People in Kikuyo have a term to encapsulate a recent era of traffic jams, skyrocketing property prices and battles for workers: “the TSMC shock”.
The small Japanese town and its economy have been radically transformed since Taiwan Semiconductor Manufacturing Company began construction of its first factory in Japan five months ago.
“TSMC’s arrival was a bolt from the blue,” Takatoshi Yoshimoto, Kikuyo’s mayor, said in an interview at his office. “We immediately became famous, and it was as if Kikuyo suddenly became an adult from a baby.”
Kikuyo and the encompassing prefecture of Kumamoto, on Japan’s western island of Kyushu, at the moment are heavily tied to the country’s bid to revive its fame as a world hub for chip manufacturing, because the world seeks diversified semiconductor supplies to mitigate rising geopolitical risks.
The changes in Kumamoto also offer a microcosm of the broader challenges for Asia’s most advanced economy after a protracted period of stagnant growth and worker wages. From a severe labour shortage to infrastructure constraints, TSMC’s arrival is forcing Japan to confront problems which were simmering for years.
“We call it the TSMC shock, but I feel it is a huge opportunity to vary the structure of Japanese society and economy,” said Kazufumi Onishi, mayor of town of Kumamoto. “To place it one other way, we’d like this type of shock to vary.”
Staff at the development site of Taiwan Semiconductor Manufacturing Company’s factory in Kikuyo, Japan © Toru Hanai/Bloomberg
Kumamoto is already home to dozens of Japanese chip factories — Kikuyo, a town of about 44,000 people surrounded by cornfields, has plants making image sensors for Sony and chip equipment for Tokyo Electron. But TSMC’s arrival is of a distinct magnitude.
It signals one other phase of the boom-and-bust cycle in Japan’s semiconductor industry, whose firms rose to dominance within the Eighties before ceding their edge to rivals in South Korea, Taiwan and eventually China.
To make sure a stable chip supply, the Japanese government offered $3.2bn in subsidies to cover about half of the development costs for TSMC, the world’s largest contract chipmaker.
Its arrival presented “a once-in-a-lifetime opportunity” to revive the region as a world semiconductor hub, Onishi said.
In accordance with Kyushu Financial Group, a regional lender, TSMC’s foray into Kumamoto is predicted to generate a ¥4.29tn ($29bn) boost to the local economy over the following decade through job creation, infrastructure development and drawing other firms to the realm.
But additionally it is posing problems for the local economy.
TSMC’s foray into Kumamoto is predicted to generate a ¥4.29tn ($29bn) boost to the local economy over the following decade © Soichiro Koriyama/Bloomberg
TSMC posted job adverts within the spring for engineers, offering monthly wages roughly a 3rd higher than the typical for faculty graduates at local manufacturing firms. Its plant in Kumamoto is predicted to create 1,700 high-tech skilled jobs.
TSMC said salaries were benchmarked against those at similar technology firms to be competitive, adding that it was confident Japan would offer “outstanding recruits”.
But for local businesses, the sudden boost in wages sparked by TSMC has accelerated a trend for younger employees to change jobs more incessantly to hunt higher pay and higher working conditions amid a shortage of employees.
Minimum wages in Kumamoto are among the many lowest in Japan, and about 40 per cent of its highschool graduates seek jobs elsewhere.
Kongo, a Kumamoto-based manufacturer of storage systems, has lost about 5 per cent of its 300 employees over the past yr, some to TSMC and other semiconductor-related firms.
“It’s easy in charge TSMC when our employees change jobs,” said Toshihiko Tanaka, chief executive of Kongo, who can also be chair of the Kumamoto Industrial Federation. “However the movement of employees is an inevitable trend . . . and we’d like to vary our mindset to give attention to how we are able to raise the performance of every individual as our workforce shrinks.”
Japan, Tanaka said, needed to learn to do with 80 employees what used to take 100.
Still, some business leaders said there was a limit to firms’ ability to handle labour shortages with increased productivity and more automation.
Japan Material, based in Mie prefecture, is a maintenance service provider that TSMC incessantly uses for its plants. Despite the corporate’s experience, chief executive Hisao Tanaka said the challenge to secure people in Kumamoto was daunting.
Many staff must pass an exam and get an expert licence for the work needed at TSMC. A 30-minute procedure for Japan Material to switch a single gas cylinder at TSMC’s plant requires three licensed employees — and the corporate expects to switch as many as 8,000 cylinders a month. It also needs licensed staff for 24-hour water maintenance work.
Japan can also be revising labour rules next yr to limit time beyond regulation for truck drivers, so Japan Material will need more drivers to deliver the identical variety of products to TSMC. It plans to move a number of the gas cylinders by train.
“You may construct a semiconductor plant if the federal government provides money, but what do you do with the people needed for its operations?” Tanaka said.
Japan Material chief executive Hisao Tanaka said securing people to do the work in Kumamoto was difficult © Handout/Japan Material
Japan Material is negotiating to take over a whole bunch of staff at Japanese semiconductor-related firms which might be expected to shut down unprofitable businesses next yr. Through such measures, Tanaka hopes to secure about 300 employees to support TSMC.
“For those who have a look at other firms, though, there are a lot of cases where they’re saying no to doing maintenance operations even for his or her existing clients who wish to boost production because there aren’t enough people,” Tanaka said. “It’s an unbelievable situation.”
By the point TSMC starts production in late 2024, an anticipated rebound in the worldwide semiconductor market is more likely to make finding employees even harder. In July there have been 1.3 open jobs for each applicant in Kumamoto. That ratio is projected to rise when a glut of chips is exhausted and semiconductor firms boost output.
Individuals with knowledge of the talks said TSMC was considering constructing several more fabs in Japan. The corporate said it was evaluating whether to construct a second fab but declined to comment further.
“By the tip of next yr it’s going to be a really tough situation and we expect labour shortage to turn out to be a everlasting situation in Kumamoto,” said Mineo Nitta, director-general of the prefecture’s labour bureau.
TSMC expects to start out production on the factory in late 2024 © Toru Hanai/Bloomberg
Shortages in Kikuyo extend well beyond the workforce. All the pieces from roads and property to international school places and even rice fields — that are critical to conserving groundwater resources — is in high demand.
Following TSMC’s decision to construct in Kumamoto, average industrial land prices in Kikuyo jumped 26 per cent within the yr to July 1, in accordance with land ministry data.
The only major road to the plant, near Sony’s, is jammed with cars and trucks at peak times. The town has asked firms to encourage employees to stagger commuting times to ease the congestion until more roads are built.
Chip plants also use massive amounts of water, sparking local concern over supplies.
An excellent larger local concern is conservation of the realm’s groundwater, since chip plants use massive amounts of water. The local unit of TSMC has pledged to replenish more groundwater than it uses — it is predicted to adopt a technique that Sony helped pioneer 20 years ago, flooding rice fields outside of the growing season so water will be reabsorbed.
But resulting from the decline in rice prices — and Japan’s ageing farmers — it’s becoming increasingly difficult to secure recent rice fields for groundwater replenishment.
“Land is proscribed and considering our capability, I don’t think we are able to soak up more recent firms,” Yoshimoto said.
Still he says that for Kikuyo, “I keep telling our officials that there is just a positive impact from TSMC, since we’re going to be a part of a historic project”.