Dealing with the local technology recession.

The Tokyo bilingual systems integration market has been hammered over the last 18 months by the global Tech Economy meltdown and the reduction of operations of many foreign firms operating in Japan. We talked to the Director of Sales and Business Development for one of the leading vendors in bilingual services, BiOS, about how they are coping with the changing market.

JI: We thought that BiOS was a term used for the low-level operating system in a PC.

Paulachak: Yes, it's a bit of a pun on an engineering level. Actually, officially, BiOS--spelled with a small "i"--means Business Infrastructure and Operations Support.

JI: How long has BiOS been around?

Paulachak: BIOS is the systems integration arm of LINC Media, which used to be the parent company of this magazine before a management buyout last year. LINC Media started up its systems business in January 1999, and BiOS was born as a concept soon after that.

JI: There are a lot of bilingual Systems Integrators (SI) in Tokyo these days. What makes you guys different?

Paulachak: Yes, it is true that there are four to five foreign-run companies competing in the local foreign market. I would say that the main point of differentiation is both size and the broad range of work that we can do--and of course that we take being bilingual very seriously.

JI: Systems integration is no longer the sexy industry it once was, due to the technology recession here. We see little growth and not much opportunity. How are you planning to address this?

Paulachak: Yes, it's true that the last 17 months, since September 11th, 2001, have been brutal punishment for everyone in the industry. 95% of our clients are foreign companies in Tokyo, and while the tech recession in the home country for most of these clients has been bad, here in Tokyo they've been told to totally shut down any expansion plans and in a lot of cases to even lay off staff ...

JI: If things are so bad for foreign companies in Tokyo, why don't you start servicing Japanese companies?

Paulachak: Because our specialty is to provide bilingual services. We are very well set up to find and support bilingual engineers, and Japanese clients don't have a lot of need for such people--except on the high end, which we are working on now.

But getting back to your original question, even though foreign companies are suffering here, the market is still of a decent size. I would say that there are about 1 million people working for the 5,000 or so foreign companies registered in Japan, and that the market for SI/IT goods and services into these companies is probably around 100 billion yen, a bit less than $800 million. So it's not an insignificant market.

What we're doing to address the change in market dynamics, from a growth market to a market which questions the value of its IT operations, is to focus on four main areas: outsourcing, office relocations, data centers, good old fashioned service and support solutions.

JI: What do you mean by outsourcing?

Paulachak: Clients pay us to provide staff and systems to help keep their IT infrastructure going.

JI: How is that different from body shopping?

Paulachak: Body shopping, or temp placements, is typically the unstructured placement of staff at a client's site, meaning that the client has to treat them the same as their own employees, with all the hassles of training, attendance and performance management, and everything else. Outsourcing, on the other hand, provides the client with a proper support organization and management team behind the relationship. So it costs a bit more, but it's a lot less strain on a client's internal management resources. Our outsourcing proposition includes: giving our staff pre-training, guarantees of service continuity, no pay raises that affect the client, internal management and motivation plans, etc. So you can see that outsourcing is a much more professional and better thought out service. Because of this, while we accept smaller opportunities as well, usually we outsource a team of 5-10 people with its own internal manager.

Also, for companies using body shopping there is the problem that after 12 months, the body shopped person may be regarded by labor authorities as a full time employee and have rights relating to company benefits normally only reserved for employees.

JI: We had heard last year that the Tokyo market is already saturated by Japanese companies offering cheap bodies.

Paulachak: Yes, it's true that the temp agencies have been very aggressive in the foreign companies and for a while after September 11th, we were frequently challenged by clients on price. We did start lowering prices a bit, and so now the difference with temp agencies is not so great, but we do believe that the structure and guarantees that we offer are worth more to our clients and they should be prepared to pay for this. We actually did lose a couple of clients to the temp agencies, but over the past 12 months, they've started realizing that the cost of continual recruiting, managing a revolving door on temp employees, and training people, probably exceeds the cost of paying us to manage that same problem. So one of these has already come back to us for a new contract.

JI: Where do you rank in terms of size in the local bilingual outsourcing market?

Paulachak: We're probably one of the top three in terms of contract size--one of our contracts has a team of 20 people in it.

JI: We started noticing your Data Center activities, AdvanceServ, at the beginning of 2001, when you started running ads in J@pan Inc magazine. Isn't it a bit late in the game to be doing a data center?

Paulachak: Yes, the golden age of data centers is well and truly past. The reason why we started AdvanceServ was to introduce some price competition in a market that was rapidly consolidating into the hands of just two companies. We felt that our client base would appreciate this.

JI: Have they?

Paulachak: To be honest, it's been tough, because once clients are comfortable with something as mission critical as a data center, they don't want to introduce the risk of a new relationship. But nevertheless, our service and facilities are top notch, and we have slowly been winning clients. Our job from here on out is to start offering new services that allow clients to use our facilities in conjunction with their own.

JI: Such as?

Paulachak: Network security, massive backup for local data farms, monitoring and that kind of thing.

JI: How cost effective is AdvanceServ?

Paulachak: It's about 25% cheaper than competing services.

JI: What about your solutions business?

Paulachak: BiOS is a mid-sized local SI company, so we can't be doing everything. However, we are good at office relocations and expansions and will be focusing on this business from now on.

JI: There are a lot of office relocation services, and many have also been around for a while. How can you add value here?

Paulachak: Basically we have the ability to deliver a business solution to a client, not just the technology. For example, we have one client that wants to save money by moving their call center out of Tokyo, so I personally executed a research project for that client, identifying where else in Japan the client could set up and what the subsidies and advantages/disadvantages were for each prefecture.

JI: So which prefecture is the best place to relocate a call center to?

Paulachak: It really depends on what the client wants. Okinawa is definitely one of the cheapest locations, and thanks to our partnership with CTC--one of Japan's largest systems integration companies--we can deliver a turn-key solution down there. But this particular customer was worried about availability of higher-end, experienced staff, so in the end we found a good deal for them down in Hyogo Prefecture--Kobe, to be specific.

JI: Researching business savings for an office relocation project is not something we'd normally consider as an SI activity.

Paulachak: Right, that's why we call it part of our business solution services. Other services include recommending office locations to our partner companies elsewhere in Japan, finding staff through our outsourcing operations, and things like that.

JI: OK, lastly, what about good old fashioned networks and support?

Paulachak: Glad you asked about that! BIOS people are hungry, professional, and motivated. Clients really start to understand the value we can provide once they start working with our staff. Our recruiting team is highly experienced, doing hundreds of interviews a year, and of course, we have the added advantage of a sister company which is a recruiter--although I might add that they make us line up with the rest of their clients--but nevertheless, the resource is there.

Our support services include monthly support contracts for networks and user support--naturally, all our engineers are bilingual and experienced. Our sales focus in this area is small to mid-sized networks of 5 to 100 people. We cover all major technologies, including Windows NT Unix, Linux, user and server-side application software, cabling systems and telephone systems--including VolP.

BiOS Odakyu Minami-Aoyama Bldg. 10F 7-8-1 Minami-Aoyama, Minato-ku Tokyo, 107-0062 Tel: [phone] Fax: [phone] www.biosjp.com

Steve Paulachak is the Director of Sales and Business Development for BIOS. For further inquiries, he can be reached at [e-mail]