Japan’s Small Towns Brace for Impact of TSMC’s New Plant, Eye Massive Economic Growth

For small towns, the arrival of a new restaurant or shopping mall is a boon to the local economy and sparks excitement among residents. Though the arrival of a semiconductor plant isn’t as glamorous, the economic ramifications are far more significant. Kikuyo, Japan, is currently experiencing this firsthand.  

The town will soon be home to TSMC’s newest chip factory. Since construction began last year, Kikuyo and the surrounding area have experienced a boom in both interest and opportunity. But that doesn’t come without challenges.  

The town’s mayor, Takatoshi Yoshimoto, said in an interview with Financial Times, “TSMC’s arrival was a bolt from the blue. We instantly became famous, and it was as if Kikuyo suddenly became an adult from a baby.”  

The arrival of TSMC has launched Kikuyo and the surrounding prefecture of Kumamoto into the spotlight. Of course, the area is no stranger to chip production. Sony and Tokyo Electron both have facilities in Kikuyo and make up a significant portion of the town’s economy alongside the local agriculture industry. Now, interest surrounding TSMC presents a “once-in-a-lifetime opportunity” for the region (and Japan) to revive its status as a semiconductor powerhouse.  

Regional lender Kyushu Financial Group estimates the arrival of the world’s largest chipmaker will bring a $29 billion boost to the local economy. Much of that growth will come in the form of job creation. TSMC has already started posting job opportunities despite its Kikuyo plant not being ready to open until late 2024. The plant is expected to create 1,700 jobs for technicians and engineers.  

Other businesses in the area, which offer minimum wages among the lowest in Japan, are feeling the pressure. Many fear TSMC will lure workers away with the promise of higher wages and better working conditions. Meanwhile, companies supplying TSMC with materials and transporting deliveries fear they won’t be able to hire enough workers to keep up with the sudden increase in demand. Roughly 40% of high school graduates from Kikuyo take jobs elsewhere.  

Toshihiko Tanaka, CEO of Kumamoto-based Kongo, which produces storage systems, said, “You can build a semiconductor plant if the government provides money, but what do you do with the people needed for its operations?”  

Indeed, this is a question chipmakers must grapple with as they look to expand their manufacturing capacities with new plants. States and cities are also forced to face these realities as governments increase the generosity of the subsidies, they offer to attract top chip firms to expand within their borders.  

For Kumamoto, a sudden population influx also creates infrastructure challenges. TSMC’s new plant is located near Sony’s existing facility. Both are fed by a single major road. With more workers clocking in, the road is becoming more and more congested during peak times.  

Meanwhile, the plant’s expected usage has also sparked concern for the security of the area’s water supply. Although TSMC has pledged to replenish more groundwater than it uses, the logistics of doing so are complicated. Sony pioneered a method of flooding rice fields outside the growing season to let water be reabsorbed. But as land prices in Kumamoto rise and Japan’s population ages, finding new rice fields to flood becomes more difficult.  

Despite these challenges, officials from Kikuyo and Kumamoto are focused on the positives. Although the area and its residents are forced to adapt, and quickly, the arrival of TSMC offers an unmatched opportunity to grow and improve.  

Yoshimoto says, “I keep telling our officials that there is only a positive impact from TSMC, since we are going to be part of a historic project.  

Meanwhile, Kazufumi Onishi, mayor of Kumamoto city, said, “We call it the TSMC shock, but I think this is a huge opportunity to change the structure of Japanese society and economy. To put it another way, we need this kind of shock to change.”