Local Government Solutions Market in Japan: Key Research Findings 2024

Local Government Solutions for FY2023 Forecasted to Rise by 1.8% From Preceding Fiscal Year to 773,370 Million Yen

Yano Research Institute (the President, Takashi Mizukoshi) has conducted a survey on the domestic market of IT solutions for local governments, and found out the general condition of the market, future perspectives, and the trends of service providers.

Transition and Forecast of Local Government Solutions Market Size
Transition and Forecast of Local Government Solutions Market Size

Market Overview

The size of local government solutions market in FY2022 was estimated to have grown by 4.4% from the preceding fiscal year to 759,510 million yen, based on the sales of businesses (IT vendors). The growth was underpinned by the demand for benefit programs related to the spread of new coronavirus infections. Nonetheless, we also predicted that the market grows narrowly by 1.8% for FY2023 to attain 77,337 million yen, stemming from the expansion of tax items in the common local tax payment system and the provision of benefits to support low income households amidst price hikes. In addition, the demand is growing for digitally transforming counter services, as well as for IT systems for managing internal data* for the purpose of increasing operational efficiency.

*IT solutions for managing internal data refers to systems in general that are related to organizational management of local governments, such as financing/accounting, HR/payroll management, management of various administrative tasks, and document management.

Noteworthy Topics

Standardization of Mission Critical Systems Begin in Earnest from FY2024

In order to reduce costs at municipalities, the government has decided to integrate/standardize the mission critical system of local governments (information systems used in municipal affairs, such as resident records and taxation) by the end of FY2025 and host them on the government cloud procured by the Digital Agency. Currently, IT vendors are investing a lot of human resources to achieve the transition by the deadline.

FY2023 turned out to be the year of verifying and testing system operations. Full-scale transition is scheduled to start in FY2024. In fact, although municipalities still have two years to standardize their mission critical systems and migrate to government cloud-based system, most of them have mapped out the transition in FY2025. For this reason, while the impact of standardization on the local government solutions market will be minimal for FY2024, demand is most likely to soar in FY2025.

Future Outlook

There are two major possible trends from FY2026 after the initial standardization deadline.
The first is continuance of standardization. The government has announced to approve a separate migration due date for the local governments having difficulties completing the process by the end of FY2025. Furthermore, to run the new system on the government cloud, it must be suited for cloud setting. Considering the situation, local governments are likely to continue needing the support of IT vendors to standardize and migrate beyond FY2026.

Another trend is the promotion of digital transformation (DX). While having serious staff shortages, using digital technologies is a must for local governments to maintain municipal services. From FY2026, IT vendors are likely to be asked to reallocate engineers that were focused on standardization to digital transformation projects.

Against these backgrounds, the size of the local government solutions market for FY2026 is expected to drop considerably by 19.1% from FY2025, when special demand is expected. However, it will not decline to 2024-level as the standardization continues and new projects like digital transformation will be initiated. The estimated market size is 806,200 million yen for FY2026.

Research Outline

1.Research Period: November 2023 to March 2024
2.Research Object: IT vendors providing solutions for local governments, local governments
3.Research Methogology: Face-to-face interviews by our expert researchers (including online interviews), survey via telephone and email, and literature research.

What is the Local Government Solutions Market?

In this research, local government solutions indicate IT systems introduced by local governments. The market size includes the fee for purchasing hardware and software, rental/lease fee, maintenance/service support fee, network access fee, engineer dispatch fee, and BPO service fee.
To define the market by the breakdown of the expenditure at local governments, it includes items such as the cost of purchasing hardware, cost of IT system development/management paid to contractor, cost of various types of training, and outsourcing cost (such as the cost of BPO services). Note that the market size does not include personnel expenses of local government officials, government subsidies, and the cost of procuring government cloud.

<Products and Services in the Market>

Mission-critical systems for local governments (information systems used in municipal affairs, such as resident records and taxation), IT solutions for organization management of local government, IT solutions for field workers, solutions related to digital transformation (DX) of local governments, etc.

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