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Exploring Japan's IT Industry: Navigating the Talent Shortage and Maximizing Market Opportunities

Writer's picture: Yasuhiro TakayamaYasuhiro Takayama

Japan's IT industry stands at a critical juncture, grappling with a pervasive talent shortage that threatens further growth and innovation. According to Teikoku Databank, the first half of 2024 saw a record-high number of company bankruptcies due to labor shortages across various sectors. Although the IT sector has been relatively insulated, the risk is growing. This trend, if left unchecked, could hamper the industry's ability to meet rising demands for digital transformation (DX) across Japan.


Understanding the Talent Crisis in Japan’s IT Sector


A July 2024 report from Teikoku Databank revealed 182 bankruptcies in the first half of 2024 due to labor shortages, with construction and logistics being the hardest hit. In comparison, the software industry's bankruptcies due to a lack of personnel were minimal, but issues remain. Beyond labor shortages, a total of 75 software companies declared bankruptcy for various reasons, signaling a possible return to pre-pandemic insolvency levels.


While Japan's information service sector consistently faces a labor shortage—evidenced by a June 2024 employment survey where 67.2% of companies reported a lack of workers—the sector’s resilience lies in its structural dynamics. Aki Taro Asahi, Deputy Chief at Teikoku Databank, highlights that labor shortages in IT manifest more as an inability to secure new projects or expand than as immediate bankruptcies.



The Impacts of Workforce Mobility


As industries evolve, so does workforce mobility. There’s an increasing dichotomy within the IT industry—between companies that thrive by attracting and retaining talent and those that falter amidst the talent drain. Toshi Tanano, Chief at Recruit's HR Agent Division, emphasizes, "In IT, talent is the capital, and as talent becomes fluid, they gravitate toward more attractive companies, leading to inevitable corporate bifurcation."

Echoing the past, Tanano recalls the unchecked optimism in IT investment prior to the 2008 Lehman Brothers crisis. A downturn could replicate such scenarios, reducing project availability, sales, and ultimately triggering talent outflows, particularly from companies perceived as less attractive during economically volatile times.



Strategic Recruitment: The Backbone of IT Resilience


For IT companies to thrive amidst talent shortages, a strategic focus on recruitment is essential. Tanano advocates for a dual-focus hiring strategy: (1) attracting experienced senior professionals, like project managers, and (2) engaging in large-scale recruitment of young, inexperienced talent.

  • Attracting Seniors: Companies should revamp HR policies to align with the needs of senior professionals, such as extending retirement ages or enhancing post-retirement wages. Offering competitive salaries is crucial; Recruit's data shows that 40.3% of IT engineers who switched jobs in Q2 2024 secured more than a 10% salary increase.

  • Engaging Youth: In addition to senior hires, opening doors to non-IT experienced young professionals and developing distinct career paths for them is crucial. This approach expands the candidate pool and cultivates a diverse and skilled workforce.


Small to medium-sized IT companies face unique challenges with lower brand recognition and financial instability compared to larger corporations. Proactive workforce strategies, especially through leveraging social media for recruitment, can enhance visibility and employer appeal among potential young hires.



Leveraging Opportunities Despite Risks


As Japan transitions into a digital-first economy, the IT sector's growth potential is immense. With strategic hiring and workforce management, companies can significantly mitigate the risks associated with labor shortages. Companies like SHIFT exemplify success in this arena by vastly expanding their workforce from 1,711 engineers in 2019 to 8,798 by 2024 through a robust hiring process and innovative employment practices like full remote work.


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