Why the Japanese Market is Attractive for SaaS Businesses

Increasing Entry of SaaS Companies into Japan

At TAMLO, we're an agency that supports the entry of companies based in English-speaking regions like the US, UK, Singapore, and Australia into the Japanese market through content marketing. In recent years, we've seen a surge in inquiries from companies offering SaaS (Software as a Service) solutions. When OpenAI announced in April 2024 that it would open its first Asian office in Tokyo, the news was met with surprise. As more and more SaaS companies are expected to emerge in the generative AI space, we anticipate many more firms will announce their entry into Japan in the coming years.

So, why is the Japanese market attracting such keen interest from companies nowadays? The answer becomes clear when we look at the "New Software Business Markets" report published annually by Fuji Chimera Research. This report surveys the domestic market for 48 enterprise software categories. In this article, we'll introduce an overview of the 2023 edition and summarise the trends and tendencies in the Japanese market to serve as a reference for companies considering entry.

Market Size and Growth Potential

The domestic SaaS market in Japan reached ¥1.0891 trillion in 2022 but grew a remarkable 30.6% to ¥1.4128 trillion in 2023. Furthermore, Fuji Chimera Research predicts it will reach ¥2.0990 trillion by 2027, doubling in size over the next few years.

Behind this remarkable growth is the government's push for digitalisation, rising corporate awareness of digital transformation (DX), and the spread of new work styles. The timing presents a great opportunity for SaaS businesses to enter the Japanese market fully.

High-Demand SaaS Areas and Backgrounds

Demand for SaaS is exceptionally high in the following four areas in Japan:

1. CX Domain: Following the 2024 amendment to the Electronic Bookkeeping Preservation Act, which promoted paperless operations, SaaS solutions like CRM and digital adoption tools are being actively adopted to improve operational efficiency and customer service as part of the government's DX initiatives.
2. Business Systems Domain: Enterprise Performance Management (EPM) tools are being implemented to enable highly accurate business planning and strategy formulation. Furthermore, SaaS solutions for labour management, electronic contracts, contract drafting assistance, and more are widely adopted by companies of all sizes amid digitalising business environments.
3. Collaboration Domain: Remote work became prevalent during the COVID-19 pandemic, so demand surged for SaaS solutions like business chat and file-sharing services to enhance remote communication. Additionally, the government's push to move away from stamped seals (Hanko) has driven the adoption of workflow systems.
4. Data Infrastructure Domain: To centralise corporate data for global operations and comply with overseas regulations, companies actively utilise database/data integration software, low-code/no-code development tools to improve efficiency, and other SaaS solutions.

Characteristics of the Japanese Market and Challenges for Entry

As a mature market, foreign SaaS companies entering Japan need to consider the following characteristics and challenges:

• Top-Down Decision-Making and Long-Term Continuity Focus: Japanese companies generally make top-down decisions based on upper management's intentions. They also tend to value long-term relationships, making them cautious about adopting new vendors' products. Continuous follow-up and relationship-building after entry are essential.
• Importance of Localisation due to Language and Cultural Differences: Beyond language barriers, differences in corporate culture and business practices require localisation of SaaS tools. Localisation of the UI, manuals, and support systems is necessary. Leveraging the insights of local partners can be practical.
• Intense Competition with Existing Vendors: Japan has long-established significant vendors operating in the software industry, including SaaS. With existing customer bases and relationships, their competitive strength against new entrants is formidable. Clearly defining your strengths and differentiation is crucial.
• Stringent Security and Compliance Requirements: Japanese companies emphasise data security and compliance significantly. Concerns about cloud services persist, so meeting stringent requirements is expected. Measures like obtaining information security certifications may be necessary.
• Evaluation of Entry Models and Government Support Programs: Companies need to consider the optimal entry model, whether direct sales, leveraging local partners, establishing a regional subsidiary, etc. It's also worth researching government support programs and tax incentives for foreign companies, which could facilitate entry.

While unique barriers exist, the Japanese market remains attractive due to its expected SaaS growth. By clearing these hurdles, companies can seize significant business opportunities.

At TAMLO, we provide comprehensive localisation support for SaaS businesses entering the Japanese market. From creating landing pages and running online ads to producing blogs and Japanese documentation, we cover a wide range of content marketing needs. Feel free to contact us for more information.