Business and Other Risks

Below is a list of major items that may be considered risk factors regarding our business and other matters. In addition, matters that do not necessarily fall under such risk factors but are considered important for investors’ investment decisions are disclosed below from the viewpoint of proactive information disclosure to investors. Recognizing the possibility that these risks may arise, the Group will make every effort to avoid their occurrence and to respond to them if they do arise.

1. Changes in the business environment

The information service industry, to which our group belongs, is affected by the trend of information system development investment by client companies and intensifying price competition with competitors. However, changes in the business environment due to corporate investment in information system development and intensifying price competition with competitors may affect the financial position and business performance of the Group in the future. However, changes in the business environment due to corporate investment in information system development and intensifying price competition may affect the financial position and operating results of the Group.

2. Dependence on specific ERP products

Since signing a partner agreement with SAP Japan K.K. in September 1996 (“Collaboration Agreement on R/3 Software Implementation”), the Company has been focusing on SAP ERP implementation support as a partner company of SAP Japan K.K. As a result, the percentage of SAP ERP-related sales in the Company is As a result, SAP ERP-related sales accounted for 74% of our total sales for the fiscal year ending March 31, 2020. As a result, SAP ERP-related sales accounted for 74% of our total sales in the fiscal year ended March 31, 2020.

3. Increase in development man-hours

In the process of developing information systems, there is a risk that development man-hours may increase significantly beyond the original plan. Although our group conducts thorough man-hour planning, man-hour management, and quality control, if the specifications required by the client change significantly during development, or if unexpected problems occur, the man-hours required for development may increase significantly, which may worsen profitability and affect the financial position and business performance of our group. This could have a negative impact on the Group’s financial position and operating results.

4. Occurrence of defects, etc.

When our group is contracted to develop software, we are usually liable to our clients for defect warranty on the software we have developed. Although the Group conducts thorough quality control, unexpected defects, etc., may require free-of-charge repairs, which may affect the financial position and business performance of the Group.

5. Information management

In the Group’s business, there are cases in which the Group learns of personal information held by customers or confidential customer information, and there is a risk that the information it learns may be leaked. However, in the event of leakage of information obtained due to communication failure or human error, the Group may be subject to claims for damages from customers or loss of credibility, which may affect the Group’s financial position and business performance. However, in the event of leakage of information obtained due to communication failures or human error, the Group’s financial position and operating results may be affected due to claims for damages from customers or loss of trust.

6. Securing and developing human resources

We recognize that securing and developing human resources is an important issue for the Group’s business operations. The Group focuses on recruiting and working to secure human resources, as well as enhancing training at all levels after they join the company, with the goal of turning all of the Group’s human resources into multi-talented individuals who can handle multiple technologies, speak multiple languages, and work on a global scale. However, if we are unable to secure human resources in a timely manner, if a large number of human resources leave the company, or if the development of human resources does not progress as planned, the financial position and business performance of our group may be affected.

7. Partner companies (subcontractors)

In executing its operations, the Group receives support from partner companies (subcontractors) in order to enjoy benefits such as efficient execution of development and reduction of fixed costs. We intend to strengthen and maintain relationships with partner companies (subcontractors) in order to stably expand our business in the future, and we have stable transactions with more than 200 partner companies (subcontractors). However, in the unlikely event that we are unable to obtain support from the appropriate partner companies (outsourcing partners) at the appropriate time, our financial position and business performance may be affected.

8. Response to technological innovations

The information service industry, of which our group is a part, is undergoing tremendous technological innovation, and market and customer needs are rapidly changing and diversifying. Failure to accurately grasp such changes and to provide services and technologies that respond to such changes may affect the financial position and operating results of our group, such as a decline in competitiveness.

9. Risks related to overseas business

The Group conducts business in the United States, India, and other countries and regions. Business activities in these regions involve the following risks, and the occurrence of any of these events may affect our group’s business performance and financial position.

  1. Unforeseeable changes in laws, regulations, and taxation systems with adverse effects
  2. Adverse effects on the Group’s activities due to inadequate common social capital (infrastructure)
  3. Occurrence of adverse political factors
  4. Social turmoil due to terrorism, war, epidemics, etc.
  5. Rapid and unforeseen changes in the labor environment