As Taiwan Semiconductor Manufacturing Co. prepares to launch production in the rural town of Kikuyo in Kumamoto Prefecture, a shortage of industrial land is threatening to undermine the regional development effects that local authorities are seeking.

Both foreign and domestic companies have been flocking to the Kyushu region to capitalize on the first full-scale manufacturing operation in Japan launched by TSMC, the world's largest contract chipmaker. Operations are set to begin by the end of 2024.

Fearing its development strategy focused on the semiconductor industry will be hampered if land is not made available, the Kumamoto prefectural government has started promoting the conversion of agricultural plots to industrial sites.

Taiwan Semiconductor Manufacturing Co.'s new factory under construction in Kumamoto Prefecture, southwestern Japan, in photo taken on Jan. 17, 2023.(Kyodo)

Kumasan Medix Co., a maker of chip manufacturing equipment based in the city of Kumamoto, already has a factory in Kikuyo and had hoped to expand it.

But that "became difficult" because of the land shortage and instead the firm will build a new plant in the adjacent municipality of Koshi, its president, Tsuguhisa Shirase, said.

Kumasan Medix is increasing its production capacity because demand for computer chips, as Shirase put it, "will keep increasing in the coming seven years or so."

The original plan to consolidate manufacturing operations "would have enabled us to have a smoother allocation of human resources," Shirase lamented. In fact, some of his employees say they will quit if they have to be reassigned to a new location even 10 minutes away by car.

Tsuguhisa Shirase, president of Kumasan Medix Co., a manufacturer of semiconductor equipment, speaks with Kyodo News in an interview on Jan. 11, 2023. (Kyodo)

TSMC's aggressive recruitment of workers in southwestern Japan using attractive offers is another headache for Kumasan Medix, which lacks the same deep pockets as the chipmaking giant.

TSMC, which is also considering building a second plant in Japan, plans to hire a total of about 1,700 people.

According to a report on the benchmark land price released by the Ministry of Land, Infrastructure, Transport and Tourism in September 2022, industrial land in Kikuyo logged the steepest rate of increase across Japan, at 31.6 percent. Industrial land prices in areas surrounding the town are also rising.

A 2022 survey by Kumamoto Bank found that roughly 80 percent of 27 Japanese and foreign companies that considered setting up operations in Kikuyo abandoned such plans because they failed to secure land plots.

The town has many "farm promotion areas" where, in principle, land development is limited to agricultural purposes. Local governments in the vicinity face the same situation.

"Business locations will increase. But any delay and the companies that have moved into Kumamoto, which should have been able to grab all of them, will lose out," said Ken Onozato of the Kosugi Real Estate Co., a leading realty company in Kumamoto. Local urban development plans should be reviewed "immediately," he said.

Taiwan Semiconductor Manufacturing Co.'s new factory under construction in Kumamoto Prefecture, southwestern Japan, in photo taken on Jan. 7, 2023. (Kyodo)

In fiscal 2021 through March 2022, a record 59 companies signed agreements to establish new facilities or expand existing ones in Kumamoto Prefecture. The total included 22 chipmaking-related businesses.

Companies are pushing into Kumamoto faster in fiscal 2022 than in the previous year. But 99 percent of eight industrial parks developed by the prefecture have already been filled.

In response to the land shortage, the prefectural government plans to build industrial parks totaling 50 hectares -- the size of 13 large baseball fields -- in the city of Kikuchi and neighboring Koshi, with sales of lots scheduled to begin in fiscal 2026.

The prefecture also plans to support the conversion of farmland into industrial sites, which will take time to complete. In December, it established a multidepartment "semiconductor coordination committee" to give Kikuyo and eight neighboring municipalities advice on using special laws to develop regulated areas and draw up district plans.

Taiwan Semiconductor Manufacturing Co.'s new factory under construction in Kumamoto Prefecture, southwestern Japan, in photo taken on Jan. 7, 2023. (Kyodo)

"We must prevent overdevelopment so as not to adversely affect agricultural production," said an official in charge at the prefectural government.

The challenge will be balancing the absorption of TSMC's "special demand" while maintaining farming villages.

Related coverage:

TSMC mulls building second chip plant in Japan: CEO