First of all, mods, I am sorry if this doesn't fit the main goal to help other redditors of this sub, feel free to remove it. I'm posting here as I would like a real answer and not just a meme conversation, even though this looks more like a rant.
Into what the title is questioning, I have worked in 2 Japanese businesses (one of them international company but with presence in Japan for more than 25 years) and with both of them I have noticed how much B2B "overcharge" each other. Like, they will charge almost for sneezing. Back in Spain, at the company I used to work, we operated with fairly low margins to make the business as lean as possible due to competition, but here it doesn't seem to be the case.
What I would like to know is, if my current company (IT subcontracted services) gets hired by a bigger IT company (B) to do a task they don't have enough workforce to do/the gain is too low for them compared to the man-hours dedicated but that they got from customer company A, then that means that the cost my company charges is "rolled onto" that company A (with a margin for company B, even if it is small, doesn't this create a giant bubble?
The pricing that my boss offers is ridiculously high for the tasks to be done (and pays us very little) as one day he screen shared the semester balance by accident. That company B will charge company A a margin, and probably company A isn't even the final end user of that project, meaning they probably "sell" that project to a different, so how does this work? How is the end company able (and willing) to pay these fees? Maybe the end customer is always mega-big corporations/government that don't mind overpaying? Cost of living is not that high yet (although increasing) in Japan, so I really cannot comprehend where the money to for this overpriced projects is coming from…
As the common joke goes, "if everyone is a salesperson, then who is the buyer?"
by old_school_gearhead
12 comments
Following, cause I’m shocked at what we get charged by some vendors when I can do the same job for a fraction of it.
I have been asking myself this the entire time I’ve worked in Japan. No matter which way I look at it, the numbers don’t add up, and I hear it is just as bad or even worse overseas.
There are any number of reasons why a company may pay a subcontractor even when the price may appear high to you.
For example, if they want to do an IT project but don’t have enough personnel, it can often be cheaper and faster to subcontract it out rather than try and scale out their team via direct hires. And once the project is done that’s it.
With direct hires, they either have to find new projects for them while still paying for all of their salaries, or they have to find a way to let them go which can also be costly/difficult to do.
I was surprised by how strong middle man culture is here. One of the main reason IC pay in the US is so much higher
Where do you think those Lambos and Ferraris on the streets are coming from?
For why B2B charges feel inflated in general, in my experience at one of these end companies, we paid for guaranteed success, basically. For that level of guarantee you could only go to one of the few big name tier 1 vendors in the country. We would also predetermine the contract figures internally based on cost-plus modeling, rather than sending out RFPs for bidding. This allowed us to build complex cost projections for long term projects, again with guaranteed success as mentioned earlier. This makes everything predictable even if we’re not getting the open market best price.
After that, the tier 1 vendor can subcontract however they want, since they would have a better idea of how much the project would actually cost in a competitive pricing market, but the tier 1 vendor would bear the risk of any issues that come up in subcontracting – again they have the responsibility of guaranteeing success.
Short answer is, yes the big companies are obscenely rich and can throw money at any and every problem they encounter. There is a reason that even now, getting into one of those companies as a seishain is a social status symbol as well as a guaranteed upper-middle class lifestyle for the rest of your life.
I think it has to do with contractual agreements with the big players in those industries.
If company A has a contract to provide certain services for company XYZ. They will pay smaller guys -B & C, to do the work when needed. This way they don’t have to worry about the long term cost after the job / project is done.
I think that’s why there are a lot of freelancers in certain industries too. Money is there to be made.
In B2B you aren’t just charging the cost of direct salary to the labor. You also need to cover social security and other costs related to employing someone. This is usually estimated at 50% of the direct salary.
Then you have operational costs related to the project, as well as a profit margin. Preferably with some extra buffer in case the project bloats or drags out.
At this point you are probably at about 200-250% of direct labor costs.
Now, if the project is contracted in layers, the same calculation applies to every subcontractor. You could argue that the company should avoid middlemen, but the reality is that the contracting company usually doesn’t have the skill to manage the project and the multiple subcontractors directly, so they use middlemen to get it done reliably.
This is just the reality of B2B sales.
In Germany I pay 140-180€/h (so ~25.000-30.000 Yen) for contractors in B2B (coding). How much is it in Japan?
I am currently making vacation here and I am really interested in how much you get charged for a developer.
The way things work in IT and software in Japan is not the way it works across all industries.
There’s a big reckoning going on in regards to the layered outsourcing that’s used in Japanese construction projects (with “general contractors” at the top with subsidiaries and ostensibly independent companies underneath), my understanding is it’s an attempt to force the Japanese industry to adopt western business practices via regulation and paperwork.
They don’t only outsource work, they outsource risk,
and the management of the outsourcing.
Why it would go beyond two or three layers; well that would be the complexity, and how much budget there is. (think govt IT projects)
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