Open up the guts of the U.S. government — something President-elect Donald Trump hinted he will do — and what do you see?
A sprawling tangle of information technology services contracted out to private companies working on everything from Obamacare to immigration, air force bases and intelligence gathering. A look at NTT Data Corp. in Japan shows that some of the largest providers are owned by foreign companies, potentially putting them athwart Trump’s “America first” brand of economic nationalism.
Some have been embedding themselves into the government for decades, operating typically through U.S. subsidiaries, often ones they acquired. Others write the code, provide consulting, develop strategies from offices in the U.S. and abroad, showing just how hard it may be to decide whether U.S. taxpayer dollars are really going to U.S. jobs.
For example, NTT Data Inc., a U.S. unit of Japan’s former telephone monopoly, serves more than 50 federal government and military agencies and is competing for slices of the more than $160 billion the federal government has budgeted for IT spending this fiscal year and next. Diverting the Tokyo-based company’s contracts to rivals like Accenture or Booz Allen Hamilton could tear a hole in the government’s web of servers, networks and software applications.
“This is exactly why Japan and Japanese companies are now working to show that they are in fact American companies and have been for a very long time,” says Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo.
More than half of NTT Data federal’s employees have security clearance to view sensitive information. Contracts include work with the army, navy and air force, the Department of Homeland Security, the Drug Enforcement Agency, the Federal Housing Finance Agency and the Securities and Exchange Commission. The NTT Data unit has been doing business with the federal government since 1965.
Part of the reason for this is that NTT Data built its U.S. business the old-fashioned way: It bought up rivals.
This year, it paid more than $3 billion for parts of Dell Inc.’s IT services business, formerly Perot Services, a software and consulting company founded by former presidential candidate H. Ross Perot. Before selling to Dell, Perot built one of the top IT services companies serving the government. The Japanese company also bought U.S. rival Keane International Inc. in 2010.
Clearance for Snowden
To get a sense of the reach in the U.S. government that NTT Data acquired, consider that Texas-based Dell employed Edward Snowden, the American fugitive accused in a massive theft of classified information, when he got his security credentials in 2012, according to newspaper reports. Dell declined to comment on Snowden’s prior employment. Snowden didn’t answer messages to his Twitter account.
So, wherever Trump looks to remake or unmake the government, from possibly dumping Obamacare to choking off immigration, creating Muslim registries or surveillance and building up the military, he will touch the IT infrastructure of NTT Data and hundreds of other suppliers, domestic and foreign.
In fact, NTT Data sees a Trump presidency as a golden opportunity.
“We, as a company, are in the sweet spot of Trump’s agenda,” said Tim Conway, president of NTT Data’s U.S. public-sector division. “This was probably the most polarizing election I’ve seen and the key, when I look at this one, is change. From an integrator’s standpoint, you really can’t ask for more than that.”
Conway declined to comment on how NTT’s Japanese ownership might affect the company’s prospects under Trump’s economic nationalism.
“It is very difficult to disentangle U.S. companies from the international owners in these examples,” said Kevin Brancato, the lead government contracts analyst for Bloomberg Government. “Still, there are tons of companies that could have a harder time getting some contracts based on where their ownership is from.”
NTT Data completed the Dell deal last month and will have fully absorbed the company by the end of March 2017. Under Dell, the former Perot Systems unit had about 28,000 employees. The Japanese company had about 80,500 workers as of this March, more than double the 34,500 it had in 2010, according to data compiled by Bloomberg.
Anxiety about Trump’s nationalism stems from comments he made during his election campaign. On the day he announced his candidacy he said: “When did we beat Japan at anything? They send their cars over by the millions, and what do we do? When was the last time you saw a Chevrolet in Tokyo? It doesn’t exist, folks. They beat us all the time.”
Japan’s biggest companies have a history of treading carefully in the U.S., especially during the country’s rapid growth in the 1980s.
Few Japanese executives forget the day in 1987 when six members of Congress smashed a Toshiba radio with sledgehammers on the Capitol lawn. That same year, NTT rival Fujitsu Ltd. abandoned a bid for Fairchild Semiconductors amid criticism the deal would give a Japanese company access to key military-use chip technology.
A decade later, however, Fujitsu returned to the U.S. to buy control of mainframe, software and services provider Amdahl Corp. in an $850 million agreement. That deal helped Fujitsu win IT business in the federal government over decades, often via subsidiaries including Amdahl, PFU Systems Inc., GlobeRanger Corp. and Fujitsu America Inc.
“Even before Trump’s win, we were looking at revamping our business there,” Fujitsu President Tatsuya Tanaka told reporters in Tokyo on Tuesday. “I can’t say any specifics, but M&A are definitely possible.”
Government contracts not related to the military or national security have in the past been awarded to companies based outside the U.S. without restrictions, said Brancato of Bloomberg Government. “But if you are providing any sort of defense-related contracts, you had better have a well-established American presence.”
Advantage for Japanese
Japanese companies have an advantage over some other foreign suppliers because Japan has been a close ally of the U.S. for more than half a century, said Brancato. Indian IT outsourcers like Infosys Ltd. and Tata Consultancy Services would have a hard time with security-related contracts, and Chinese companies would not receive them at all, he said.
Infosys had $38,500 in U.S. government contracts this year, including work with the Department of Health and Human Services, according to data compiled by Bloomberg Government. It was the first amount since at least 2013, the data show. Tata Consultancy Services’ U.S. unit paid $60,000 this year and $80,000 last year for lobbying on education and immigration issues, though it had no contracts in either year, the data show. Tata Consultancy said by email that it would not like to comment, while Infosys didn’t respond to a request for comment.
Both the India-based companies are among those that use engineers and software developers brought to the U.S. on H1-B visas intended to let companies ease talent shortages. Jeff Sessions, Trump’s nominee for attorney general, has criticized the program and proposed changes. Still, after winning the election, some of Trump’s anti-foreign rhetoric has been toned down.
When Masayoshi Son, founder of Tokyo-based SoftBank Corp., flew to the U.S. on Dec. 6 to visit Trump, the former reality TV star tweeted that Son had promised to invest $50 billion in the U.S. and create 50,000 jobs. SoftBank is the parent of Sprint Corp., the fourth-biggest U.S. wireless operator.
That shows how swiftly Japanese companies are moving to underscore their credentials as U.S. partners rather than rivals, said Schulz at Fujitsu Research, which doesn’t speak for Fujitsu Ltd.
While Trump’s campaign rhetoric seemed to refer to the Japan of the 1980s, the modern IT services operators in the U.S. are global.
“Their labs are sitting there in Palo Alto and their government relations offices are sitting in Washington and their production is in NAFTA countries, if not America itself,” Schulz said. “That makes these companies almost as American as American companies.”
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