This IDC study explores the situations and trends in the Japan key horizontal business outsourcing (KHBO) market by submarket or key horizontal business function (HR, customer care, F&A, and procurement). It analyzes the market situation in 2005 and 1H06 (January?June), provides a forecast up to 2010, and includes IDC's recommendations to SPs (service providers).

The Japan business outsourcing market continues to expand on the back of corporate needs for business "improvement (cost reduction, efficiency improvement, and so forth)" and resource "supplementation (skills, manpower, business environment and so forth)" with regard to indirect and routine/labor-intensive business processes. The Japan KHBO market in 2005 marked year-on-year growth of 10.8% to 785.9 billion yen. IDC forecasts that the Japan KHBO market will increase at a CAGR of 5.3% from 2005 to reach 1,015.7 billion yen in 2010. Although the Japan business outsourcing market continues to expand, competition between vendors is getting more intense with the development of IT and the entry of new SPs. While some SPs promote business "transformation" as a service differentiator, actual results fall short of "transformation" and reflect no more than efficiency "improvement" in most cases.

"In providing business 'transformation' services, it is important for SPs to understand the environment surrounding customers and seek to strategically improve the businesses of customers. IDC believes that 'transformation' does not mean cutting down on expenses but investing in business enhancement. It is important for SPs to support their customers in strengthening their businesses and keep in mind the quest for business improvement, be it an intended objective or a 'side effect' of the services provided," observes Satoshi Matsumoto, senior market analyst, Japan IT services, IDC Japan.