The Journal The Authority on Global Business in Japan

An increasing number of foreign companies are discovering that they don’t need to be amid the bright lights and the hustle and bustle of Japan’s big cities to be successful in this market. As they have learned, there is a lot to be said for establishing offices and production facilities in parts of the country that others have dismissed as being too small, too rural, or too far away from urban centers.

And these companies—such as Teradyne Inc., which is now based north of Boston, MA—are reaping considerable rewards as a result.

“I believe we made the right decision to invest our resources in the Kumamoto region, because it has been good for the company, our employees, and the local society,” said Yuzo Motomura, manager of the Kumamoto production facility of Teradyne KK.

LOCAL ADVANTAGE
Founded in 1960 in central Boston, the company manufactures test equipment for semiconductors, including diodes and transistors, and set up a sales support office in Tokyo in 1973. Twelve years later, the Japanese market had become a critical component of its business and the company took the plunge, starting product development and manufacturing here.

“Teradyne was working closely with Japanese semi­conductor companies in Kyushu that were the leading suppliers of products for certain applications in the world,” Motomura said, as he listed the reasons for the company having chosen Kumamoto.

“There is a well-developed transportation infrastructure, with bullet trains and flights to other big cities in Japan,” he added, while also pointing out that the prefectural government has been a strong supporter of the company.

The local authority provided subsidies, applied a fixed asset tax deduction, and also came through with support when the production facilities were badly damaged by a major earthquake in 2016. Thanks in part to that help, the company opened its new building in January of this year.

“The language barrier was initially a hurdle—and remains so to a degree—but it is certainly improving as information technology advances, meaning that we have access to virtual meeting rooms, video chats, or sharing of documents on the computer network in real time rather than having to rely on analog phone calls or email,” Motomura said.

There are also several advantages in terms of the staff that the company has been able to employ, he added. The cost of living is significantly lower than in a big city, workers do not need to take a packed commuter train every morning, and local staff are able to stay in the area where they grew up.

ENGINEERING SUCCESS
Another long-term resident of one of Japan’s more far-flung cities is UL LLC, which was founded in Chicago in 1894 to test, inspect, audit, certify, validate, and verify products, materials, and systems. The safety consultant and certifier arrived in Japan in the early 1980s as more and more local companies were seeking the UL Mark to apply to their products for export.

The company’s Tokyo office was set up in 1993, and in 2003 UL acquired a leading Japanese testing and electromagnetic compatibility (EMC) measurement company in Ise, Mie Prefecture. Soon after, UL decided to move the headquarters functions to the Ise office, said Keita Shirafuji, head of com­mercial group marketing in the company’s Consumer Technology Division.

“Since UL is an engineering-focused company, our equipment and engineering expertise are our most important assets,” he said. “So, we took over the facilities and employees of the company that we acquired to minimize the capital investment and leverage the knowledge and expertise of the staff.”

And, given Ise’s location four hours from Tokyo, two hours from Osaka, and 90 minutes from Nagoya, “the geographical location is advantageous for covering our customers all over Japan,” Shirafuji noted.

UL now has laboratories and facilities in Kanagawa, Chiba, and Aichi Prefectures. Shirafuji points to lower running costs and easier expansion due to lower land prices, rents, and taxes than in urban areas as key considerations.

“By setting up the Automotive Technology Center in the town of Miyoshi, in Aichi Prefecture, we are close to our customers and have been able to listen directly to voices that we previously have not been able to hear,” he said. “By coming closer to our customers, we have been able to get better feedback because we can use our laboratories for testing with the customer and to get face-to-face consultations.”

Teradyne’s UltraFLEX test system for system-on-a-chip devices

MARKET MATCH
A more recent arrival in Japan has been Space-Time Engi­neering LLC, which set up its Japan subsidiary in April 2008, less than one year after the parent company was founded in Los Angeles. The company develops evaluation simulation software for wireless communications systems and set up a base in the town of Minami, Tokushima Prefecture, to complement its head office in Tokyo.

“We entered the Japanese market because there was a clear need for our products and there were clear prospects for success,” said Takao Moriya, chief executive officer of Space-Time Engineering Japan.

“There are two major reasons why we did not expand in urban areas,” Moriya told The ACCJ Journal. “The first concerns securing human resources. Competition for recruits is intense in cities such as Tokyo, where there are a lot of companies in a small area. But in Tokushima, our company has become well-known through our activities, and that has helped us to employ capable staff.”

The second reason for the decision to operate an office in a city with a mere 7,000 residents is that the region is at a relatively higher risk of natural disasters, making it a close fit with the company’s business aims.

Transport links mean it is still relatively easy to travel to Tokyo or other major cities, while the company feels it is witnessing firsthand the problems associated with the declining population in Japan’s rural regions and, as a result, may be able to help develop solutions.

PRODUCTIVITY BOOST
Salesforce set up its initial sales office in Tokyo in 2000, less than a year after the opening of its San Francisco head­quarters, as it was clear to the company that Japan was going to be an important part of its business. A global leader in customer relationship management through advanced information technologies, Salesforce now has five offices in Japan. Four are located in major cities—Tokyo, Osaka, Nagoya, and Fukuoka—and a satellite office was opened in 2015 in Shirahama, Wakayama Prefecture.

“We wanted to take part in the Hometown Telework Promotion Project that had been initiated by the Ministry of Internal Affairs and Communications,” said Takao Yoshino, who heads the Shirahama office. “We chose this location for many reasons: its proximity to infrastructure, including the airport, support from the local government, and the scenery.

“The office is located in a resort area in the south of Wakayama Prefecture, and we are using it as a case study into workforce productivity, work–life balance, and cloud-based working styles through teleworking,” he said.

The results so far have been eye-catching, Yoshino said. Thanks to more time away from the office, less mental pressure, and a more relaxed and enjoyable working culture, the figures show a 20-percent increase in productivity compared with the Tokyo office. And employees say they are motivated to work.

FINDING BALANCE
There has been a positive impact on the local community as well, with Salesforce helping to train some 400 students at local schools in computer skills and coding.

Yoshino said the move to Shirahama has had a deeply positive impact on both his professional and personal life, while the company is winning accolades for promoting new workstyles.

And that is precisely what the government is hoping to encourage among foreign companies that either want to start doing business in Japan or expand their existing presence in this market.

“I think that overseas companies tend to set up in Tokyo first because it is the heart of Japan’s business world. There are already a lot of multinational corporations here and it’s what they know,” said Matt Stephens of the Invest Japan Business Support Center at the Japan External Trade Organization (JETRO).

“But a part of the Japanese government’s intention has been to create jobs, to bring about innovation, to generate tax revenue for the regions, and to encourage economic rejuvenation out­side the traditional metropolises.”

The task of Stephens’s division is to show companies just what is available and to work with them to find the perfect fit in terms of location, access, facilities, local workforce, and the support available from the district government.

And that sort of inside knowledge—along with assistance on everything from cost simulations to tax and legal regulations, introductions to potential partners, and smoothing the paper­work with regulators and ministries—has paid off. Since JETRO’s Invest Japan program was introduced in 2003, it has supported more than 1,800 projects that have led to direct invest­ment in Japan, with US companies accounting for about 30 percent of that total.

Julian Ryall is Japan correspondent for The Daily Telegraph.