SaaS Adoption by Industries: A Supply Issue?

Introduction

Digital Transformation (DX) has been a big topic in Japan with both public and private sectors pushing for tech adoption. Part of the problem is that many buyers don’t know where to start with the technological adoption process. They are unsure of the offerings available and the implementation. Another issue is the supply of SaaS offerings in Japan are limited.

Limited SaaS Offerings

The number of SaaS offerings in Japan are limited for two primary reasons. The first is that SaaS companies are not being started in Japan at the rate of other leading countries like the United States. The second issue is that not all SaaS services enter the Japanese market. If they do, it’s usually part of a global expansion initiative. The companies that explore global expansion when they are at a certain scale.

SaaS companies that consider other markets have strong adoption in their core market. Gaining market traction takes years. By the time they consider Japan expansion, they are ubiquitous in the market. There are both positive and negative aspects. Since only established technologies enter Japan, products that have proven product market fit enter Japan. On the other hand, there is a lagging effect. Technologies that have been established and adopted for years are new to Japan.

Due to the combination of companies not being started domestically and global expansion being a luxury available only to companies that have proven product market fit, the number of SaaS offerings are quite limited in Japan. When comparing global and Japanese review sites, the limited supply of SaaS offerings in Japan become abundantly clear.

On G2 (global review site in English) there are 93k products listed across 1.7k categories. On ITReview (Japanese SaaS review site), there are 8,927 products listed across 810 categories. G2 has about 13x the number of products and 2x the number of categories.

Higher Adoption Where There Is Availability

The mindset and resistance towards technology is changing in Japan. Companies are actively trying to overcome the challenges of adopting technologies. That being said, there may be a supply issue with technology. The 2021 version of White Papers on Small and Medium Enterprises and Small Enterprises, showed SaaS adoption by sectors.

HR and Accounting were the most adopted SaaS services. There may be a correlation between the SaaS services being offered in Japan and their Adoption. SmartHR, an HR management SaaS platform, is one of the most successful private SaaS offerings. SmartHR crossed the 15b JPY ($100m) ARR mark in early 2024. SmartHR is becoming a ubiquitous platform in Japan that is fully compatible with Japan-specific intricacies (labor laws, etc.). Similarly, MoneyForward and Freee are two accounting platforms tailored to the Japanese market.

Collaboration software came in third in SaaS adoption. The pandemic definitely accelerated the need for collaboration software. A big part of the equation is that there were collaboration tools available in the market. Slack, though not a domestic tool, was available in Japan.

The sectors that have lower adoption don’t have standout tools. The SaaS offerings in these spaces are not as abundant. The supply of SaaS offerings is one aspect that may be playing a role in the overall adoption.

Conclusion

Limited SaaS offerings, a supply issue, play a role in the limited SaaS adoption. With limited offerings being created domestically and a lagging effect of global SaaS markets entering the Japanese market, early entrants have the opportunity to become early players in the second-largest enterprise SaaS market. If Japan you are interested in exploring Japanese market entry, book a free consultation here.