Focus: Regional Development

JETRO, 1221 Avenue of the Americas, NYC, NY 10020January 12, 2004



Economic Recovery Leads to Regional Competition and Development in Japan

As the Japanese economy continues to improve, businesses and investors have begun to consider ways in which they might raise their exposure to the world’s second largest economy. Companies and individuals that restrict their search to Tokyo and Osaka, however – the traditional centers for international business and financial activity in Japan – are only seeing a small part of the many opportunities that are emerging.

From the northern-most region of Hokkaido to the southern island of Okinawa, Japan is divided into 47 prefectures. Each possesses different attractions for foreign companies and investors. Whereas Japan has traditionally utilized a centralized approach to governing on the local level, in recent years it has come to realize the need to decentralize its decision-making. As a result, local regions across Japan are now moving to develop the specialized focuses, resources and incentive structures necessary to define and maximize their competitive viability.

To facilitate this process, the Japanese government passed a new law last year allowing for the establishment of Special Zones for Structural Reform. Since this law was adopted -- over one hundred Special Zones have been approved granting exemptions from regulations governing education, urban renewal, distribution, agriculture, medical care, industry-academic cooperation and other areas. Over time, this will enhance the competitiveness of local regions and municipalities, and provide Japan with the means to selectively test new policies and to take the ones that prove successful and extend them across the country as a whole.

The Japan External Trade Organization (JETRO) provides the following information, which examines these issues, as well as specific opportunities and developments that may be of interest to corporate and portfolio investor.


Japan Moves to Decentralize Decision Making to the Local Level


The reconstruction of the Japanese economy following the Second World War was so successful that several decades later the nation possessed the second largest economy in the world. Unfortunately, however, this success was followed by the inefficiencies and excesses that ultimately led to the collapse of an economic bubble in the early 1990s . Over time, Japanese corporate and government policymakers have come to realize that the policy and economic framework that had served so well to drive Japanese growth during the 1950-80s, no longer was able to serve the needs of an increasingly complex, maturing economy.

Taizo Nishimuro Vice Chairman, Nippon Keidanren and Chairman, Toshiba Corporation framed the importance of regional decentralization as a key policy issue in a statement delivered last year. He noted “Of particular concern is the system of centralized government control. While its previous expansion allowed the achievement of a well-balanced nationwide development that extended to all parts of Japan, this system has recently has recently started to impede local government. It gets in the way of and stifles local initiatives and autonomous decision-making and action, and it undermines the original intent of local government itself.” Mr. Nishimuro goes on to suggest that the primary challenge facing the Japanese system needs to be to change from a system that can be characterized as "Reliant-Protective" to one that is "Independent-Supportive".

To help achieve this transformation, the Japanese government approved a new package of policy measures in July 1999 known as the Set of Acts for Decentralization. This legislation was designed to facilitate the shift toward a decentralized system of government, and came into force in April 2000. It seeks to promote greater self-determination, by helping local governments to create their own policies independently; and to allow local residents more participation in the decision-making process. The Local Autonomy Law adopts the systems of direct democracy for the management of local governments. One relevant mechanism is a system by which local residents are now entitled to make direct demands.

Additional measures include the Information Disclosure Act of April 2001 and the Policy Evaluation Act of April 2002 . By involving the Japanese public more fully within national and local policy debates, the Japanese government hopes to address their concerns. In addition, more grass roots participation and disclosure will introduce additional checks and balances. This will help to provide greater transparency and scrutiny, as well as efficiency and a general strengthening of Japan’s ongoing reform process and its economy at large
.


Regional Development Strengthened Through Special Zones of Structural Reform
 


To accentuate regional development and to provide a “test laboratory” in which new reforms can be evaluated on the local level before they are considered for national implementation, a system of special zones for structural reform was proposed in April 2002. By granting prefectures and municipalities exemptions from regulations governing education, urban renewal, distribution, agriculture, medical care, industry-academic cooperation and other areas, they will be able to better enhance their core strengths and competencies, in order to develop new companies, industries, efficiencies and a stronger commercial infrastructure.

In July of 2002 a Headquarters for the Promotion of Special Zones for Structural Reform was established, headed by Prime Minister Junichiro Koizumi. The new system starts with a proposal application, followed by an examination and selection process. After a proposal is approved and a special zone designated, a simplified regulatory regime becomes applicable within the zone parameters.

Four rounds of proposal applications have since been implemented and over 1500 proposals submitted. In April of this year the first decisions were made and almost 250 Special Zones have been approved for implementation. This includes submissions from local governments and other public sector entities as well as the private sector. For example, an international distribution zone has been proposed for one major port area . In this zone, customs clearance operations will run 24 hours a day – 365 days a year to make services and costs internationally competitive, and private companies are to operate a public container terminal and a bonded area. In another zone, non-Japanese workers with needed skills and technical capabilities will be allowed to extend the maximum length of their visas from three to five years. The entry of foreigners from specified countries is to be eased in still another zone by simplifying the procedures for securing short-term visas. Approvals have also been granted to establish schools founded by private companies, and in one case a public road will come into use for testing robots that walk.

The range of proposals that have been received are extremely diverse. For example, Ageo, a city of 220,000 that serves as a bedroom community for people who work in Tokyo wants to set up a community FM broadcasting station. Since a city of its size cannot easily attract enough sponsors to make such a station viable, it plans to join with adjacent cities and towns, for which it needs special permission. One feature of the plan is to schedule broadcasts in foreign languages, since Ageo has many residents from Brazil, China, and Korea.

Another proposal was put forward by Neoteny Co., Ltd., a Japanese venture capital and consulting firm that helps entrepreneurs in the information-technology business. It seeks to create a wireless LAN zone in a mountain community with low population density. This would make it feasible to provide broadband access in a remote area, where homes are too far from the nearest phone office, and establishing a cable network would be cost prohibitive. This problem be surmounted by installing a wireless local area network with a high power output, Current regulations, however, require the need for a license when the output of a wireless LAN exceeds a certain level so a regulatory exemption is needed to move forward.

Every proposal will not be approved and indeed some have encountered resistance from government bureaucracies as well as private parties whose interests are protected by existing regulations. One example is a proposal for a zone in which an ordinary stock company would manage a hospital. This is not currently allowed. The Ministry of Health, Labor, and Welfare takes a negative view of companies operating hospitals, as does the Japan Medical Association, the leading nationwide organization of doctors. Agriculture is another sensitive sector. Requests have been made to allow companies to operate in this sector not only in respect to the use of farmland, which is permitted, but as owners of farmland, which is not. Here, National Diet members from rural constituencies have stepped forward to oppose this idea.


The bottom line, however, is that by promoting this debate and many test cases across Japan, new ideas and approaches are being introduced and considered. Over time this will have enormous impact on the Japanese economy. Prime Minister Koizumi is pushing hard to implement these special zones. As head of the headquarters for promoting these zones, he is doing what he can to roll back resistance.


Local Regions and Municipalities Identify and Build on their Competitive Advantages
 


As the move toward greater decentralization takes hold, local governments across Japan are moving to define and build on their core strengths. They are seeking to develop the competitive advantages that will allow them to succeed and prosper in the New Japan that is emerging. This has resulted in a growing realization that to attract the business activity and investment needed to sustain their economic viability, they are going to have to compete with other regions – not only across Japan, but throughout the world -- to provide a high quality of life and the most hospitable and productive business environment possible.

Attracting foreign investment and businesses to locate in areas outside of Japan’s primary population centers will not be easy. The fact remains most foreign investors and companies in Japan choose to operate in Tokyo or Osaka, its largest industrial center. It is fair to say, however, that those who restrict their activity to these major cities are missing out on many attractive and potentially profitable opportunities as well as ways to reduce their cost structures.

Japan has 47 prefectures -- from the northern-most region of Hokkaido to the southern island of Okinawa. Each possesses its own identity, character and strengths. Specific examples include:

Fukui: Fukui prefecture has been designated by the Japanese government as an area that is eligible for industrial relocation promotion subsidies. One of Japan’s smaller prefectures, Fukui is rich in natural beauty. It possesses abundant hydo-electric resources as well as beautiful mountains and the unique coast lines of Wakasa Bay. Fukui is a winter sports center, one city Katsuyama, maintains a sister city relationship with Aspen in the United States. Fukui covers 4,189 km2 with a population of 828,944 and a local GDP of ¥ 3.17 trillion. Located within close proximity to larger markets in the Kansai and Chukyo regions, Fukui’s Tsuruga Port is now increasing its cargo capacity. It will become one of the biggest ports along the western coastline of the Sea of Japan. In addition to the Hokuriku Expressway, bullet train service will become available on the Hokuriku line to allow easier access to central Japan. Abundant water resources and a discounted rate for electricity contribute to the attractiveness of Fukui as a business destination. Considered by many to be the textile capital of Japan, Fukui is the home of Nippon Mayer Ltd., the first foreign industrial enterprise in Japan. It was formed in 1968 with technical and financial assistance by the German firm, Karl Mayer, the largest Warp Knitting Machine manufacturer in the world. Other foreign businesses that have located within the prefecture include Abbot Japan, Co., Ltd. and Dow Corning Toray Silicone Co., Ltd. To promote further development, Fukui is offering a unique incentive structure including a subsidy of up to ¥ 3 billion and low interest loans of up to ¥ 500 million for high-tech industries.

Fukui Prefecture
http://www.pref.fukui.jp/english/index.html


Fukui Prefecture industry location information
http://info.pref.fukui.jp/kigyo/index.html

Fukui Prefecture tourist information

http://www.fukui-tabi.com/kankou/en/index.asp

Fukui International Association

http://www2.interbroad.or.jp/fia-net/


Hokkaido: Japan’s northern-most region lies at a similar latitude to Boston and Chicago or London, Rome and Munich. It covers 83,453.57 km2 with a population of 5,662,856 and a local GDP of ¥ 20.71 trillion. Hokkaido possesses a competitive international school, an abundance of land and some of the most beautiful nature and living conditions in the nation. It has a similar climate to Europe and the United States, with cool and dry summers and snow in the winter.


Hokkaido possesses several fine universities and advanced research institutes. It is seeking to attract IT-related industries, including biotechnology and recycling. To achieve this goal, Hokkaido opened the Chitose Institute of Science and Technology, Japan’s first photoscience university in 1998, and has developed into one of the nations premier biotech clusters. Existing industries include food, pulp/paper/paper processed goods, oil/coal products and machine equipments. Amazon Japan K.K., has located a customer center in Hokkaido. Other foreign firms include Continental Teves Corporation, which has a test track for automobiles; Nihon Unisys, Ltd., which engages in software development, and Tycom Corp., a California-based manufacturer of cutting tools for the circuit board industry, which has constructed a state-of-the-art manufacturing facility.

Hokkaido has also been attracting the attention of foreign entrepreneurs. One recent success is the Niseko Adventure Center, founded by Ross Findlay from Australia,  This firm offers tourists skiing, snowboarding, backcountry skiing and snowshoe tours during the winter season, and rafting, kayaking, biking and rock-climbing throughout the summer. Another interesting example is a new venture established by a U.S. English teacher in partnership with a former Japanese manager at McDonalds to import bison meat into Japan.


Hokkaido Government

http://www.pref.hokkaido.jp/index-e.html


Invest in Hokkaido
http://www.pref.hokkaido.jp/keizai/kz-krkyt/index-e.html

Sightseeing information of Hokkaido

http://www.all-hokkaido.net/marugoto/english/index.shtml


Nothern Regions Center

http://www.nrc.or.jp/index_e.html


Kyoto: A city renowned for its rich cultural and tourism attractions, Kyoto is often considered the “soul of Japan”. It has been recognized by UNESCO as a World Heritage Center. Possessing traditional as well as high-tech industries, Kyoto prefecture covers 4,612 km2, with a population of 2,638,519 and a local GDP of ¥9.93 trillion. It possesses 48 universities, and the region has produced 7 of 12 Japanese Nobel Prize winners. Kyoto’s economy includes major companies as well as small and medium enterprises with advanced manufacturing skills. Kyoto’s unique combination of academic , research and industrial resources as well as the quality of life offered by its position as a center of Japanese history and culture, make it an ideal venue to base a technology-oriented business.

Resources include the Kansai Science City, which is expected to be a future base for world-class cutting-edge technologies. It is located at the intersection of the borders of Kyoto, Osaka and Nara Prefectures. In the City, 4,500 workers are now working within 74 top-level laboratories to develop new state-of-the-art technologies and products. The Bayer Yakuhin Research Center Kyoto, which pursues biotechnology-based R&D applications, is one of many tenants.

Kyoto is also one of the venture capital centers of Japan. There are many efforts being ma
de by private and public-sector entities to incubate new businesses and to establish an accumulation of IT-related industries that some analysts forecast could eventually rival Silicon Valley. Many firms are now being incubated at the Kyoto Research Park. It was established in 1987 as a 100% subsidiary of Osaka Gas. Co., Ltd. and now houses over 177 domestic and foreign companies and research facilities specializing in fields ranging from optics to pharmaceuticals to the Internet.

To enhance their capabilities, Kyoto-based firms are also reaching out to create international alliances and business relationships. One interesting example is a $30 million agreement that will allow Shimadzu Corp. a $1.6 billion company that provides measuring instruments and medical, aircraft and industrial equipment to market and distribute a SELDI-based protein mapping service created by LumiCyte Inc., a California-based biotechnology services firm. Another includes a global alliance between industrial automation market leaders Omron Corporation, and Rockwell Automation, of Milwaukee, WI, to help develop, adopt, and promote common technologies that improve the performance of industrial automation systems.

Kyoto Prefecture
http://www.pref.kyoto.jp/index_e.html

Kyoto Business Location Cyber Center
http://www.pref.kyoto.jp/sangyo/

Trade in Kyoto
http://www.pref.kyoto.jp/trade/english/outline2-en.html

Tourist Information about Kyoto
http://www.pref.kyoto.jp/trade/tourism/tourism.html

Kyoto Prefectural International Center
http://www.kpic.or.jp/english/index.html


Mie: A prefecture possessing two international resorts located within the central region for the Japanese automobile, semiconductor and liquid crystal industries. It covers 5,776.45 km2, and possesses a population of 1,862,539 and a regional GDP of ¥ 6.93 trillion. Mie possesses seven universities, including Mie University and Suzuka University of Medical Science, as well as 5 junior colleges and a port facility. To date, approximately 50 foreign-affiliated companies have been established in Mie. Two examples include Cabot Microelectronics Corporation and Borg Warner Morse TEC Inc. Mie also serves as the headquarters for UL Apex Co., Ltd., Japan’s strongest testing and certification agency. It was formed last April with the integration of Underwriter Laboratories, Inc., wholly-owned UL-Japan subsidiary and Apex International, which was also acquired by UL this year. In addition, since 1994, the Japanese headquarters for FairCom. Japan, a software research and development company, headquartered in Columbia, Missouri, has been located in Mie.

The prefecture has been emphasizing the development of four industries. These include information and communications, the environment, medical/health/welfare and marine services. Mie has announced specific goals and by FY2010 it hopes to increase the percentage of venture and other enterprises with advanced technology operating within the prefecture from 20 percent to 40 percent . They are also seeking to encourage experimentation and research, and to increase the number of high-standard industrial parks from one to four. Mie is also improving its traffic and communications infrastructure. It is also known for its pioneering work in CO2 emissions trading. Two projects currently under development are Crystal Valley, which will focus on the development of liquid crystal flat panel displays and the Medical Valley, which is seeking to develop international linkages and advance research in the biotechnology, pharmaceuticals and other health and medical fields.

Mie Prefectural Government
http://www.pref.mie.jp/ENGLISH/index.htm


Tourism information about Mie Prefecture
http://www.kankomie.or.jp/kanko/discover/

The Mie International Exchange Foundation
http://www.mief.or.jp/en/index.html


Shizuoka: Lies at the foot of Mt. Fuji, the symbol of the Japanese spirit. Shizuoka is located almost in the center of Japan. It covers 7,779 km2, with a population of 3,785,811 and a local GDP of ¥ 14.81 trillion. Situated within a 200 km radius of 40% and a 300 km radius of 70% of Japan’s population, 170 foreign enterprises (89 are American firms) and more than 50 large-scale manufacturers -- have chosen to locate in Shizuoka. They believe it to be an ideal distribution platform. Examples include Lands’ End Japan, Peugeot Japan, German underwear manufacturer Triumph International Japan, Ltd., U.S. lubricating oil manufacturer Oronite Japan Ltd. and H.B. Fuller Japan, a subsidiary of a U.S. firm that is among the five leading adhesive manufacturers in the world.

Japanese blue-chip companies such as Honda Motor Co., Ltd. and motorcycle maker Yamaha Motor Co, Ltd. also have their head offices in this area.

These companies are attracted by access to a new airport, as well as Shizuoka’s existing container port facility and general and medical universities. Shizuoka also offers dramatically low prices for land given its geographical proximity to three major metropolitan areas. In addition to offering a strong manufacturing and logistical platform, Shizuoka also possesses many technological strengths in areas such as optoelectronics, healthcare and medical services.

Shizuoka Prefecture
http://www.pref.shizuoka.jp/kikaku/ki-20/english/index.htm


Shizuoka Foreign Enterprise Development Guide
http://www.pref.shizuoka.jp/syoukou/eng/


Shizuoka International Business Association
http://www.siba.or.jp/einde/einde1.htm


Shizuoka Guide
http://www.shizuoka-guide.com/


The Shizuoka Association for International Relations (SIR)

http://www.sir.or.jp/english/index.asp

 

 
 

Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.

 
For additional information, please contact Satoshi Miyamoto, Executive Director of JETRO NY at Tel: 212-997-0416, Fax: 212-997-0464, E-mail: Satoshi_Miyamoto@jetro.go.jp

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