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Tokyo HQs no longer such a capital idea for Japan Inc.

Telework success spurs more companies to look at shifting staff to regions

Yonago city in Tottori prefecture, left, and Tokyo: Companies based in the capital are moving some of their functions to other parts of Japan. (Source photos by Ken Kobayashi and Shihoko Nakaoka)

TOKYO -- Growing numbers of Tokyo-based companies are considering relocating some of their functions to other parts of Japan, spurred by a desire to minimize risks in the wake of the coronavirus pandemic.

Half of Japan's listed companies are concentrated in the capital, but teleworking, which has become common due to the COVID-19 outbreak, presents an opportunity for these companies to escape Tokyo's congestion and seek better living environments for their employees.

"The pandemic gave us a final push to go ahead with this reform across the company," said Kaori Takahashi, an executive corporate officer with Information Development, part of Tokyo-based system development company ID Group.

The company in late August announced it would gradually transfer a part of its headquarters functions to its office in Yonago, a city in the western prefecture of Tottori. The move starts in October.

The new office will house a cloud center as well as departments such as sales administration and human resources. The company wants to increase the number of employees at the office from 11 to nearly 50 through 2025, and to eventually have 100 people in Yonago.

ID Group had already created rules for teleworking but found it difficult to change the habits of its engineers, who normally stay at the offices of its clients.

Having its largest foreign subsidiaries in Wuhan, the Chinese city of 11 million that was first struck by the virus and then endured more than two months of a strict lockdown, "made us realize the lack of resilience that comes from accumulating various functions in a single location," Takahashi said, adding that the situation forced the company to think more about the possibility of a similar emergency in Tokyo.

Japan faces not only an increasing number of super typhoons but also the risk of a mega earthquake in the coming decades. The Kanto region, which includes Greater Tokyo, is not immune to big temblors. If one were to rip into the capital, its cluster of corporations could be crippled.

ID Group joins a growing list of Tokyo-based companies seeking to disperse. Staffing company Pasona Group, with nearly 20,000 employees, announced this month that it would transfer part of its operations, including human resources, accounting and new business development, from Tokyo to Awaji Island in Hyogo Prefecture. "We are seeking to demonstrate a next-generational lifestyle and workstyle, immersed in nature. It also allows us to have a better business continuity plan," says Motoyoshi Takagi, managing executive officer of Pasona Group.

Plans are for some 1,200 employees, or two-thirds of those who are engaged in Tokyo head office functions, to be working on the resort island by fiscal 2023. Salaries will be the same as in Tokyo. The company over the past couple of years has committed to developing and operating restaurants, hotels and theaters on the island. "We are receiving many requests from large companies to come to see how we disperse headquarters functions," Takagi added.

Daido Life Insurance, which previously required that operations such as claims settlement be managed from its Tokyo or Osaka headquarters, now allows employees to do this work from other regions if they wish.

The insurer found that teleworking during Japan's state of emergency in April and May caused no major problems.

The reassessment of Tokyo's role as a business hub comes as the government is set to encourage people to work in rural areas with a subsidy program that is designed to foster regional revitalization.

Starting next April, the government will offer subsidies of up to 1 million yen ($9,500) to people who move to rural areas while continuing to work remotely for companies in Tokyo. It will also provide up to 3 million yen to people who set up information technology companies in the countryside.

According to data compiled by the Ministry of Land, Infrastructure, Transport and Tourism, 51% of listed companies in Japan have their headquarters in Tokyo. While congestion and high office rents in the capital are burdensome, many companies have been hesitant to move, partly because their clients and suppliers are also in Tokyo. Another hang-up is that hiring is considered more challenging outside the megalopolis.

But now "large enterprises have started to gradually assess the possibility of transferring or dispersing their head offices," having been persuaded by their experience with remote work during the pandemic. The coming of 5G networks is also persuasive, said Takanori Hara, head of corporate risk consulting at Sompo Risk Management.

Tokyo's gravitational pull has slowly waned due to the pandemic. In July, fewer people migrated into Tokyo than left it, according to the Internal Affairs and Communications Ministry, as Tokyo saw a resurgence of the coronavirus. Tokyo's outflow exceeded the inflow in May for the first time since July 2013.

Locating business activity outside Tokyo could also boost Japan's economic growth, argues Takahide Kiuchi at the Nomura Research Institute. While Tokyo has led Japan's productivity growth and innovation potential, "economic negative aspects [including traffic congestion and lack of nursery schools] as a result of the convergence in Tokyo may have already exceeded positive aspects," he said in a report earlier this month.

If the population were more evenly spread from Tokyo to the countryside, "business opportunities in rural areas would increase accordingly, and enterprises in metropolitan areas would expand their activities to rural areas," Kiuchi added, stressing that an additional push from the government is needed in the form of digitization plans.

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