Why Does Outsourcing Feel So Normal in Japan?

I have noticed that I react to “outsourcing” in two very different ways.

In China, when I hear that a company or a position involves outsourcing, I tend to feel a little distrustful at first: Is the compensation poor? Does the work offer little opportunity to build lasting experience? If something goes wrong, will there be no one who is truly accountable? Yet in Japan, when I see a technology company taking on systems development and operations for other businesses, I think: Isn’t that just a perfectly normal business arrangement?

The work is for someone else in both cases. Why do they feel so different?

On closer thought, the issue may not simply be a difference between the two countries. When I hear “outsourcing” in each place, I may be picturing fundamentally different working relationships. I am mainly discussing the internet and software industries here, not every form of outsourcing.

In the context of the Chinese workplace, what often comes to mind is an “outsourced employee.”

The term draws my attention first not to the person’s professional abilities, but to their relationship with the client company: they work there without being directly employed by it. I then associate that position with differences in compensation and benefits, limited access, and uncertain prospects for advancement. Before I know anything about the actual work, I have already placed the role somewhere near the margins.

These associations are not entirely unfounded. In 2021, Tech Planet interviewed five outsourced employees who had worked at technology companies. Those who described their work experience in China spoke about differences in access to information, benefits, and promotion opportunities; one also described successfully becoming a direct employee. These individual cases cannot represent an entire industry, but they help explain why “outsourcing” makes some people think of differences in status, rather than simply a division of labor between companies.

But concerns about a work arrangement can easily turn, almost without notice, into judgments about a person.

If someone has no opportunity to participate in core work, that does not mean they lack the ability to do it. If a company is unwilling to invest in developing someone in a role over the long term, that does not mean the person is not worth developing. If someone cannot access complete information, lacks sufficient permissions, and can only complete isolated tasks as instructed, we cannot restrict their involvement and then point to their “lack of a big-picture understanding” as proof that they are not capable.

In Japan, by contrast, I am more likely to picture something else: a company with its own team and expertise providing technical services to other businesses.

This understanding has a basis in the structure of the industry. In its 2025 final report from the Committee on Legacy Systems Modernization, Japan’s Ministry of Economy, Trade and Industry noted that many companies using IT systems have long depended on external vendors, while IT talent has become excessively concentrated on the vendor side. Technical specialists are not necessarily inside the client organization; external companies are themselves important centers of technical capability.

In this context, “building systems for clients” need not be understood as second-tier work. It can be a company’s core business and a place where engineers gain experience and develop expertise.

Consider a hypothetical example. A bank hires Company A to develop a system, and an engineer working on it is an employee whom Company A recruited directly and has developed over the long term. To the bank, the engineer is an external person. To Company A, the engineer may be a core team member who takes on important projects and has a clear path for advancement and professional development.

The engineer does not need to become an employee of the bank to prove that the work has value.

“Is this person an employee of the client company?” and “Is this person a directly employed member of their own company?” are two different questions. Someone can be both an external person in the eyes of a client and a core employee in the eyes of their employer.

Seen this way, my earlier comparison was somewhat misaligned.

When I thought about outsourcing in China, I was focusing on how an individual worker is treated by the client. When I thought about outsourcing in Japan, I was focusing on how a professional services company participates in a business relationship. The first is about an individual’s position within an organization; the second is about a company’s role within an industry.

Comparing these two pictures naturally makes one side feel unreliable and the other perfectly normal. But that is not enough to prove that the outsourcing industries in the two countries are so fundamentally different.

Outsourcing in Japan also has problems worth watching closely.

A 2022 survey of the software industry by the Japan Fair Trade Commission examined issues in multilayered subcontracting structures, including pressure to lower prices and demands that suppliers handle changes in requirements at no additional cost. Moving to another country does not make conflicts of interest within contracting chains disappear.

Nor was the Ministry of Economy, Trade and Industry report mentioned above praising this industry structure. It also noted that excessive reliance on vendors can prevent clients from developing their own IT capabilities. Vendors, meanwhile, may remain trapped in a model of creating bespoke systems for one client after another and charging for the labor involved, with little incentive to improve productivity.

“Everyone does it” tells us only that something is common. It does not show that the practice is reasonable, much less guarantee that any particular company is trustworthy.

The more useful distinction is how a company actually creates value.

Do clients choose it for its ability to solve problems, or mainly to add headcount and reduce costs? Does it have its own technical expertise, delivery methods, and management capabilities? When a project runs into trouble, can it organize the resources needed to address the problem, or can it only pass the pressure down to the next company and the next worker?

Saving money and adding staff are not inherently bad. It is normal for clients to want to reduce costs, and bringing in extra people for a limited period can be a reasonable need. Lower prices may come from better tools and processes, and billing by person-month—that is, by the number of people involved and the number of months they work—does not mean a company lacks expertise. What deserves scrutiny is a situation in which costs have been reduced without leaving anyone enough resources to ensure quality, coordinate the work, and maintain the system afterward.

From an employee’s perspective, I would also care more about some concrete questions: Can I engage with the whole problem? Is there someone to support me? Can the projects I work on become experience and expertise I carry forward? Does my employer take my long-term development seriously? A badge that says “direct employee” does not automatically produce good answers to these questions, nor does being classified as “external” by the client mean that there can be no good answers.

My first reaction to “outsourcing” can serve as a reminder, but it cannot yet serve as a conclusion.

It reminds me to understand the contractual relationships, the nature of the work, how responsibilities are divided, and the opportunities for growth. Until those things are clear, I should not reject a company based only on the word “outsourcing,” much less judge a person’s ability by it. Likewise, when I encounter a professional services company in Japan, I cannot skip asking about the actual working conditions simply because this form of cooperation looks perfectly normal.