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Beyond Tokyo: The Hidden Strengths of Japan's Regions

The greater Tokyo area is both the largest concentration of humanity on the planet, with around 42 million residents, and its biggest metropolitan economy, with a GDP of approximately $2 trillion. It is then perhaps unsurprising that when businesspeople think of Japan, they think largely in terms of its sprawling megalopolis of a capital, and then perhaps Osaka. But to do so is to overlook the vast potential of what lies beyond.

Indeed, some of Japan's best-known global companies hail from its regions and remain headquartered there. Toyota is based in the city that now bears its name in Aichi Prefecture, near Nagoya, in the central Chubu region, an area that boasts a GDP larger than Switzerland's. Video game giant Nintendo is fiercely proud of its roots in the ancient capital of Kyoto, while the head office of Fast Retailing, owner of the Uniqlo clothing retail empire, is still in Yamaguchi Prefecture, southwest of Hiroshima.

“As the Japanese economy continues to become more open, foreign direct investment (FDI) has grown in parallel”

As the Japanese economy continues to become more open, foreign direct investment (FDI) has grown in parallel, with FDI stock hitting a record $257.3 billion in 2017, with half of that coming from Europe. However, much of it is still concentrated in Tokyo and Osaka. There are though a multitude of reasons to look further afield.

It has taken decades for Japan to shake its image as an expensive place to live, work and do business, but even Tokyo no longer makes the top 10 list of priciest cities in The Economist Intelligence Unit's annual Worldwide Cost of Living survey. And inevitably, rents, wages and prices overall are significantly lower outside the main urban centres. Local governments are also increasing efforts and measures to attract foreign investment. And the advantages don't end there. Quality of life in Japan's regions is enhanced by rich local culture, cuisine and abundant natural beauty, including mountains, forests and beaches.

Japan's transport network of Shinkansen bullet trains, extensive motorways and around 100 airports make most of the country easily accessible. In addition, advanced, nationwide logistics, communications and energy infrastructures mean that business can be done almost anywhere. Meanwhile, the appeal of a highly educated and diligent workforce, coupled with excellent technical skills in many areas, should be clear to employers everywhere.

In the Chubu region of Japan in Gifu Prefecture lies Seki City, a place that has been a centre of traditional Japanese sword-making for more than 700 years. The centuries of knowledge and craftsmanship that go into creating what are widely regarded as the finest bladed weapons in history are also employed in making knives for culinary purposes. And Seki, just an hour from Nagoya, is the location of one of the most successful collaborations between a European company and Japanese traditional artisanship.

Zwilling office
Left: Zwilling J. A. Henckels office
Middle: Andrew Hankinson, Senior Managing Director at Zwilling J.A. Henckels Japan Ltd.
Right: Zwilling knife

Zwilling J. A. Henckels, a manufacturer of knives and other kitchenware from Germany, has a history that dates back to 1731. The company exhibited at the Expo '70 world fair in Osaka, and while looking for high quality knife-making techniques, discovered Seki City. Zwilling went on to establish a factory in 2004 and now 90% of the knives it sells in Japan are made in Seki.

The company combined the best in German engineering processes with the finest traditional skills from regional Japan, resulting in the very highest quality knives. Its Miyabi range of knives utilise the depth of local knowhow and skills to produce blades renowned as being some of the sharpest in the world.

"Seki City already had a long history in manufacturing blades, and each employee had excellent technical skills. However, although they produced high quality products, each worker had a different way of manufacturing and so there was a problem of consistency," explains Andrew Hankinson, Senior Managing Director at Zwilling J.A. Henckels Japan Ltd. "To deal with this, the latest knowhow from Germany, in terms of quality control, materials and automation for blade manufacturing, was introduced. And through effective management, a unique 'stable high-quality knife manufacturing' system was successfully established."

The reputation of Zwilling knives, made in Seki, Japan, has spread around the globe and they are acclaimed by the world-renowned French culinary school Le Cordon Bleu. The current global boom in Japanese cuisine is helping to spread their fame even wider and sales to Europe and America continue to rise.

The combined region of Hokkaido and Tohoku (northeast) has a GDP of approximately $543.7 billion, larger than that of Belgium. The region is also home to the three largest prefectures in Japan: Hokkaido, Iwate and Fukushima. Bigger than some of Europe's smaller countries, Fukushima Prefecture is taking steps to attract foreign investment, particularly in three key industries: medicine, renewable energy and robots.

In addition to the Fukushima City Industry Exchange Plaza, which facilitates cooperation between businesses and academia-industry collaboration, the prefecture is offering subsidies of up to half a million dollars over two years for companies setting up new operations. Subsidies are available for investment in facilities, medical device R&D, overseas' expansion and to attract foreign investment. The aim is to create a mutually beneficial business landscape for global businesses and the region that will also help facilitate the long-term recovery from the Great East Japan Earthquake of March 2011.

Fukushima is working to actively promote the medical device industry in the prefecture and has formed a regional tie-up program with Germany's North Rhine-Westphalia, home to a number of medical-related device companies. Fukushima-based companies have also participated in exhibitions in Germany in order to form ties with local firms. In June 2017, Fukushima also signed a memorandum of understanding with Thailand to foster greater cooperation, development of both of their medical device industries and to expand sales in the ASEAN region.

AT-OS washer-disinfector machine

Furthermore, Fukushima is home to a number of academic and research institutions in the field of medicine. A cluster of Japanese medical equipment manufacturers has been formed to support high-standard treatments and studies at these institutions and overseas companies, such as Johnson and Johnson of the United States and Novo Nordisk of Denmark, also have its branches in the cluster.

Fukushima has been focussing on developing the sector for more than a decade and the prefecture is now a hub for medical device production, a field that tends to be stable even during times of economic uncertainty. As well as being easy to import components for devices, there are a number of small and medium parts makers utilising the technical skills of employees who previously in other industries.

The latest addition to the roster is AT-OS Japan in Koriyama City, accessible in 1.5 hours by bullet train from Tokyo. AT-OS Japan is a joint venture combining the high quality techniques of Japanese manufacturing with the strength of Italian design. The new venture, between NITI-ON of Chiba Prefecture and Verona-headquartered AT-OS, will manufacture a line of washer-disinfector machines for bedpans in Koriyama.

AT-OS had long considered entering the Japanese market and eyed at Fukushima as the candidate to open its branch because of the access to the medical cluster. " Last year, the prefecture launched a subsidiary programme for companies opening operations in Fukushima. We finally realize our dream. We are planning to open a factory in the prefecture and start exporting to other countries, including the United States," says Paolo Lorenzini, head of AT-OS Japan.

Niseko Hilton
Hilton Niseko Village
Niseko Westin
The Westin Rusutsu Resort

The mountains of the Niseko area on Japan's northern island of Hokkaido have been attracting increasing numbers of visitors from overseas in recent decades due to the powder snow that many winter sports' enthusiasts rate as the best in the world. The expansive ski fields of Niseko area steadily became a favourite destination for Australians, and in 2004 an Australian company made an investment in one of its resorts. The area has since also become popular with visitors from Asia, America and Europe, with international, high-end hotels opening to meet the rising demand, including the Hilton Niseko Village in 2008.

And more capacity is set to come online, with The Ritz-Carlton due to open within the next few years. Another luxury development, Park Hyatt Niseko Hanazono, is set to begin welcoming guests to its hotel at the end of next year. In addition to the hotel, 100 privately-owned Park Hyatt Niseko Hanazono Residences are due to open in 2020, having recently gone on sale.

The growth in luxury hotels is not confined to Niseko. In nearby Rusutsu, about 25 minutes away by road, The Westin Rusutsu Resort, operated by America's Marriott International group, opened in 2015.

These high-end developments bring the best in international-standard service and facilities to the area, increasing its appeal to wealthy clientele from Japan and around the world. Although Niseko and its environs have gained fame thanks to its exceptional snow, the spectacular surrounding nature and cooler temperatures than the rest of Japan mean it is also an ideal summer destination, with cycling, golf, hiking, canoeing, and more available.

As many of the hotels have large function rooms or banquet halls, a growth in large-scale MICE (meetings, incentives, conferences and exhibitions) tourism is also being targeted.

In addition to hotel facilities, the booming local economy offers opportunities for a range of other ventures, including leisure activity and tour companies, estate agents, property developers and management companies, travel agents and service companies. The rapid increase in foreign visitors will also grow the need for other services, including medical care. Niseko now has a clinic with a multi-lingual foreign doctor and chances for overseas' companies to create new ventures is only set to grow.

Nearly 400,000 overseas visitors stayed in the Kutchan district of Niseko alone last year. The rise in overseas visitors has brought with it an increase in foreign staff at the local hotels, resorts, ski shops, restaurants and bars; Kutchan now has the third-highest proportion of foreign residents of any district in Japan. The internationalization of the area is one of the reasons it has been chosen as the venue for the tourism ministers' meeting of the G20 Summit to be held in October 2019.

As Japan experiences a record-breaking inbound tourism boom, the number of repeat visitors is increasing and the appeal of regional destinations beyond the major cities is on the rise. The wide range of available activities in the Niseko area along with its growing international popularity, provide an environment ripe for further new investment and business ventures.

Collaborations of the kind now happening in the cities of Seki and Koriyama, bringing together the technical skills and manufacturing knowhow of Japan with fresh ideas and input from around the globe have the potential to give birth to innovation and new business opportunities. Meanwhile, the exceptional natural attributes of the Niseko area offer the backdrop for international investment from the tourism and leisure sectors.

Japan's regions offer a host of advantages for companies to leverage in creating new ventures and are increasingly keen to attract them. In addition to an open business environment, superb quality of life and a dedicated, skilled workforce, the regions offer direct access to the world's third-largest economy and proximity to the fast-growing Asian markets beyond.

There are hidden strengths in the regional areas of Japan that have the potential to deliver fresh business opportunities to those willing to go out and grasp them.