Niigata: Japan's North Asia hub: language difficulties, intense competition and productivity, political instability and poor infrastructure have all made finding a suitable base to service the markets of North Asia a daunting challenge for foreign companies.

FOR FOREIGN BUSINESSES IN North Asia, the conventional compromise for establishing a locus of operations has been Tokyo or Seoul, despite the exorbitant costs of setting up in either location.

However, there is another choice, and one that you may not have considered--Niigata Prefecture. Serviced by a world-class infrastructure and facilities for both sea and air, the prefecture of Niigata is centered in the middle of the North Asia trading region, only two hours' flight from Seoul, Korea, 1 hour and 45 minutes from Harbin, China, and 2 hours by Shinkansen from Tokyo. Niigata is also just a 3 or 4 hour drive from Osaka and Nagoya.

Setting up in Niigata is not just about location, of course. Finances and operations are crucial. Niigata Prefecture, along with the local city government, understands the costs and difficulties of a company CEO choosing a regional location over one of the major urban centers such as Tokyo or Osaka. On a purely financial plane, Niigata offers excellent incentive packages, including low interest loans, extensive subsidies and tax breaks at the prefectural and local metropolitan levels. Furthermore, the costs of both land and labor are an average 30 to 40 percent and 10 to 15 percent, respectively, cheaper than they are in major centers such as Tokyo. On an operations plane, Niigata is extremely well serviced in terms of utilities--including power and industrial water supplies, as well as excellent port facilities and road/air access.

History

Niigata Prefecture and Niigata both have rich histories as trading ports. After the Meiji Restoration, in 1868, Niigata City became one of only five licensed ports in the country--resulting from the long experience the port had in handling imports in North Asia. Since then, Niigata has become one of Japan's leading sea ports, handling nearly 1.5 million tons and 114,301 containers in 2002. Urban Niigata officially became a city in 1889, and went on to become the capital of the region. Today Niigata is recognized by the Central Government in Tokyo as a "Core Urban City," increasing the city's independence to decide its own regulations and direction.

Geography

The capital of Niigata Prefecture is Niigata City, which covers 231.9 km sq. and has a population of 530,000. Although the city is located to the north of Tokyo, it lies on the same latitude as San Francisco, Tianjin and Lisbon, and has similar weather conditions. Niigata city can be reached from Tokyo (300 km to the southeast) in 1 hour and 40 minutes via the Joetsu Shinkansen, or in 3 hours and 30 minutes by car via the Kanetsu Expressway. Other major cities in the region include the port of Joetsu, the knitwear center of Japan; Gosen, the metal kitchenware center; Tsubame and other growing cities with their own industrial parks.

Infrastructure and Access

A key feature to consider with Niigata is its accessibility. Both the prefecture and the city of Niigata have excellent roads, railways (Shinkansen) and airports. The international airport is already equipped with a 2,500 meter runway, long enough for a Jumbo jet, and is planning a 3,000 meter expansion in the future. Flights leave regularly for Seoul in South Korea; Shanghai, Xi'an and Harbin in China; Guam and Honolulu; and Khabarovsk, Vladivostok and Irkustsk in Russia. The port of Niigata also has a regular container service to Pusan in South Korea, Shanghai, Dalian and Hong Kong in China, Taiwan, Singapore and the Russian city of Nakhoda.

Attractive Land Prices

The Niigata Prefectural government is now working to move Niigata forward from traditional industries to manufacturing and high technology. A major aspect of this development has been the creation of industrial parks and supporting infrastructure. Effort has also been made to improve the education level and retention of young graduates coming out of the region's universities. The industrial parks are located in carefully selected areas, where the land is suitable for supporting large structures. There is sufficient water in industrial quantities, full electrical and sewage facilities and a large working population. Land sells for as little as [yen] 16,700/[m.sup.2]--[yen] 29,700/[m.sup.2], or can be leased for between [yen] 382/[m.sup.2]--501/[m.sup.2] per year.

Servicing the many needs of businesses operating in Niigata, including those arriving at the industrial parks, is the new "Toki Messe" convention center (above). The Messe will be a command post for nonprofit companies, the local government, chambers of commerce, a passport center and an international conference center. Private companies are of course welcome.

Workforce

Starting salaries are 10 percent lower than in Tokyo and Osaka across the board, with female graduates from a two-year college receiving on average [yen] 1.58 million per year, making them suitable hires cost-wise for call center operations. In fact, it was the lower salary costs combined with incentives such as office rent subsidies of 50 percent (with an additional 10 percent of office establishment expenses for IT-related ventures) and a one-time employee subsidy of [yen] 300,000 per employee that brought the Fujitsu call center subsidiary, Corporate Software Ltd. (www.csl.co.jp), to Niigata in 2002. Manpower is available in abundance, with less than one-third of high school and university graduates being able to secure employment in their home towns, providing a substantial pool of labor for companies starting up in Niigata.

Niigata city is well serviced by tertiary education institutions, including 10 universities and two-year colleges (approximately 15,500 students) and 30 vocational colleges (approximately 11,500 students). To give some idea of the skill sets of newly hired people in the area, there were 43,300 new hires in 2000 alone. Of these, almost half, or 20,500, were employed in manufacturing. About 7 percent, or 3,450 people, were in engineering, with the remainder in administration, sales and services.

Incentives

Financial incentives for companies wishing to set up in Niigata vary from city to city, but generally consist of tax breaks, loans and subsidies from the central government, the Niigata prefectural government and the local municipal government.

For example, a company wanting to set up its facilities in the Niigata Prefecture Central industrial park would have the following incentives. Other industrial parks have similar or even more advantageous mixes of loans, subsidies and tax exemptions:

CENTRAL GOVERNMENT

* Reduced tax on surface area registration, after property purchase

PREFECTURAL GOVERNMENT

* Enterprise subsidies of up to [yen] 300 million

* High-technology subsidies of up to [yen] 1 billion (and, in special cases, an additional [yen] 500 million)

* R&D facilities subsidies: high-tech R&D facilities up to [yen] 200 million, other R&D facilities up to [yen] 100 million

* 1/4 of electricity charge subsidies for a period of eight years

* Capital loans of up to [yen] 500 million for new entrants to industrial parks

* Business relocation loans of up to [yen] 200 million (and in special cases, up to [yen] 500 million)

MITSUKE CITY

* 20 percent of land acquisition cost subsidies up to [yen] 150 million

* Immunity of fixed assets tax and city planning tax for a period of five years

* Exemption of special landholding tax

Business Support and Further Information

Companies interested in gaining more information about Niigata can contact the International Economy Office of the Niigata Prefectural Government (Email: [e-mail] Tel: [phone]).

As an aside, the Niigata Chamber of Commerce and Industry was established in July 1896, making it one of the oldest organizations of its type in Japan. The Chamber supplements the activities of the regional and local governments with such services as foreign trade data collection, consulting for small and medium-sized businesses and the initiation of joint projects between members.

In addition, Niigata Prefecture operates an English language Web site called the Niigata Business Net Plaza (www.niigata-bnp.com/e/), which seeks to connect local businesses with overseas customers and partners. Companies log their information on the Web site and the prefectural staff translates the information into English, Chinese and Korean--following up through prefectural offices in Seoul and Dalian to arrange international trade fairs and economic missions. Once located in Niigata, foreign capital companies are welcome to take advantage of services and facilities such as the Net Plaza Web site, just as if they were set up locally.

CASE STUDY: ALCOA WHEELS

A number of foreign companies have already chosen to set up operations in Niigata. Among these is a subsidiary of the world's largest aluminum producer, Alcoa. We talked to Alcoa Wheel Products Japan's former CEO, Mike Swain, to find out why the company chose Niigata.

JI: Can you give us some background on the company itself?

AW: Alcoa Wheel Products International is a $600 million Division of Alcoa, the aluminum conglomerate. We started out manufacturing forged aluminum wheels for the US trucking industry in the 40s. Due to deregulation in the industry, truck drivers were looking for an edge in lowering costs and found that aluminum wheels were lighter than steel, have better fatigue characteristics and lower maintenance, and also run truer, thus reducing tire were:

JI: Moving from steel to aluminum sounds logical. How long did it take for the majority of the industry to go that route?

AW: Actually, it took about 30 years in the US. However, in Europe and Australia, trucking firms were a lot quicker to see the advantages. In Australia the penetration of aluminum product is now almost 70 percent, of which our market share is quite high.

JI: When did you start operations in Japan and the region?

AW: We started doing business in Japan in the mid 80s, exporting to a distributor located here. Then, in 1992, we established a joint venture with TOPY Industries, the largest producer of wheels in Japan. In 1998 we decided to go independent and set up our own operation. Alcoa Wheel Products Japan Limited was established in August 2000.

JI: How did you get interested in Niigata?

AW: Before going independent, we realized our products, which are four to five times more expensive upfront than steel products, were perceived by truck producers as being foreign and possibly not of the same quality as locally made products. So we concluded that we needed to manufacture here in Japan--to prove our commitment to the market and improve our quality.

In 1999 we tried to acquire a Japanese wheel company. That didn't work out, but we learned a lot about doing business in Japan during the acquisition attempt. This made us confident that we could set tip our own operation in Japan. Another Alcoa business unit already had a small manufacturing operation in Niigata. We toured this site and we liked the region, so we decided to set up here.

JI: Were there any other factors involved in your selecting Joetsu in Niigata?

AW: Definitely. First, we were lucky enough to find an unused facility provided by Mitsubishi Chemical--who was already hosting the other Alcoa business unit at the same location--so we had a relationship. Mitsubishi Chemical used to operate an aluminum smelter at this site. This smelter was shut down in the early 80s due to high energy costs. So Mitsubishi Chemical set tip the Joetsu Techno Center industrial park on the site of the former aluminum smelting plant. This location has excellent infrastructure and is ideal for what we do.

JI: And what do you do? Are you forging wheels in Joetsu?

AW: No, we machine and polish unfinished wheel forgings, which we call 'cans.' These originally come from out" Hungary plant. The finishing process involves drilling, machining, polishing and packaging--which we do in Joetsu.

The shipment of forged cans from Hungary to Japan is another reason we chose Niigata. With the deep water port adjacent to the Joetsu Techno Center, the overall economics of shipping to Niigata are very favorable compared to other locations in Japan, such as Tokyo or Yokohama.

JI: Were port facilities part of the decision as well?

AW: Well, the port facilities are excellent all the way up and down the Japan Sea coastline, and we had a selection of several ports in Niigata alone. However, the deep water port at Joetsu is practically adjacent to the MCC Joetsu Techno Center site, so this works out quite well for us.

JI: What other advantages are to be had in Niigata?

AW: Lower power supply, tax and labor costs are some of the advantages that I can think of just offhand. Basically, if you don't need to be in Tokyo, Niigata is a good place to be located.

Editors' Note: Other companies active in Niigata include American 3B Scientific (USA), Rohm & Hass (USA), Akzo Nobel Chemical (Holland), Dresser Industries (USA), Air Ziquide International (USA), Loctite Corp. (USA) end ASM International (Holland).