increase visibility of operational and management processes. As a result, companies can easily enjoy greater efficiencies in warehouse management, scheduling etc.