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JR East set Asia Pac- Hub in Singapore

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ONE of the biggest railway giants in the world, the East Japan Railway Company (JR East) will use Singapore as its Asia-Pacific hub to tap on the region's plans to set up high-speed inter-city and inter-country railway networks. JR East opened its Singapore office in March this year, its first outside Japan in Asia, as well as a European hub in Brussels in Belgium in November 2012.

JR East is the largest passenger railway company in the world with revenues of about 2.5 trillion yen (S$32 billion). It employs 72,000 people and runs all the high-speed trains (called Shinkansen) north of Tokyo, the Tokyo Metropolitan area railway network and local rail networks in East Japan. It also owns the railway infrastructure, including 1,700 stations, rolling stock, tracks, etc.

The Association of the European Rail Industry estimates the global railway market is growing at a 2.5 per cent annual clip and is set to cross 22 trillion yen by 2020. "We will develop business sites in Asia, including Singapore, in addition to opening the Brussels office to serve as a business site in Europe," JR East said in a statement. "The purpose of these offices is to promote overseas railway projects while strengthening our information gathering and marketing capabilities."

The proposed Singapore- Kuala Lumpur high-speed rail project is a possible mega-deal JR East could be mulling. On Feb 19 this year, prime ministers of the two countries agreed to collaborate to build a high speed rail link by 2020 that could cut travel time to just 90 minutes between the two cities.

The rail model is the Eurostar link between Paris and London which transformed "two European cities into one virtual urban community," said Prime Minister Lee Hsien Loong at the Feb 19 press conference. Malaysia's PM Najib Razak said the project will be a private-public one, with the link being built by private contractors with government infrastructure support.

In Sept 2010, PM Najib had proposed connecting Penang, Kuala Lumpur and Johor Baru with Singapore by a high-speed rail link. The 400km Singapore-Kuala Lumpur stretch would have high-speed trains running between 250 and 300 kph and has been rumoured to cost between RM8-14 billion (S$3-5.6 billion). No official estimates of the project cost have been announced so far.

The public-private model is also one JR East will follow in overseas markets. JR East will develop an overseas railway consulting business around JIC (Japan International Consultants for Transportation) which was set up in Nov 2011 by a number of Japanese railway companies including JR East.

"With many railway projects currently under consideration around the world, there is considerable interest in Japan's railway technologies," JR East's president Tetsuro Tomita said. "We want to extend our activities to other countries so that we do not miss a single opportunity. One particular area of focus will be in fast-growing Asia, which we have positioned as a priority region."

JR East's current Shinkansen is called the E5 Series and is Japan's fastest at 320 kph on standard rail tracks. "The E5 comes with an air-spring based tilting system to counteract the centrifugal force on narrow curves," a JR East spokesman told a visiting delegation from the Singapore Press Club. "With this system the E5 can navigate curves of 4,000 metres in radius without losing top speed. It also has a ceramic jet braking system for emergency braking."

Opportunities in Laos

Two other opportunities are the proposed 640km rail lines that the government of Laos is planning for high-speed trains running between its borders with China and Thailand. Of the two, the one bordering China may cost up to US$7.2 billion and would be funded by loans from China's Exim Bank. The line linking Thailand is estimated to cost about US$5 billion. It is however doubtful whether Laos can afford such mega projects.

JR East was established in April 1987 after being spun off from the government-run JNR (Japanese National Railways). JR East shares were offered to the public in 2002. With overseas railway projects currently attracting much attention, JR East needs to also look to other countries to export its expertise.

"I want to use Japan's railway technologies and knowledge extensively for not only high-speed railway services but also in assisting Asian countries to construct and operate railways in major cities," Mr Tomita notes. "Everyone at JR East must adopt the mindset of looking outside the group. I want to use this stance to create a powerful group that is open to ideas and opportunities in Japan and overseas."

For JR East to use Singapore as a regional hub was a natural decision as the Republic is a magnet for major Japanese firms. Panasonic and Mitsui Chemicals recently moved some key functions from Japan to Singapore. Hoya Surgical Optics has shifted all international operations to Singapore.

Last year, Sony said it will base its first corporate university outside of Japan in Singapore. Also last year Japanese giant Sumitomo Chemicals broke ground for a high-end SBR (styrene-butadiene rubber) plant at Jurong Island.

Sumitomo Chemicals has so invested about S$3 billion in Singapore and is the largest Japanese corporate investor on Jurong Island. Its plant is scheduled to go on stream this year and produce 40,000 tonnes of SBR, making it among the largest specialty rubber manufacturing facilities in the world.

Likewise, Mitsui Chemicals has invested S$900 million to expand its phenol and bisphenol plants on Jurong Island. The company also runs its Asia-Pacific HQ from Singapore. In 2011 Mitsui Chemicals set up its Functional Polymeric Materials Development Centre and the Mitsui Chemicals Singapore R&D Centre, its first and only R&D facility outside Japan.

The Japanese External Trade Organization (Jetro) polled 213 Japanese firms in Singapore and found 36 per cent used Singapore as an RHQ (regional HQ), while another 27 per cent said they were considering moving more of their HQ functions here. Singapore is also an ideal hub for businesses that seek to sell in emerging markets such as Myanmar, Laos, Cambodia, etc. The trend to move regional HQ to Singapore gained momentum after the devastating earthquake and tsunami that hit Japan in March 2011.

"Japanese FDI (foreign direct investment) in SEA (South-East Asia) has exceeded Japanese FDI in China in recent years," notes Jetro president Hidehiro Yokoo. "Japanese companies want to globalise their operations by hiring staff with diverse cultural backgrounds. While Japan may have highly competent engineers and managers, they don't have experience operating in multi-cultural environments. Singapore is an ideal location because they can hire English-speaking staff."

Another key advantage: Singapore's 17 per cent corporate tax is among of the lowest in Asia; Japan's corporate tax averages 30 per cent.

On the flip side, Singapore accounts for 6.5 per cent of total FDI in Japan. The highest is the US with 33.8 per cent, followed by the Netherlands at 17.2 per cent. About 70 per cent of Singapore's direct investments in Japan are in the financial services sector, followed by real estate (17 per cent) and retail and wholesale (9 per cent).

Given Singapore's size and economy (as compared to the US and Europe), the FDI size from Singapore is significant. About 90 Singapore companies are present in Japan. There is therefore a good flow of people going to Japan for business and not just as tourists. Singapore however is a favourite destination for Japanese tourists.

Source:  Business Times  29th April 2013

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