VZCZCXRO6752
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #3252/01 1640901
ZNR UUUUU ZZH
R 130901Z JUN 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 3164
INFO RUEHFK/AMCONSUL FUKUOKA 6705
RUEHNAG/AMCONSUL NAGOYA 6620
RUEHNH/AMCONSUL NAHA 9317
RUEHOK/AMCONSUL OSAKA KOBE 9939
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 TOKYO 003252 
 
SIPDIS 
 
SIPDIS 
 
PLEASE PASS TO USTR WENDY CUTLER & MICHAEL BEEMAN. COMMERCE 
PLEASE PASS TO JAPAN DESK/NICOLE MELCHER. 
 
E.O. 12958: N/A 
TAGS: ECON ETRD JA
SUBJECT: SHIZUOKA PREFECTURE EAGER TO HOST FOREIGN BUSINESS 
 
 ¶1. (SBU) Summary.  Shizuoka Prefecture, located between 
Tokyo and Nagoya is eager to attract foreign direct 
investment even as it confronts problems with its large 
population of foreign factory workers.  End Summary 
 
¶2. (SBU) Introduction.  Shizuoka will roll out the welcome 
mat for foreign investors.  That was the conclusion drawn 
from meetings with three local U.S. companies and two 
government entities.  In late May Econoff traveled with a 
Japanese assistant to the Shizuoka Prefecture to gain a 
broader perspective on the Shizuoka's economy and the 
prospects for foreign investment.  The U.S. companies we 
visited, all of which are invested heavily in the area, have 
been very satisfied with their results.  The key to the 
companies' success appears to be implementing Japanese-style 
business operations and maintaining good relations with the 
local community. 
 
Shizuoka - Lots to Offer 
------------------------ 
¶3. (SBU) Shizuoka is attractive to companies because of its 
convenient location in the center of Japan, close to both the 
Tokyo and Western Japan areas.  Both of its major cities, 
Shizuoka and Hamamatsu, are reachable in less than one and a 
half hours.  Among Japan's prefectures it ranks tenth in 
general population and GNP and has a large, well-educated 
employee pool.  The prefecture also enjoys a relatively mild 
climate with little snow.  Shizuoka is highly industrialized 
and has benefited enormously from manufacturing by Suzuki, 
Honda, and Yamaha and subcontractors for the Toyota group; 
the value of Shizuoka's manufactured goods is third highest 
in the nation, as is its annual per capita income.  In 
addition, Shizuoka University and other institutes of higher 
learning in the area have been a good source of scientists 
for research and development-the prefecture is known for its 
innovative spirit and its progressive R&D. 
 
¶4. (SBU) Shizuoka's expanding economy faces new challenges as 
Japan's fiscal health returns, however.  Government officials 
with whom we spoke fear an increasing number of factories may 
leave the prefecture in search of better locations for 
expansion.  As the economy has improved, finding new workers 
has become more difficult, causing some companies to venture 
outside the prefecture in search of better conditions.  Over 
360 of the companies based in Shizuoka have aggressively 
invested overseas.  More than 60% have a presence in Asia, 
primarily China and Thailand, and 15% have built facilities 
in North America.  Statistics show that these companies are 
in search of new markets and cheaper labor.  At the same 
time, the prefecture has been actively courting foreign 
investment, and boasted the largest number of foreign 
investment (81 cases) nationwide in 2004, which was 
accomplished through a series of grants, subsidies and 
preferential tax treatment, as well as seminars in Tokyo to 
present Shizuoka as an attractive location for foreign 
investment.  Shizuoka is also trying to diversify its economy 
into new industries, such as pharmaceuticals, healthcare, 
optics and electronics, and chemicals. 
 
¶5. (SBU) Asked about the effect of the possible revision of 
the Three Town-Planning Laws ("Machidukuri sanpo") on the 
prefecture, Hisayuki Masuda, director of the prefecture's 
Business Development Office, said consumers might benefit 
from large retail stores, but their existence deprived local 
shopping areas near city centers of their customer base.  His 
impression was that local government had difficulty 
determining what was best for communities.  He was skeptical 
about whether senior citizens would continue to drive to 
large retail stores out in the suburbs and pondered whether 
consumer purchasing habits might change. 
 
¶6. (SBU) Masuda also noted that the most effective special 
zone districts (tokkus) in Shizuoka were those that that had 
speeded up the immigration process for foreign scientists 
destined for research activities in Shizuoka.  In addition, 
the government hopes the Second Tomei Expressway will bring 
to Shizuoka new business worth an annual 1.5 trillion yen. 
 
Corning's Success: Blending In With Its Environs 
--------------------------------------------- --- 
¶7. (SBU) Corning Japan's Shizuoka factory has been highly 
successful since its completion in 1989.  The company is 
famous for innovations ranging from optical fiber technology 
to window materials for space shuttles, but the plant near 
 
TOKYO 00003252  002 OF 004 
 
 
Kakegawa manufactures glass substrates for liquid crystal 
displays (LCDs) used in televisions and computer monitors. 
Corning chose Shizuoka because the location keeps the company 
relatively near its customers in Osaka, Tokyo and Niigata. 
Similar to Corning's factory in Corning, New York, this 
factory is not located in a large urban area but rather out 
in the country, which is a Corning tradition. 
 
¶8. (SBU) Corning has constantly expanded the factory in 
proportion to the requirements of its customers and is on the 
verge of completing a new construction line within the 
factory premises.  Just outside the factory are paddy fields, 
a school and several houses, all signs that reflect the 
company's constant efforts to maintain the environment; they 
have succeeded in keeping their water pollution and gas 
emission figures lower than the local requirements.  As 
further testament to Corning's good neighborliness, 
Operations Manager Vaughn Hall told us that during past 
expansions of the site neighbors had sold the company their 
houses and then proceeded to buy property and build a new 
house directly across the street from the plant.  In 
constructing the Shizuoka factory, the company received not 
only financial support from the local government, but also 
re-zoning assistance and support in negotiations to purchase 
land for the factory, a very tricky and cumbersome process. 
Hall noted, however, that the government financial support 
was available to the company only one time. 
 
¶9. (SBU) Corning's factory, which has around 780 workers, is 
one of the largest employers in the area.  New graduates 
consist of college and high schools graduates as well as 
post-graduate students.  Corning diversifies its labor force 
by hiring some Brazilians of Japanese descent as contract 
workers and permanent workers and by encouraging female 
workers to return to the workplace after their child-care 
leave.  The only economic downturn the company has 
experienced so far occurred during the 1997-98 Asian 
financial crisis.  Asked to comment on the Second Tomei 
Expressway, Plant Manager Takashi Sakurai responded that he 
believes the road will do little to solve traffic problems 
because the bottleneck in Kanagawa Prefecture remains 
unresolved.  The company also does not expect to make much 
use of the new Shizuoka Airport because it is already 
comfortable using the Kansai Airport in Osaka. The only 
complaint the company voiced was that tax rates were too high. 
 
NSK Warner A Welcome Addition To the Prefecture 
--------------------------------------------- -- 
¶10. (SBU) NSK-Warner has been in the Shizuoka Prefecture for 
over 40 years.  The company is a joint operation between NSK, 
Ltd., a leading company for ball bearings with factories in 
China, East Asia, U.S, Europe, and Brazil, and BorgWarner, a 
U.S. company headquartered in Chicago that manufactures 
automobile engines, automatic transmission, clutches and 
other components.  The subsidiary was first established in 
1965 when BorgWarner wanted to penetrate the Japanese market 
with its automatic transmission technology.  It teamed up 
with NSK Ltd., then Japan's largest bearing maker, because 
NSK offered an extensive automobile industry network. 
 
¶11. (SBU) Originally located in Kanagawa Prefecture, NSK 
Warner decided 18 years ago to build a larger factory in 
Shizuoka for four reasons: its ideal location close to 
customers in Nagoya and Shizuoka; good access to the Osaka 
and Tokyo via the First Tomei Expressway; a good labor pool 
of skilled engineers; and the enthusiastic reception the 
company received from the Shizuoka government, which 
supported them in negotiations with landowners to buy real 
estate for the factory.  The prefecture did not offer the 
company any preferential tax treatment or grants, however. 
 
¶12. (SBU) NSK Warner, the region's largest taxpayer has a 
workforce that is 95% local.  The average age is a very young 
35 due to the fact that the company only moved to the area in 
¶1989.  The company thus expects that for 25-30 years it will 
avoid problems associated with the demographic shift in the 
labor pool.  NSK Warner prefers to hire permanent employees; 
only 10% are contract workers.  The company claims it would 
like to hire more female employees but the industry does not 
appeal to women because they have to get dirty.  Seventy 
percent of its workforce have high school degrees while 20% 
are college graduates and 10% hold advance degrees.  The 
factory itself is 100% automated; employees primarily drive 
forklifts, guide processes, etc.  As for foreign workers, the 
 
TOKYO 00003252  003 OF 004 
 
 
company has very few: two Chinese and a Nepalese in R&D. 
Asked about community outreach, we were told that NSK Warner 
had made a large contribution toward the building of a new 
railroad station nearby but most of its employees continue to 
drive to work.  The company also sponsors a yearly festival 
to which the neighbors are invited. 
 
Nippon Sherwood Courted By Local Government 
------------------------------------------- 
¶13. (SBU) Nippon Sherwood started out as a joint operation 
between the U.S. company Brunswick and the Japanese company 
Mitsui & Co. Ltd.  The shares owned by Brunswick were sold to 
American Home Products and then acquired by Tyco 
International Inc. in 1998.  Nippon Bussan, which had earlier 
bought Mitsui & Co's 50% stake, sold it to Tyco in 2002, 
making the company a 100% subsidiary of Tyco, which also has 
an office in Japan. 
 
¶14. (SBU) The local city government of Fukuroi approached 
Nippon Sherwood about building a factory in the area in the 
early 1970s and supported the company's negotiations with 
landowners.  Nippon Sherwood finds Shizuoka Prefecture to be 
very convenient for transportation to both the western and 
eastern Japan, and the mild climate, abundant water, large 
labor pool, and heavy industrialization also make it very 
attractive.  When the company first built its factory, wage 
costs were much lower due to the strong dollar, so products 
were for domestic use only; it was too expensive to export 
them.  Today the factory churns out over 100 different 
products, all of which are one-time-use, and they continue to 
be for domestic consumption only because of the high cost of 
exporting them.  The company complained that it is unable to 
increase its sales on a purely monetary basis because the 
reimbursement pricing system requires reimbursements to 
decline 2% each year. 
 
¶15. (SBU) Nippon Sherwood enjoys strong employee loyalty with 
turnover of less than one percent.  Twenty percent of its 
employees are college-educated while the remaining 80 percent 
hold high school diplomas.  The factory employs 370 people 
including 30 in R&D; about 140, or 40 percent, of whom are 
women.  Most female workers are contract workers who return 
to work part-time once their children have reached school 
age.  The women are treated the same as regular workers in 
that they receive annual wage increases but they have a 
yearly renewable contract, which breaks the connection to the 
labor union. The company is unenthusiastic about employing 
Brazilian workers of Japanese decent because it requires its 
employees to have Japanese language reading ability.  The 
company is interested in the construction of the Second Tomei 
Expressway, but has no enthusiasm for the Shizuoka Airport 
because it ships many of its components to Thailand, Taiwan, 
and Vietnam for assembly. 
 
Hamamatsu a Test Case of Japanese Immigration Policy 
--------------------------------------------- ------- 
¶16. (SBU) Hidehiro Imanaka, director of the International 
Relations Division for the city of Hamamatsu, told us that 
the area has had a reputation for highly effective engineers 
since the Second World War.  Airplanes used to be 
manufactured in Hamamatsu, making it a target for U.S. air 
raids.  Industry also has a close association with the local 
Shizuoka University, making it a center for highly innovative 
new technologies.  Yamaha, Suzuki and Honda are just some of 
the companies with factories in the Hamamatsu region. 
 
¶17. (SBU) Imanaka told us that the need for foreign workers 
has increased because of Japan's aging population and the 
tendency among young workers to dislike factory work due to 
the long hours in an unclean environment.  At this point, 
Hamamatsu would not survive without its foreign workers, of 
which around half are Brazilians of Japanese descent, 
followed by Filipinos and Peruvians.  The number of 
immigrants increased dramatically after the revision of the 
immigration control law in 2001, which made it possible for 
Japanese descendents to immigrate with relatively little 
regulation.  Nevertheless, social problems concerning these 
immigrants continue to crop up.   For example, a growing 
number of immigrant children neglect their education because 
they lack the Japanese, Spanish or Portuguese language skills 
to keep up with their studies and the Japanese government is 
not obliged to school them.  As a result, some children are 
left with little or no education in either language. 
 
 
TOKYO 00003252  004 OF 004 
 
 
¶18. (SBU) To address this problem, Peruvian and Bolivian - 
but not Brazilian - immigrants have established their own 
schools in Hamamatsu, which are classified as "miscellaneous" 
as opposed to "religious" by the government to make them 
eligible for government financial support.  The schools only 
offer eight years of classes, however, one year shy of the 
Japanese system's nine years.  In order for the students to 
be eligible for university study in Japan, they must spend a 
ninth year in a Japanese school.  In addition, a high 
percentage of immigrants do not enroll in the national health 
insurance and pension programs-and the factories also do not 
contribute.  Hamamatsu City has been working to address these 
issues and will be a role model for other cities facing the 
same problems if the central government further relaxes 
regulations on foreign immigrants as part of the solution 
addressing the shrinking workforce in an aging society. 
Imanaka called on the central government to produce a 
national immigration policy instead of leaving local 
municipal governments to solve each problem as it arises.  He 
noted that given the EPA/FTA negotiations with the 
Philippines and Thailand, for example, it would be best for 
the government to prepare for the influx of immigrants that 
likely will occur. 
 
Comment 
------- 
¶19. (SBU) Based on our observations and conversations with 
the three U.S. companies, the key to their success in 
Shizuoka is that despite their U.S. ownership, they all look 
and feel like Japanese companies.  During our Corning visit, 
for example, Plant Manager Sakurai stressed that his Japanese 
face had been a very important factor in establishing the 
company in the local community.  We also witnessed highly 
traditional work cultures including employees wearing company 
uniforms.  At Corning, we heard a 10 minute warning bell 
during the 12:00-1:00 lunch hour.  The meeting with Shizuoka 
government officials was very positive and the government 
officials were clearly enthusiastic about Shizuoka's 
prospects and its relative attractiveness compared to other 
prefectures.  Koji Terao, General Manager of the Shizuoka 
International Business Association, gave us a copy of a 
brochure prepared by his office to attract foreign investment 
to Shizuoka.  The officials also were interested in the 
meetings we had held with private companies the day before 
and were proud that Shizuoka offered a warm welcome to 
foreign investment. 
SCHIEFFER