Daiwa Anglo-Japanese Foundation and the University of Wales Symposium on

Japan and Wales: Investment, Innovation and Future Economies

by Lord Rowe-Beddoe

Cardiff, 27 June 2011

Japanese Investment in Wales

Minister Oka, Vice Chancellor, fellow speakers, ladies and gentlemen. Prynhawn da, Good afternoon, Domo or – as we are amongst friends – I should say Konichi wa.

It is my great privilege to be invited to address you this afternoon on a subject very close to my heart –Japanese investment in Wales. But before I do so I wish to express my deepest sympathy to all our Japanese friends and colleagues, in the aftermath of The Tohoku Earthquake and Tsunami. It is a human tragedy on a massive scale. Whilst the devastation is now out of the headlines, and off our TV and computer screens, none of us should forget or underestimate the long term impact on the people, on companies and on the Japanese economy as a whole. And of course it is compounded by the extremely complex continued problems now facing the country in the light of the damaged Fukushima nuclear plant.

We know your spirit of resilience will see you through – that spirit of Ganbatte. But, please, never think that you are on your own in your endeavours. The support from across the globe is testimony to people’s desire to help Japan through this crisis. I speak on behalf of both British and Welsh people in reassuring you that we are all behind you. And I am hopeful that there must be ways that our companies in

1 Wales, together with their suppliers, can support the parent companies back in Japan, in the light of energy shortages and other challenges at this most difficult time.

I still remember so vividly the Great Hanshin Earthquake in Kobe in 1995. One of the ways Wales helped then was to bring over a group of undergraduates whose education was interrupted by the earthquake thus enabling them to continue their studies at several Welsh universities.

I know there have been many fundraising activities in Wales over the past three months. But I hope that in the coming months, business can help in a more strategic way, in what will be an intensive period of physical and economic reconstruction for Japan.

Japan played a vital role in the economic recovery of Wales, following the massive decline of coal and steel in the 1960s and early 1970s when thousands of valuable jobs were lost, particularly in the industrial valleys of South Wales. All told more than 400,000 jobs were lost to Wales at that time. Fate had decreed that Wales relied to an extraordinary and excessive degree on coal (and to a lesser extent on iron and steel). One hundred years ago the South Wales coalfield, employing 233,000 men, produced well over 56 million tons of coal a year, and 70 per cent of it was exported.

As far back as 1904 the New York Times reported that several substantial Japanese orders of Welsh coal had been placed, with the first consignment of 10,000 tons dispatched aboard the King Robert from Cardiff. As Minister Oka has informed us this afternoon, this coal was to be used to fuel Admiral Togo’s fleet in his successful Battle of Tsushima in the Russo-Japanese War in 1905, when two thirds of the Russian fleet. was destroyed. It is indeed widely documented that the

2 Japanese fleet gained competitive advantage from the Admiral’s choice of quality and cleaner Welsh steam coal. With no radar at that time ships were reliant upon observing funnel smoke on the horizon.

Trade with Japan actually started some thirty years earlier, when a naval corvette for the Japanese Imperial Navy was built in Pembroke Dock and launched in 1877. And the first ship into Japan at the start of the Meiji era, when Japan opened up to the rest of the world, sailed into Yokohama from the docks of Cardiff. The old Tiger Bay, as the docks were called, attracted merchants from all over the world of course, including Japan.

The very first Japanese manufacturer to establish in Wales arrived almost 40 years ago was Takiron, so ably led by M.D Hitoshi Yamaguchi, a lifelong friend of Wales and a personal friend of mine who subsequently became Chairman of the company in Japan. He is still an enormous supporter of all things Welsh and I am delighted to see another of the founding figures of that pioneering company, Miss Midori Matsui, with us today. I pay a special tribute to her, not simply as an employee and director of this very first Japanese inward investor, but also as Governor of the Japanese Saturday School, here in Cardiff. She was honoured as a distinguished Member of the British Empire for services to Wales and Japan. Coincidentally this year marks the 30 th anniversary of the school, founded in 1981 by the Wales Japan Club, made up of senior representatives of the leading Japanese companies. I cannot over-emphasise how important the setting up this school was in our ability to attract so many leading companies from Japan at the height of the drive for industrial investment into Wales. Many of the school’s alumni from the 80’s now hold key positions in Japan today. Their academic success is widely attributed to the quality of their early years’ education at the Japanese school in Wales. I firmly believe that it’s crucial to support and sustain this school for the long

3 term, even if roll numbers have reduced through the falling birth-rate, combined with the changing patterns and inflows of investment from Japan. A significant decider for new investor, Toyoda-Gosei, who last year announced their plans to create 600 quality jobs in the former Valeo plant in Gorseinon, was in fact the availability of a Japanese school. This is the largest Japanese investment in Wales in the last 20 years. The company had made an extensive search across Europe before deciding on Wales as the preferred location for its multi-million pound car-components plant. Had we no Japanese school in Wales the chances are they would not have come here. So we lose it at our peril. I hope our friends in government will heed my words.

The second company to arrive in Wales in 1973, was Sony and today’s Managing Director Steve Dalton will be giving you a greater insight later of how this company, as a result of globalisation, has transformed itself from a large manufacturer of cathode ray analogue televisions, to the innovative centre of excellence it is today, safeguarding quality jobs in Bridgend, at Pencoed. Who said inward investors to Wales were in it just for the short haul? Sony like many companies has established deep roots in Wales, undertaking research and development at the heart of its business in Pencoed. Today it is the most senior Japanese company in Wales.

Sony has always been very much at the vanguard of excellence in Wales, being a prime mover within the Wales Quality Centre and a recipient of the Queen’s Award for Industry and for Export Achievement on several occasions. And of course the CEO for Sony worldwide today is Welshman Sir Howard Stringer. When the Bridgend plant was officially opened 37 years ago by HRH The Prince of Wales, Sony’s co-founder Mr Akio Morita said, “Sony's goal is to contribute to the well-being of the international community by combining the company’s technology with the capabilities of all the people working

4 for Sony throughout the world.” This is what the company continues to do.

Approximately 50% of the output from the Bridgend plant would eventually be exported to continental Europe and Africa, accounting for roughly 30% of all colour TV exports from the UK. In 1980, Sony became the first Japanese firm to be awarded the Queen's Award for Export Achievement for contributing to the promotion of British products.

The origins of Sony’s first plant in Bridgend date back over forty years to 1970 when HRH The Prince of Wales visited Japan for the Osaka World Expo . Morita-san was invited to the British Embassy for a reception held in the Prince's honour and at that reception, the Prince asked him if Sony had any plans to build a plant in Europe. If Sony did decide to do so in the future, he asked that they please remember Wales as a potential location. Morita felt that the Prince's interest in promoting direct investments in Wales was a sign of his interest in the international business community and of the Royal Family's enthusiasm for creating jobs in Britain.

This was not the only factor that prompted the establishment of a plant in the UK. There were plans to do so even before the British Embassy event. Hiroshi Okochi, then president of Sony (UK) Ltd., and his staff had been in the process of choosing a site. Eventually, Okochi reported to Morita, ‘We believe Wales is the most appropriate location after taking transportation and environmental issues into account. He further explained that it was fairly close to London, Manchester, and Bristol, which were major markets, and that there were plans to construct a highway – now the M4. Morita was delighted at the coincidence.

5 And so the decision was made to construct a colour television plant in Bridgend. Takao Honda, Tetsuo Tokita, and 15 others were sent to Wales from Japan. Tokita-san later became the plant’s Managing Director, and though now retired he, like his successors, including ‘adopted Welshman’ Nakamura-san, are still in touch with former colleagues in Wales, as well as other Members of Clwb Hiraeth in Tokyo.

I can hear many of you wondering what is Clwb Hiraeth? Yes it is a club – and membership is exclusive to Japanese people and is strictly by invitation only. They even sport a club tie depicting the cherry blossom and the daffodil which I proudly wear today as an elected honorary member. Welsh speakers amongst you realise that hiraeth is a unique Welsh word which means a longing for your country. All members have had a strong association with Wales, but they are not Welsh – but rather leading figures from the Japanese companies in Wales, who served here before being promoted to senior positions in Japan. Today the club has 73 members, including three fomer Japanese Ambassadors to the UK, who had a special affinity with Wales. They meet regularly, celebrate St David’s Day, and endorse Wales to other potential investors and business people.

Another club member is Toda-san, known to his friends and colleagues in Wales, as Charlie Toda. He was Managing Director of Panasonic in Cardiff in the 1990’s. Panasonic was founded in Cardiff in 1974 and production started in 1976, producing televisions before diversifying to higher end products. Like Sony the company policy from the outset has been to promote technology transfer in order to be competitive, and to work with our universities, encouraging staff development through university secondments, modern apprenticeships and commercial traineeships.

6 In preparation for today, I re-read two papers – one by Toda-san another by Jiro Aiko, Senior Managing Director of Sony, given at a similar symposium on Japan’s investment – The New Waves – 15 years ago. Both were predicting then how globalisation was advancing at such a pace , and how technological, as well political and market influences were transforming their business and the political environments in which they operate.

Let me share with you some interesting quotes: bearing in mind they were delivered in 1996!

“Digital technologies are changing our lives in ways that would have seemed fantastical even five years ago”, said Jiro Aiko. “According to the theory known as Moore’s Law, named after the co-founder of Intel, advances in microprocessing technology approximately double the processing power of computers every 18 months , while at the same time computer costs are cut by half ”. (Intel, as you know has kept that pace for over 40 years, providing more functions on a chip at significantly lower cost per function). “This law is often cited as the reason technological change is occurring at such a dizzying pace”, he wrote. “Televisions, the pundits predict, will be interactive, improved modem speeds will make it possible to transmit full motion across fibre optic telephone lines and newspapers will arrive on your desktop on displays customised to your very own tastes and needs”. How accurate he was. Each of those predictions has already been realised, with more to come.

“Changes such as these pose enticing new opportunities and challenges for a manufacturing company such as Sony’, he added ‘whose reputation resides in its ability to introduce innovative technologies and products.’

7 And this is exactly what Sony in Wales has done: successfully making the transition from high volume, low value manufacturing into a high, added value centre producing sophisticated technologically advanced products.

The new business at Sony Pencoed today includes the manufacture of the next generation of high definition broadcast products, the centralisation of the Sony European professional product customer service functions, and the start of a development and sales operation for education and learning products.

The new multi-formatted hand-built professional camcorders are regarded as the most advanced on the market and the Sony Pencoed Technology Centre has been inundated with orders from major broadcasting organisations throughout Europe.

Panasonic similarly has re-invented itself, shifting the low value television production to Eastern Europe whilst developing new technologically advanced products in Wales. Research and development has been at the heart of both companies, working with academia, to advance their technological manufacturing capabilities. In North Wales Sharp too has re-invented itself from a company producing high volume analogue TV sets, now almost defunct in the UK as a result of digitalisation, to be the world leader in solar cell production. As a pioneering solar specialist, Sharp’s research and development has paved the way for groundbreaking progress in solar technology time and time again.

Whilst job numbers in Wales may have reduced as a result of globalisation and diversification, higher skilled jobs remain. The wider legacy of Japanese companies like these are enormous for our skilled workforce. Employees instilled with Japanese manaufacturing and management methodolgies have transferred their skills to a wide

8 variety of companies in Wales. And I can speak from my own recent personal experience of employing former Sony engineers at Wales Millennium Centre. You might be wondering why a performaing arts centre would be employing engineers steeped in those Japanese manufacturing practices learnt over many years at Sony? Quite simply because they are the best – for business efficiencies, know how and project management skills. These engineers have saved the Centre hundreds of thousands of pounds over the years since opening in 2004 by
sourcing and introducing new technologies for energy efficiencies,
utilising 5S methodologies, KT, Six Sigma, Genba Kanri and Kaizen principles - continually improving on facilities management,
and applying just-in-time systems for maintenance, essential for business continuity. All these skills they aquired at Sony – and they now come as second nature. As far back as 1997 Sony Manufacturing in Wales had set out to reduce the environmental burdens of its manufacturing processes and products, embracing and implementing the principles of ISO 14001. Little wonder then that Wales Millennium Centre was the first independent arts centre in the UK to achieve this international standard!

Another thing that they bring is an immense pride in their work and loyalty to the brand. They are now mentoring our younger people in those same Japanese methodologies, so the legacy goes on.

As well as jobs, Japanese companies have also been the source of a strong transfusion of technology and advanced management practice enabling indigenous businesses to learn from them, enter their supply chains, and hoist themselves up the ladder of global competitiveness.

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There are many small indigenous Welsh companies who would certainly have disappeared a long time ago had it not been for the Japanese companies among us. These small companies, for example, introduced the principles of Genba Kanri, lean manufacturing, just-in- time processes and efficiencies, and Kaisen continual improvement processes. Spencer Davies and his son Owain run one such company – a small engineering business which supplied giants like Sony and Toshiba from Burry Port. Despite facing challenges in recent times of lower costs from competitors in China, they too have re-invented themselves from the experiences of working for world-class companies, where innovation and continual improvement are at the fore.

So what I wish to emphasise today is that Japanese inward investment is not just about capital investment and initial job creation. It has been, and is, significantly more than that – it is about people, about skills, training, establishment of supplier chains and, of course, evolving technology.

At one time Wales had the world’s highest concentration of Japanese electronics companies outside Japan. Today the largest sector is automotive with many second tier suppliers servicing Toyota in North Wales, Honda in Swindon and Nissan in the North East, who have recently announced a £132m investment.

Who said “Sayonara” to Japanese companies? I well remember members of our press running headlines like this.

To illustrate the geographic spread of these companies let me name some of them TRB in St Asaph, Toyoda Gosei in Swansea, JTEKT in Resolven, Yamada and Takao in Ebbw Vale, Sekisui and RTEK in Merthyr Tydfil, Nissin Showa in Aberdare, Sanken in Abercynon, Mitsui

10 Components Europe in Capel Hendre near Ammanford, Calsonic in Llanelli, Toyo Seal in Wrexham, Shimizu in Welshpool. I can proudly say I was directly involved in attracting many of these second wave companies on the 1990’s, and I am particularly pleased to see that despite the pressures of the economic climate both here and in Japan the companies are holding up well. Toyota has continually re-invested over the years in its state-of-the-art engine plant on Deeside since it first went into production in 1992. Since then, to the end of May this year, a total of 118,667 fully assembled engines have been produced at the plant, with a total investment amounting now to £700 million. Despite temporary cuts in production due to the impact of the earthquake and tsunami in March, I am thrilled that this plant is the first Toyota factory outside Japan to have the honour of building a hybrid vehicle engine. The opportunity to manufacture the engine for such an important, ground-breaking car is a sign of Toyota’s confidence in Deeside and is a tribute to the skilled workforce and their commitment to manufacturing excellence.

In Newport we have one of the most advanced manufacturers of processing equipment for the world's leading semiconductor-related micro/nano device manufacturers and research institutions - SPP Process Technology Systems Ltd, a wholly owned subsidiary of Sumitomo Precision Products. Their products are used in a variety of market segments, including R&D, MEMS (Micro Electro Mechanical Systems) and nanotechnology, advanced 3-D packaging, LEDs, data storage and power integrated circuits for communications and energy/environment applications. This company employs some of our best graduates, who undertake R&D and commercialisation work in Wales which is then transferred to SPP's headquarters in Amagasaki to utilise their engineering expertise to satisfy customers in Japan, as well as all over the world. Chairman of the company and President of the parent SPP is Susumu Kaminaga, who spent many years in Wales during

11 the important formative stages of the company, first in Abercarn, then at Imperial Park in Newport, when it expanded and floated on AIM as STS. Kaminaga-san had a long term vision for this company in Wales and he has remained totally committed to Wales in realising that vision, creating a company that is at the cutting edge of technology, a company that epitomises everything that our government aspires to achieve in Wales. Kaminaga-san is a very special person, I have to say. Despite his hectic work schedule he still finds time to fly the flag for Wales both metaphorically and literally. Whenever I visited SPP's headquarters in Japan the Welsh flag would be flying outside to welcome me. Kaminaga-san is now Chairman of Clwb Hiraeth in Japan and he is actively working to ensure the continuation of the club for years to come, through the recruitment of new members. I warmly welcome his colleague, Mr Ichiro Takesako, Executive Director of SPTS, who is with us today, again a sign of the ongoing commitment of this outstanding company to Wales/ Japan relations. Today I have breaking news – this morning on the Japanese Stock Exchange it was announced that SPP has agreed to an MBO of SPTS. This is excellent news for Wales – it will be a successful Welsh company with the confidence to fly. SPP will still retain a minority shareholding and will still invest in the company. And a joint venture will be set up for the Japanese market. So that is something to celebrate.

I should remind you that SPP has been heavily involved in aerospace industries for almost 100 years. SPP is currently supplying their equipment to Airbus through their European customers like Rolls-Royce and other partners. Mr. Glen Fukushima, Chairman of Airbus Japan, was in Paris last week for the Airshow, negotiating major contracts for sale of aircraft – I’m sure he will tell us about this. This is good news for Wales too – I should remind you all that every wing of every Airbus is made at Broughton in North Wales!

12 Conclusion

From Tokyo to Tripoli, from Lisbon to London, natural, social and economic events have greatly impacted our world recently. And will continue to do so.

With the continued impact of globalization, demographic shifts and political change, combined with the growth of FDI markets such as China and Eastern Europe (which can still compete on comparatively low labour costs), the world of inward investment is significantly more complex than it was in 2001 when I stepped down as Chairman of the Welsh Development Agency.

Cynics have denigrated the role of inward investment in Wales – not just Japanese investment – but all overseas investment. All I can say is that Wales would be a much poorer country had it not been for its inward investors who played such a crucial part in the restructuring of the Welsh economy. Manufacturing is still vital to the British economy and the advanced manufacturing that we are seeing today through our Japanese companies is testimony to the skills that we can develop in Wales if the right conditions and support are in place. I always remember an address given at an automotive symposium in Tokyo by the former Managing Director of Calsonic on why the company had chosen to invest in Wales: “It was the quality of the workforce,” he said, “They were willing to learn, worked well as a team, were adaptable, they were loyal and had a strong work ethic.” We still do!

RECOGNITION BY JAPAN

The Japanese government recognises the importance of the investment by Japanese companies in Wales, which provides access to European markets, and greatly appreciates the contribution that Welsh people make to the success of those companies.

13 This is reflected in the honours conferred not only on myself but on my colleague of 17 years, Bet Davies. In 2002 she received Japan Foreign Minister’s Special Commendation - GAIMUDAIJIN KANSHAJO - in recognition of, and I quote:

‘the highly distinguished contribution she has made to the deepening of mutual understanding between Japan and Wales and to the strengthening of bilateral economic relations. . . As a result of her excellent leadership, enthusiasm and diligence, a good relationship has developed between our two countries.'

In the formal award ceremony Former Ambassador Orita said that it ‘was difficult to imagine relations between Japan and Wales flourishing as they have done without the wonderful dedication of Ms Davies over the years.’

I mention these honours simply to demonstrate how Wales’ commitment to Japanese investment, and to its people and its culture, is so valued by Japan’s government at the highest level. In 1998 Wales was honoured to host a unique Awayday as part of the State Visit of Their Imperial Majesties The Emperor and Empress of Japan. Cardiff was chosen in recognition of the strong relationship between our two countries, built largely on the success of the inward investment experience.

There are still some 50 Japanese operations in Wales. Most electronics companies have shifted from high volume production line to higher value low volume. We are also now attracting Japanese service companies, such as Fujitsu. Fujitsu Services designs, develops, deploys and manages IT systems, has a £2bn turnover and 19,000 employees in the UK and Europe - 1,000 of them in Wales.A leading supplier to the

14 public sector in the UK, its advance into Wales began when Fujitsu Services was subcontracted to IBM at DVLA in Swansea, running the technology end of the Agency’s IT operations, a job which involves 300 people on site. After clocking up five years’ service there, it is still looking to expand its role. Fujitsu Services also runs a centre of excellence for software engineering in Cardiff, known as the SOA (Services Orientated Architecture) European Centre, which develops Plug and Play off the shelf packages for basic applications such as payroll. The company’s third centre is in Newport where it operates a helpdesk for banks, major high street retailers and service providers such as Virgin Media. With the development of a recent contract with the Office of National Statistics, in which I am involved as Chairman coincidentally, it is clear that on an inspection of its client list, Fujitsu is at the top of its game – a game in which South Wales, with its people and business infrastructure is well able to play a part.

Ladies and gentlemen I hope I have demonstrated the extraordinary contribution that Japanese investment has made to Wales’ economy and the legacy that it has given to our indigenous companies and to our highly skilled workers. And I am most pleased to have been given the opportunity by the Daiwa-Anglo Japanese Foundation and the University of Wales, to do so. Domo Arigato gozaimasu.

- ENDS -

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