As the global economy reels from the shock dealt by COVID-19 in 2020, some countries have begun showing signs of recovery from the pandemic. In the U.S., the state of Texas in particular, has attracted new investment from Japan because of its entrenched competitiveness and established industrial base.

At the height of the pandemic, CKD USA, a producer of fluid components critical to the semiconductor industry, announced last November plans to expand its operations and build a new plant in Austin. The facility is expected to open before the end of this year.

“CKD’s $13 million investment in the Lone Star State further solidifies Texas’ reputation as a premier investment destination both nationally and internationally,” said Gov. Greg Abbott.

Meanwhile, the Texas Japan Office in Tokyo, headed by Director Hiroyuki Watanabe, is working hard to bring in more Japanese companies and find them the most suitable locations for their requirements.

Although most Japanese companies decide to set up within major urban regions like San Antonio, Dallas and Houston, some have chosen other areas and cities. The second-largest state by area, Texas offers a wide range of industrial ecosystems and a huge talent pool that can meet any investor’s needs.

“After the COVID-19 situation settles, we will see a fast resumption of direct investment in the USA by large-sized Japanese companies. There have been challenges for small and medium-sized entities to expand to the United States because of COVID-19 and their limited resources. Despite that, however, they recognize the necessity of setting up operations in the United States in the near future,” Watanabe said.

Like all prudent investors who investigate a new location’s feasibility, those Japan-based companies that made the move cited the state’s competitiveness in key areas such as workforce and talent availability, proximity to thriving markets in Mexico and the U.S. Midwest, low tax rates and quality of life.

“Texas enables businesses to profit from an economically focused political environment in a great place to live.  For example, there is a trend where California tech companies are relocating head offices to places like Austin or San Antonio,” said Kei Ashizawa, principal at law firm Ashizawa LLC and current Texas chair of the U.S.-Japan Council.

“In 2020, Texas largely stayed open for business compared to other states and countries. It was not without a struggle, but it was a very positive thing for our economy and our people. Japanese companies must venture out if they want Japan to thrive.  When searching for the ideal growth environment, Texas is the best place for Japanese businesses to succeed,” she added.

Since 2010, the population of Texas has grown sharply, with nearly 3.5 million people moving to the state in the past 12 years. Over the last 12 months alone, the state’s population had a net gain of nearly 400,000, creating a real estate boom that has consequently caught the attention of Japan-based investors.

“Our Japanese clients are buying real estate and securitizing them. We represent banks, finance companies and wealthy investors that are buying properties, a lot of (them) located here in Texas,” said Lisa Kitagawa of law firm Kitagawa & Ebert.

On another front, cross-border investment from the United States to Japan continues unabated.

In Houston, investment manager FCA Corp. has backed the Japanese market for more than 30 years. Looking beyond the main Nikkei index, FCA is focusing on Japanese small and midsize enterprises with proven longevity and niche capabilities in Japan who need an increased presence in the United States. 

“We have confidence in our Japanese investments. They have stayed the course and we continue to believe in Japanese entrepreneurs and Japanese market. We also appreciate the value of diversification in portfolio and offer that to bourse-country specific funds,” said FCA CEO Robert W. Scharar, who manages the International Series Trust.

Amid the stiff competition to attract new investment and provide the required manpower, Texas has established programs to ensure a steady pipeline of skilled workers. In the San Antonio region, for example, stakeholders in the manufacturing sector launched the Texas Federation for Advanced Manufacturing Education.

“We’re seeing a large influx of companies coming in and that is driving up the demand for skilled workers. To prepare for that, we have been working with community colleges and universities to come up with training programs. We have one called the Alamo Academies, which works with independent school districts in our region and enlists juniors and seniors to work half a day in a plant so they understand the intricacies of manufacturing,” said San Antonio Manufacturers’ Association President and CEO Rey Chavez.

With exports valued at close to $280 billion in 2020, Texas has remained the top exporting state for 19 years in a row, thanks largely to its extensive rail and road network, the largest in the nation, and the highest number of land- and sea-based ports of entry.

“Our energy and electricity costs are also among the lowest in the nation. Add those to our growing skilled workforce, Texas is going to remain a leader in attracting major investors and exporters,” said Texas  Association of Manufacturers President Tony Bennett.

As the economy of Texas expands, Japan’s Consul-General Hideo Fukushima expects more Japanese investors to head to the state, particularly to the major metro areas of San Antonio, Dallas-Fort Worth, Houston and Austin.

“In the past three years, the growth of Japanese business in the state exceeded 10% each year. In 2020, figures will show that trade between Japan and Texas doubled since then,” Fukushima said.

Another development that has excited Japanese investors, large and small, is the burgeoning startup sector and its goal to become an energy innovation hub.

“The energy sector in Houston has many opportunities for Japanese companies looking to solve the world’s most pressing environmental challenges. There are incubators, like Greentown Labs, which is one of the largest in the nation. The Ion District is another exciting development in the Houston area and can bring together players in the energy sector,” said Japan External Trade Organization in Houston Chief Executive Director Masahiro Sakurauchi.