Regional coordination and its background:
Should Kansai be heading for regional coordination like Västra Götaland?
Sawako Maruyama†
Graduate School of Economics, Kobe University

Abstract
This paper aims to analyze the similarities and differences between Kansai region in
Japan and Västra Götaland region in Sweden. We investigate the regional economies,
the frameworks of regional coordination, and the degree of internationalization.
Main findings of the analysis are summarized as follows. Firstly, the tworegions have similar industrial structures and have experienced similar economic
stagnation over a long period. Similar problems led to similar solutions requiring local
autonomy and regional coordination. Secondly, the two regions both want local
discretionary authority over the region. Regional coordination is one way to achieve this.
However, the framework of regional coordination is different in both countries. The
adopted framework in each region is related to the system of local governance at thecounty/prefectural level. Unlike Västra Götaland, Kansai is facing problems
coordinating tasks between prefectures, and is unable to define the geographical identityof the administrative districts involved. Thirdly, the extent of internationalization inboth public and private sectors is different in both regions. Firms and local governments
in Kansai are not as internationalized as Västra Götaland which has the support of the
EU structural fund.
These facts suggest that while both regions are moving in the same direction
towards regional coordination, they are at different levels of achievement. The
achievements of regional coordination are affected by the differences in local
governance. Simple adaptation of the same system as Västra Götaland would notnecessarily result in good governance in Kansai, where prefectures have already a lot oftasks, therefore, Kansai has to find an appropriate, efficient and feasible framework on
their own.
Keywords: Regional coordination, Regional development policy†

Graduate School of Economics, Kobe University, 2-1 Rokkodai-cho, Nada-ku, Kobe, Japan
657-8501, Tel: +81-78-803-6826, E-mail: maruyama@econ.kobe-u.ac.jp
11. Introduction
There are several similarities between the Kansai region in Japan and the
Västra Götaland region of Sweden. From an economic perspective, both regions are thesecond largest economy in their respective countries, and have experienced a downturnof heavy industries in the past. Politically, both are introducing administrative
coordination for local governance. These two facts are closely related, because there is apotential that new political frameworks and policy measures in the region offer theconditions for regional growth and will stimulate the regional economies. The tworegions seem to target the same goal, while some region-specific factors may affect theframework and function of coordination differently in each region.
This paper analyzes the regional economy as a background of regional
coordination and the framework of that coordination in Kansai and Västra Götaland.
The purpose of this paper is to consider the following questions: What do Kansai and
Västra Götaland have in common concerning the economic structure and how do theydiffer? Have they introduced the same type of regional coordination? What can Kansai
learn from Västra Götaland, which has proceeded further with regional coordination?
Kansai and Västra Götaland are appropriate examples to compare, since Japan and
Sweden have similar local self-government systems with three levels and theimplementation of regional coordination is occurring at the same level. Prefectures inJapan and counties in Sweden are at the middle level between nation and municipalities.
Several prefectures in western Japan form the Kansai region and are trying to establish
an administrative coordination. Västra Götaland, which is far ahead of Kansai in termsof regional coordination, has already transferred the functions of counties to theintegrated body.
This paper is organized as follows: In section 2, the economy of both regions isanalyzed focusing on industrial structure. Challenges of the Kansai economy are alsomentioned. Section 3 discusses the framework of regional coordination of the local
self-government system. The difference of the internationalization of both regions is
considered in section 4. Section 5 summarizes the findings as concluding remarks.

2. Regional Economy
2.1 Kansai region
Generally, the Kansai region consists of the six prefectures of Osaka, Hyogo,
2

Kyoto, Nara, Wakayama and Shiga (Figure 1). 21 million people live in the region, andit accounts for 16% of the Japanese population (Table 1). Kansai is rather known for its
three major cities of Osaka, Kobe and Kyoto1. The population and businesses are
dispersed over these three cities. The population density in Osaka, the largest prefecture,is 4669.7 persons per square kilometer and is not too high as compared to Tokyo with apopulation density of 6015.7. The six prefectures form one commuting area. They also
form one business area; the companies which have their headquarters in urban areas
often have plants in Nara, Wakayama and Shiga.
Figure 1. The geography of Kansai

Table 1. Profiles of Kansai
Total
Osaka
Hyogo
Kyoto
Shiga
Nara
Wakayama

Population
Area (km2)
Population[2010][2010]
density [2010]
20,903,173
27,343764.5
8,865,245
1,898
4669.7
5,588,133
8,396
665.6
2,636,092
4,613
571.4
1,410,777
4,017
351.2
1,400,728
3,691
379.5
1,002,198
4,726
212.0

(Source) Statistics Bureau of Japan, Population Census 2010.

Kansai has long been a center of western Japan politically, economically andculturally. In ancient times, Kyoto, Nara and Osaka at different times have been capitalcities. After transferring the capital to Tokyo, Kyoto, where the emperor lived,
1

Osaka city, Kobe city and Kyoto city respectively are part of Osaka prefecture, Hyogo prefecture
and Kyoto prefecture.
3

maintained a significant role in politics. Osaka developed as ‘the city of merchants’ andis known as the first place for trading of rice futures. Kobe was one of the first ports
opened to foreign countries after the Second World War. Industrial development of
Kansai started with textile production at the end of the nineteenth century. Osaka is still
both a center of textile production and trading, and Kobe is also known for the apparelindustry. In addition to textiles, the electric machinery industry, including homeelectrical appliances, grew in Osaka after the Second World War. There was also the
production of heavy industries such as steel and ships. Along with industrial
development, the population increased strongly with the inflow of people from otherparts of western Japan. In the long term the peak of the Kansai economy is said to be in
1960s. After that, two oil shocks hit the Kansai economy and it was followed by theappreciation of the yen, which started in 1985. The former shocks decreased the demandfor heavy industries, and the latter caused the relocation of production bases to overseas.
Those factors brought a long stagnation to the Kansai economy.
Figure 2 shows the composition of GRP by sector in the Kansai, Kanto andTokai region. The service sector is the largest and accounts for 23.0%. The second
largest sector is manufacturing, accounting for 20.6%. These features of Kansai showthat it is well-balanced in structure in comparison with Kanto and Tokai regions.
Furthermore, the manufacturing sector does not rely on a specific industry; three typesof manufacturing – light industry, heavy industry and assembly industry – are contained
evenly.
Figure 2. The composition of GRP by industry in Japan, 2008
100%
80%
60%
40%

Producers of private non-profit services to households
22.5

24.4

Producers of government services
Service activities
Transport and communication

13.9
14.0

14.5

11.6

Real estate

11.8

Finance and insurance

14.4

20%
0%

19.0

20.2

16.2

Kansai

Kanto

Wholesale and retail trade
Construction

28.3

Electricity ,gas and water supply
Mining and manufacturing

Tokai

Agriculture ,forestry and fishing(Source) Economic and Social Research Institute, Annual Report on Prefectural Accounts.

4

Table 2 shows the Kansai and Swedish companies listed on the Fortune Global
500 in 2011. Ten companies are from Kansai, including Panasonic and Sharp. Electricalmachinery is one of the current leading industries in Kansai. There are agglomerationsof several industries. One of them is the electrical machinery industry including bothlarge companies and small- and medium-sized enterprises (SMEs), although it is not tothe extent of the automobile industry in the Tokai region. In recent years, the active
investments in new products such as liquid crystal displays, solar panels and solar-cells
have stimulated the economy in Kansai. However, these products are facing competition
from other Asian companies, especially Korean, Taiwanese and Chinese companies. The
standardized products, such as home appliances are often produced in other Asian
countries. Therefore, Kansai companies producing electrical machinery are caught by
and facing hard competition with Asian companies, which have the advantage of lower
labor costs.
There is another agglomeration of companies in Kansai – the wholesaler. Somelarge wholesale companies started their operations and some of them still locate their
headquarters in Kansai. In addition, there are a lot of small and medium sizedwholesalers which deal with specific goods such as textile, steel and machinery. The
pharmaceutical industry is a field that has both a lot of producers and wholesalers in
Osaka. The recent development of bio-medical technology encourages the connection
among those companies, universities and local governments. As a result, thecooperation among actors from these three sectors has developed new industrial clusters
in Kansai.
Table 2. Global companies in Kansai and Sweden
global500 rank
50
81
200
201
237
253
295
322
339
407
409
447
495

revenues($ millions)Osaka
101,491
Osaka
78,571Osaka
42,832
Osaka
42,612
Göteborg
36,749Osaka
35,283Osaka
32,339Stockholm
29,645
Stockholm
28,226
Kyoto
23,806
Osaka
23,746
Kobe
21,700Osaka
19,733companycity

Panasonic
Nippon Life Insurance
Sumitomo Life Insurance
ItochuVolvo
Sharp
Kansai Electric Power
Vattenfall
L.M. Ericsson
MaruhanSumitomo Electric Industries
Kobe Steel
Daiwa House Industry(Source) Fortune, Global 500 2011.

5

The Kansai region has suffered from a long-term stagnation. It is likened to‘land subsidence’, which actually happened in the 1960s because of the withdrawal of
too much underground water. The share of Kansai in the Japanese GDP declined from
19.3% in 1970 to 15.6% in 2008. There are several reasons for this slowdown of the
Kansai economy, and one of them is the relocation of a lot of plants outside of Kansai inorder to avoid the relatively high labour cost and land prices. Three acts concerning the
restriction of the location of plants in urban areas encouraged the outflow of plants.
These acts aimed at saving and improving the environment damaged byindustrialization, and were applied only to Kanto and Kansai. The Kanto region
succeeded in shifting towards a service economy, while the service industry in Kansai
could not grow enough to lead the regional economy. In the 1970s, the two oil shocks
hit the steel and shipbuilding industry, which were leading sectors of the Kansai region
at that time.
Another reason for the long stagnation is the concentration of businesses inTokyo – some large enterprises moved their headquarter functions from Kansai toTokyo. A lot of large companies based in Kansai have had dual headquarters in both
Kansai and Tokyo. Some of them consolidate the function of headquarters in Tokyo forthe sake of efficiency. Because the function of headquarters is to make decisions for
new products, services, operations and technology, and to decide the route ofprocurement and partners for outsourcing, moving the headquarters to Tokyo caused the
local companies, especially SMEs, to lose business opportunities. At the same time, theabsence of headquarters makes the decision making in Kansai slower. The concentrationin Tokyo brings another problem to Kansai concerning the location of foreign owned
companies. Since the 1990s, local governments have tried to promote the location offoreign-owned companies to stimulate the regional economy. However, most of theforeign-owned companies choose to locate their headquarters in Tokyo. Even thoughKansai is the second largest region in Japan, it is not easy to attract foreign-owned
companies.
These facts have brought the eagerness for economic revival to both businesses
and local governments in Kansai. For the prefectural governments whose revenues
highly depend on the corporate taxes, the stagnation of the regional economy is
immediately connected to the smaller capacity of administrative services2. They have
tried to implement some measures for stimulating the regional economy – for example,
2

To avoid the contraction of the services, most of local governments issue local bonds. The
redemption of the local bonds is another problem for them, although we do not discuss it on thispaper.
6

providing subsidies for investment, financial support to SMEs, and so on. However, it isdifficult for prefectures to maintain all of these measures because of decreasing revenue.
Moreover, this is an issue on which a region as a whole rather than prefectures
must work out for the following three reasons. Firstly, a lot of Kansai companies havetheir headquarters in Osaka, but put their plants in other prefectures in Kansai, such as
Nara and Shiga 3 . The business climate is intertwined with Kansai. Secondly, thelocation of business partners is also Kansai-wide. Thirdly, the commuting area isbroader than one prefecture. Table 3 shows that 740 thousand people commuted to
Osaka prefecture from other Kansai prefectures and Mie4 in 2005.
Table 3. The number of persons who commute to Osaka by the prefecture ofresidence
Shiga

Kyoto

Hyogo

Nara

24,326106,188364,379

184,532

Wakayama
34,068Mie

OthersTotal

10,43816,079740,010(Source) Statistics Bureau of Japan, Population Census 2005.

2.2 Västra Götaland region
Västra Götaland is the second largest region in Sweden following Stockholm.
The population of Västra Götaland accounts for 17% of Sweden, however, it is less than
one-tenth of Kansai (Table 4). The center of Västra Götaland region is Göteborg. Morethan half of the population in Västra Götaland live in Göteborgsregionen including
Göteborg and 12 municipalities, while the population density in Göteborg is less thanthat of Stockholm. Västra Götaland consists of areas with small population as well asother major cities – Borås in Sjuhärad, Trollhättan in Fyrbodal, and Skövde in
Skaraborg (Figure 3). This means the labor market is dispersed (Ernstson et al, 2008).
Göteborg has developed as an international port city thanks to a good access to
Britain and other parts of Europe. In the eighteenth century, Göteborg started to grow as
a commercial and industrial center in connection with iron production. Manufacturing
such as textiles, shipyards and the automobile industry also led the development of theregion. Since then, Borås has long been a city connected to the textile industry. In
Trollhättan and Skövde, there are automobile plants.
In the 1970s, similar to Kansai, oil shocks decreased the demand for steel and3

Kansai companies often locate their plants in six Kansai prefectures and neighboring two
prefectures of Okayama and Mie (Osaka Prefectural Institute for Advanced Industry Development,
2008). This indicates that actual industrial area of Kansai spreads out in eight prefectures.
4
Western part of Mie prefecture is dormitory suburb of Kansai.
7

ships which were main export products of Västra Götaland steeply. In spite of thesubsidies from the central government, the shipyard industry in Göteborg could notrecover (Schön, 2007). Such prolonging measures for declining industries delayed theshift of industrial structure and caused a long stagnation until the 1980s. In comparison
to Stockholm, where service and public sectors have created jobs, Västra Götalanddidn’t have such a creation of new employment. Furthermore, in the middle of the
1990s the Öresund Bridge connected the Skåne region to Copenhagen, the capital of
Denmark. It was expected to enlarge the economic area across the border, and it meant
more business opportunities for companies in Skåne. The absence of a favorable
industry like services in Stockholm or an effective revitalization project as in Skåne
caused a sense of crisis in Västra Götaland. These disadvantages of Västra Götalandbrought about the discussion of regional coordination.
Table 4. Profiles of Västra Götaland
Population[2011]
Total
Göteborgsregionen
Fyrbodal
SjuhäradSkaraborg

Area (km2)[2011]

1,665,316
937,722259,802211,263
256,529

24,560
3,718
7,684
5,764
7,393

(Note) Göteborgsresionen includes Kungsbacka.
(Source) Statistics Sweden, Statistikdatabasen.

Figure 3. The geography of Västra Götaland(Source) Sveriges National Atlas. Västra Götalandsregionen.

8

Population
density(per km2)[2011]
67.8
252.2
33.8
36.7
34.7

After a long stagnation, Västra Götaland started to explore a way towards
regional integration in the 1990s. In recent years, the Swedish economy shows a sharp
increase of around 5% of the GDP growth rate. It is said to be a result of the reform ofsome systems and policies after the bursting of the bubble economy in 1990.
The industrial structure of Västra Götaland has one feature in common with
Kansai: it is well-balanced in comparison with Stockholm and South Sweden. The GRP
composition of Västra Götaland is not biased as in Stockholm, where the service sector
accounts for 29.3% (Figure 4). Conversely, the manufacturing sector of Västra Götalanddepends heavily on the automobile industry. This fact suggests that the economy of
Västra Götaland is sensitive to a business cycle similar to the Tokai region where Toyota
and Suzuki locate their headquarters and there is industrial agglomeration.
Figure 4. The composition of GRP by industry in Sweden, 2008
100%

Other community and personal service establishment
11.1

8.7

11.4

Educational establishment

80%
60%

Health and social work establishments

21.7

Public authorities and national defence
29.3

21.4

Real estate, renting and business service
Financial institutions and insurance companies

40%

13.0
12.5

20%
19.9
0%

12.5

West
Sweden11.1
Stockholm

Transport, storage and communication
Hotels and restaurants
Wholesale and retail trade

18.5
South
SwedenConstruction
Electricity, gas and water works
Mining and quarrying and manufacturing
Agriculture, hunting, forestry and fishing(Source) Statistics Sweden, Regional accounts 2008.

In Västra Götaland, there are the headquarters of the Volvo group and Volvo
cars. They have plants in Göteborg, Uddevalla and Skövde, making a large part of theirglobal production. SAAB also has their headquarters in Trollhättan. Therefore, Västra
Götaland forms a large production base for automobiles. The financial crisis since 2008
brought significant changes for these two companies. The decline of demand forced
them to restructure their management. Unemployment in the region increased up to
33,000. The Chinese automobile company Geely became the largest shareholder ofVolvo in 2010. On the other hand, SAAB, which was owned by SPY cars in Netherland,
failed to find a new ownership, although a Chinese company expressed interest.
9

Several bio-technological companies including Astra Zeneca locate their R&D
department in Göteborg. There is an agglomeration of researchers and increase in theestablishment of new companies in the field of bio technology. A model called‘Triple-helix’ is observed in Sweden. It develops collaboration among companies,
universities and local governments as what happened in Kansai. In both the cases ofKansai and Västra Götaland, local governments implement measures to support scienceparks and incubators.
2.3 The comparison of two economies
First, we focus on the economic features of Kansai and Västra Götaland. Table
5 shows the economic sizes of both regions. The Gross Regional Product of Kansai was
770 billion US dollars in 2008 and it was almost ten times that of Västra Götaland. The
number of business establishments is also quite different between the two regions. It isnecessary to recognize that we are investigating quite different economies in size. The
features of the two economies are unclear from the simple comparison of economic size.
Table 5. Economic size of Kansai and Västra GötalandKansai
Västra GötalandGross Regional Product Number of Businessin million US dollar
establishment [2009][2008]
770,901
1,055,346
79,383

155,457(Note) GRP in US dollar is calculated using 1US$=103.39 Yen and 1US$=6.60 SKR.
(Source) Statistics Bureau of Japan, Economic Census 2009. Economic and Social Research Institute,
Annual Report on Prefectural Accounts. Statistiska Central Byrån, Bruttoregionprodukt and Regionalabasfakta enligt företagens ekonomi.

Concerning industrial structure, similarities between Kansai and Västra
Götaland are summarized as follows. Firstly, the composition of GRP, comparing othermetropolitan areas in Japan and Sweden, shows that the two economies of Kansai and
Västra Götaland are well-balanced with bases in manufacturing, commerce and services.
Secondly, both economies experienced long-term declines due to contracting demandfor heavy industry. Thirdly, both are seen new agglomeration in industries such as
pharmaceuticals.
These similarities might occur coincidentally. For example, there areinternational ports in Kobe/Osaka and Göteborg and this led to the development of
shipyards. However, they indicate that both economies are facing the same problems.
Both need to develop new industries, attract companies and create job opportunities. It
10

is not easy even though their economies are the second largest in each nation – but
rather because they are not the largest, and they are not capital cities. Capital cities likeTokyo and Stockholm succeeded in shifting toward service economies from 1980s.
Moreover, capital cities are internationally well-known and therefore need less effort to
attract investment. Kansai and Västra Götaland, being the second largest economies,
don’t have such advantages.

3. Regional Coordination
3.1 Regional integration of Västra Götaland
In 1998, the Västra Götaland Region was established with the integration of
Skaraborg, Älvsborg and Bohus county councils and parts of the City of Göteborg.
These county councils (landsting in Swedish) are mainly responsible for medical care,dental care and public transport. Each county had a directly elected assembly fordecision-making of their policy measures. These were integrated into one regional
assembly as the establishment of the region and the process of decision-making
transferred to it.
The establishment of the region aimed, first of all, to integrate the system of
medical care to improve its efficiency. As we have seen in the previous section, counties
in Sweden are small – they were too small to maintain sufficient medical care. Anotheraim was to transfer the discretionary taxation from the central government to the region
so that it could shoulder more responsibility. The policies of the central government
were implemented by the county administrative boards (län in Swedish) which sharedalmost the same geographical area with county councils. The transfer was expected tostrengthen the regional economy, because it enabled the region to implement measures
which were decided by the region. After the integration, a region can deal with otherareas such as culture, education, tourism and regional development5. The transportsystem is another issue that is more efficient to work on at a regional level than at a
5

Regional development policy includes infrastructure development and industrial support forregional firms. As OECD (2010) explains, “the principal objectives of regional policy were greater
equity and balanced development during a period of rapid industrialization…The main instruments
used were wealth redistribution through financial transfers by the national government accompaniedby large-scale public investments, especially in lagging regions.” In addition to these traditional
regional development policies, policies focusing on growth and competitiveness are becoming more
important. It means that the targets of policies have expanded from infrastructure to“entrepreneurship and innovation, education and training, culture and the environment” (OECD,
2010, p.16).
11

county level. As mentioned in section 2, the labor market of Västra Götaland isdispersed. Each of the major cities is more than 60 km away from the others, which isfurther than the cities in Stockholm and the Skåne region (Ernstson et al, 2008). The
improvement of transportation is expected to connect those isolated small labormarkets.
The discussion of regional integration in Västra Götaland started in the
beginning of the 1990s. One of the motivations was the long-term economic
disadvantage mentioned in the end of the previous section. In addition, the border of
each county was a problem for policies by counties. The administrative borders were
almost unchanged from the first geographical borders set in 1634 (Jensen, 2004, OECD,2010). Before the integration, the administrative areas were different from economic
areas measured by commuting distance. Such a mismatch of borders makes it difficult
to carry out policies efficiently. After a long and careful discussion, regional integration
as Västra Götalandsregionen started in 1998 as an experiment along with the Skåne
region. The experiment for more than a decade was a success. Västra Götaland chose tocontinue as a full-fledged organization in 2011.
3.2 Regional Coordination bodies in Kansai
The Japanese local governance system consists of three levels, which is thesame as in Sweden. At the middle level, there are 47 ‘prefectures’ corresponding to thelandsting in Sweden. These prefectures’ obligation is to implement measures which
cover a broad area across municipalities. These include maintenance of rivers and roads,
water supply, secondary education, and medical care. Furthermore, most prefectures
voluntarily conduct additional measures. For example, the Osaka prefectural
government has 10 departments and undertakes medical care, urban development andhousing, human rights and gender equality, welfare for children, elderly andhandicapped care, education (including preschool, primary, secondary, higher, andvocational), industry and labor, agriculture and fishery, in-bound tourism, and crisis
management – a broader area than Swedish landstings (Figure 5). The regional
coordination has also been discussed for a long time in Kansai. There are threeframeworks for the coordination discussed in parallel – regional cooperation, regional
associations, and the province system.
Regional cooperation is the first framework employed practically in Kansai. It
aims to smooth the cooperation between the existing policies of each prefecture. Within
this framework, the members keep their own tasks and their regional cooperation has nofunction of decision-making. Therefore, this framework is the ‘loosest’ coordination
12

among three. In Kansai, this framework is called Kansai Koiki Renkei. Ten prefecturesand four municipalities joined this regional cooperation: Fukui, Mie, Shiga, Kyoto,
Osaka, Hyogo, Nara, Wakayama, and Tokushima prefecture, plus the fourordinate-designed cities of Kyoto, Osaka, Sakai and Kobe city (Figure 6). There aresome members from outside of Kansai – Fukui from the Hokuriku region, Mie from
Tokai region, and Tokushima from Shikoku region. These prefectures are in theneighborhood and have a close relationship with Kansai.
Figure 5. The organization of Osaka Prefecture
GovenorCrisis Management
Department of Policy and Planning
Department of General Affairs
Department of Civil and Cultural Affairs
Department of Welfare
Department of Public Health and Medical Affiars
Department of Commerce, Industry and Labor
Department of Environment, Agriculture, Forestry and Fisheries
Department of Urban and Public Works
Department of Housing and City Development(Source) The website of Osaka Prefecture (as of October 24, 2012)

The regional cooperation started its operation in June 2007 and dealt withfollowing fields: culture and tourism, environment, crisis management, disasterprevention, publicity and regional development. However, this framework was too weak
to coordinate the measures among prefectures. The function of the cooperation was only
to adjust measures among prefectures, but the measures of prefectures were alreadyestablished through the decision-making process of each prefecture. The regional
cooperation could not force them to change measures or practices. As a result, only
tourism and publicity were successful within this framework. In October 2011, theinstitution of regional cooperation dissolved in accordance with the start of the second
coordination mentioned below.
The second coordination is the regional association called ‘the Union of Kansai
Governments’ (hereafter the UKG), or in Japanese, Kansai Koiki Rengo. The purpose ofthis framework is to integrate a part of the tasks of member prefectures. The seven13

prefectures of Shiga, Kyoto, Osaka, Hyogo, Wakayama, Tottori and Tokushima aremembers (Figure 6). The two prefectures of Tottori and Tokushima are from outside of
Kansai, while Nara is not a member of this framework. The operation of the UKG
started in December 2010, and the first assembly was held January 2011. UKG became
known for the quick response to the Great East Japan Earthquake. They decided which
responsible member prefectures would offer assistance for each of the affected
prefectures in the Tohoku region.
Figure 6. The member prefectures of regional coordination
Kansai Regional Cooperation

The Union of Kansai Governments

The big difference from the previous regional cooperation is that they have anindirectly-elected assembly which consists of the representatives from prefecturalassemblies. The UKG can make its own decisions regarding measures covering abroader area. The UKG works in the field of disaster prevention, culture and tourism,
industrial promotion, medical care, environment, licenses, and training forgovernmental staff. These are originally the tasks for prefectures, and coordination ofthese measures among prefectures is expected to improve their efficiency. However, not
all the functions are in practice yet; Tasks for prefectures have not been fully transferredat the present stage of formulating a strategy. Only a few measures, such as theoperation of the helicopter emergency medical service, have been implemented. In
addition, prefectures keep having their own measures for governance, and the assemblyof the UKG is not strong enough to control these prefectures’ measures.
The third framework of coordination, the province system (Doshu-sei inJapanese), has not been realized yet. The province system has become well-known in14

recent years 6 . The province system involves the transfer of all tasks anddecision-making processes of prefectures to the provincial government and theintegrated directly-elected assembly. The process of decision-making is the same as thatof the Västra Götaland region. The governor of the province is expected to have a strong
enough authority to control the allocation of governmental services. This framework
ideally can be the most powerful tool to improve the efficiency of the local government.
However, its feasibility is not high because, for most prefectures, it would mean the lossof self-government, or ‘being acquired by Osaka’.
Table 6. Three frameworks in Kansai region
Name of the frameworkloose
integration

deep
integration

Regional cooperation(Kansai Koiki Renkei)
Regional coordination(Kansai Koiki Rengo,
the Union of Kansai Governments)

Integration oftasks among
prefectures

Regional
assembly

Member-No decisionmaking

10 pref.
4 mun.

Dec.2010-

7 fields

Indirectlyelected

7 pref.
4 mun.

-All fields

Directlyelected-

Operation
Jun. 2007Oct. 2011

The Province System(Note) At the raw of Member, ‘pref.’is prefecture, ‘mun.’ is municipality.

3.3 The comparison of two regions
As mentioned in section 2, both of the regions have experienced economic
stagnation. The contraction of the regional economy was partly related to the common
characteristics of the two regions – metropolitan regions not being the capital. This fact
became a strong driving force of the regional coordination. The regional coordination
aims to stimulate the regional economy implementing two initiatives. One is to integrate
the process of decision-making among counties/prefectures. The other is to transfer thediscretionary taxation and authorities from the nation to the region.
Kansai and Västra Götaland have made a strong request for transferring thediscretionary taxation and authorities in common. The reason why these regions demand
the transfer them is that each region has different problems connected to industrial andeconomic structures. For example, the problems of Kansai are different from those of
the Tokai region. Each region needs to have appropriate measures for solving those
problems. Meanwhile, regional development policy has been a task of the central
6Toru Hashimoto, ex-governor of Osaka Prefecture, insisted strongly the introduction of the‘Kansai-province’ applying the province system. On the contrary, governors of other prefectures are
suspicious of the province system looking out for the loss of self-government.
15

government – or at least the central government has a strong authority over it – in bothSweden and Japan. Actual implementation in the region is done by the county
administrative boards of ministries. A problem in this process is that there is no directreflection of opinions from regional residents and businesses. Therefore, the two regions
strongly request to transfer the authority of regional development and tax revenue
sources – so that the region can decide its own policies. Moreover, the transfer of tasks
and tax sources from the nation to the region are required for the improvement ofefficiency. The integration of prefectural assemblies, prefectural government bodies andthe county administrative boards lead to cost-cutting and the improvement of regional
finances because of the reduction of governmental staff and the members of theprefectural assemblies.
Västra Götaland got off to a good start in introducing a new framework forregional coordination and its own regional development policies regarding both of these
initiatives. On the other hand, Kansai, where three different frameworks have beenbrought up in discussion, seems to have difficult challenges. The comparison between
the two regions revealed some differences as follows.
Firstly, the tasks at the county level before the coordination were limited for
Västra Götaland in comparison to Kansai. The structure of local self-government in
Sweden has been likened to a ‘sandglass’ – with landsting at the bottleneck. This
enabled Västra Götaland to create a new system without an adjustment among existingmeasures of county councils. In contrast, prefectures in Kansai already have measures
which cover broader fields. Regional coordination in Kansai has the high aim oftrimming down overlapping administration and measures. Coordination for the sake ofefficiency often involves the reduction of public services, however, the reduction ofexisting measures is harder to agree on than the creation of new measures. For example,
most of the municipalities in Kansai are unwilling to cooperate with each otherconcerning the measures for attracting business establishments7. The reason behind thisis their relationship as competitors –only the municipality which succeeds in attracting
investment can enjoy the increase of tax revenue. The effect on other municipalities,
such as an increase of employment, is limited. There is similar discussion in Västra
Götaland. Swedish municipalities have been actors for regional development policies
before the actual establishment of the region. At that time, it was argued that the region
should not force the change of the industrial measures of the municipalities. Also, theregion should not infringe upon the authority of the municipalities. They started with
7

Kansai Institute for Social and Economic Research (2010), p.119. Although this is a case formunicipalities, the same is true of the discussion for prefectures.
16

policies on development of infrastructure or education and research, which did not
overlap (Pierre and Schütt, 2004).
Secondly, in Västra Götaland the geographical identity of the administrative
district named län (nation) and landsting (county/region) helped facilitate the smoothtransfer of tax revenue source from the nation to the region. On the other hand, the issueof administrative borders can be an impediment to the regional coordination in Kansai.
County administrative boards in Japan cover areas which consist of several
prefectures. The geographic coverage differs according to the county administrative
boards. For example, the jurisdiction of the Kinki regional agricultural administration
office and the Kinki district transport bureau includes the six prefectures of Shiga,
Kyoto, Osaka, Hyogo, Nara and Wakayama (Figure 7). Meanwhile, the Kansai bureauof economy, trade and industry (METI Kansai) and Kinki regional development bureau
have jurisdiction over the aforementioned six prefectures plus Fukui. In addition to this,the composition of member prefectures varies for each framework of regional
coordination (Table 7). The member prefectures of the ongoing coordination UKG areseven: Shiga, Kyoto, Osaka, Hyogo, Wakayama, Tokushima and Tottori. In this union,
Nara, which is one of the core prefectures of Kansai, has not joined, and two prefectures
participate from outside of Kansai. The UKG aims at transferring the authorities fromfour county administrative boards in the area of industry, agriculture, and infrastructure.
However, to realize the transfer of tax revenue source and authorities, it is essential tosolve this problem of geographical mismatch.
Figure 7. The coverage of the county administrative boards
Kansai Bureau of Economy, Trade and Industry /Kinki Regionla Development Bureau

Kinki Regional Agricultural Administration Office/ Kinki District Transport Bureau

17Regional
Coordination

Kansai Regional Cooperation✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓The Union of Kansai Governments✓ ✓ ✓ ✓✓

Tottori

Tokushima

Mie

Fukui

Wakayama

Nara

Hyogo

Osaka

Kyoto

Shiga

Table 7. The coverage of the county administrative boards✓ ✓The Province System
Kansai Bureau of Economy, Trade and Industry

Kinki Regional Agricultural Administration
CountyAdministrative Office
Boards
Kinki Regional Development Bureau
Kinki District Transport Bureau✓ ✓ ✓ ✓ ✓ ✓ ✓✓ ✓ ✓ ✓ ✓ ✓✓ ✓ ✓ ✓ ✓ ✓ ✓✓ ✓ ✓ ✓ ✓ ✓Thirdly, there is a large gap of the population and economic size between thetwo regions. This brings about the different motivations for regional coordination. The
problem of Västra Götaland before the regional integration was inefficiency caused bydispersed small counties. The integration of the counties allowed the region to enjoy aneconomy of scale with 1.56 million inhabitants. Furthermore, the region became large
enough to be subsidized from the regional development program of the European
Union8. In contrast, all of the prefectures in Kansai are bigger than Västra Götaland. For
such a region with a huge population, there is a question whether the integration always
accompanies an increase in efficiency. For example, OECD (2006) points out thepossibility of diseconomy of scale from the negative relationship between populationand income for OECD mega-cities.
There is another challenge for Kansai concerning membership. In Kansai, there
are the four ordinance-designated cities of Osaka, Sakai, Kyoto and Kobe city. The
ordinance-designated cities which have a population of more than 700,000 inhabitants
are allowed to implement some of the tasks of the prefecture. These cities can establish
their own measures in the fields of urban planning, health centers, and so on. In manycases, the ordinance-designated cities voluntary set up other measures including
regional development. Regarding the fields which an ordinance-designated city deals
with, a prefectural government has no force to decide the measures applied within thecity9. Therefore, the participation of the ordinance-designated cities in the coordination
8

For further details of The Regional Operational Programme for West Sweden, see website ofEuropean Commission. http://ec.europa.eu/regional_policy/index_en.cfm
9
It is often criticized as ‘the overlapping administration’ that a prefecture and an inside municipality
have similar measures.
18

is essential to improve the efficiency of the region. This has been realized with theparticipation of Osaka and Sakai city in April 2012, followed by Kyoto and Kobe city inAugust 2012. In Västra Götaland, Göteborg was a similar case called landstingsfri
kommun which was responsible for medical care. It was not a major obstacle, because
the tasks of the county council were limited.

4. Internationalization and the region
In the previous two sections, we discussed mainly the domestic factors behindregional coordination. In addition to them, we need to discuss what happened to theregions during globalization of 1990s-2000s. This changed the economic circumstances
for firms and public sector in the regions. How have the regional economies in Kansai
and Västra Götaland adapted to them? In this section, the corresponding changes of both
firms and administrative organizations are discussed.
4.1 The internationalization of firms
To begin with, we consider the internationalization of firms, which means to
broaden their activities abroad. It includes trade, foreign direct investment (FDI),
outsourcing, technology alliances, and so on. After the Second World War, the amountof trade in the world rapidly increased. From the 1980s, FDI accelerated further
expanding trade volume. This affected regional economies and local firms in two
directions: outward activities such as exports, outward FDI, foreign outsourcing, andinward activity such as imports, inward FDI. We investigate these two issues separately.
First, we outline the outward movement of Japanese firms. The Yen
apprehension after the Plaza Accord in 1985 was a trigger for outward FDI of Japanesefirms. It led to the decrease of export demand, and a lot of large firms chose to transfer
their production base overseas. Most SMEs, which dominated in number, did not takethe risk of foreign production since it required large amounts of capital. SMEs sufferedfrom the increase of import from Asia, and the decrease of orders from parent and large
companies due to FDI. The damages caused the number of SMEs to decline, and thesurviving SMEs had to change their trade behavior. Some chose to shift their business todomestic demand focusing on niches needing high-skilled labor. At that time, theeconomic boom known as ‘bubble economy’ started to grow. The domestic market in
Japan was able to absorb the production of SMEs. However, the bubble economy
collapsed in the beginning of the 1990s, and the domestic market began to contract.
Overseas markets became more important for SMEs. Recently, a growing number of19

SMEs engage in overseas business. However, it is not large yet: The 2012 White Paper
on Small and Medium Enterprises in Japan points that only 2% of manufacturing SMEs
export their products directly overseas, and only 1% for outward FDI10. The reason why
most SMEs engage only in domestic business is because of the existence of the large
domestic market. They can acquire enough business partners, with fewer risks, incomparison to FDI.
The behavior of Swedish SMEs is totally opposite. Since the domestic market
in Sweden is limited, they are motivated to cultivate foreign demand. 13% of Swedish
SMEs export to foreign markets (Tillväxtverket, 2012). Internationalized SMEs accountfor 24.6% nationwide, and 27.1% in Västra Götaland. Regarding Osaka firms, the resultof a questionnaire survey by Osaka prefecture in 2006 revealed that internationalized
firms account for 16.1% of the sample firms, which includes both large firms and SMEs
(Osaka Prefecture, 2006).
Table 8. Japanese and Swedish firms listed in the world's top 100 non-financial
TNCs by UNCTAD, 2010 (Millions of dollars and number of employees)

SwedenJapan

Ranking by:
Foreign
TNI
assetsAssetsCorporation

Sales

Employment

Foreign

Total

Foreign

Total

Foreign

Total

TNI
(%)

211,153

359,862

140,319

221,604

118,362

317,71653.1

104,286

139,644

82,871

104,269

106,230

176,815

71.4

79,153

136,947

11,26460,75017,61558,72335.4

72,752

155,986

58,671

83,786

107,700

167,900

60.3

5

76

21

37

29

97

31

56

Toyota Motor
Corporation
Honda Motor Co Ltd
Mitsubishi
Corporation
Sony Corporation

36

62

Nissan Motor Co Ltd

63,499129,576

77,673102,358

76,321

151,698

58.4

42

95

Mitsui & Co Ltd

60,347103,772

23,54954,596

3,111

40,026

36.4

87

93

Hitachi Ltd

32,680110,857

47,212

108,690145,352

361,745

37.7

92

72

Japan Tobacco Inc

31,475

43,10830,94372,27323,902

48,472

55.0

47

33

Vattenfall AB

54,01380,69422,606

29,63230,99440,363

73.3

80

22

Volvo AB36,39547,39535,00336,732

66,90390,409

82.0

98

35

TeliaSonera AB

30,881

37,342

9,694

14,78820,00828,945

72.5(Source) UNCTAD World Investment Report 2011.

The same thing can be said about large firms in Japan, they too depend on
domestic demand. Table 8 shows Japanese and Swedish firms listed in the world’s top
100 transnational corporations in the non-financial sector. The ranking is based on theamount of foreign assets. In addition, the Transnationality Index (TNI) is calculated as
the average of foreign assets ratio to total assets, foreign sales ratio to total sales, and10

Small and Medium Enterprise Agency (2012), p.71 and p.75.
20

foreign employment ratio to total employment. TNI approaches 100 when the foreign
share of a transnational corporation’s production and distribution is mainly based
overseas and means that the transnational corporation is highly transnationalized. The
comparison of TNI shows that major Japanese firms tend to be less transnationalized
than Swedish firms. A lot of Japanese firms have expanded their activities overseas,
however, the internationalization of their operation is at a lower level in comparison to
Swedish firms.
Next, we start with the inward FDI of Sweden with regard to an inward
movement. After the burst of their bubble economy in 1992, the Swedish governmentchanged their attitude regarding inward FDI policy. They recognized that inward FDI
could stimulate the domestic economy and so developed policies to attract foreign
capital such as a reduction of corporate tax, special tax incentives and deregulation11. In
the 1990s there were some large-scale cross-border M&As, for example, Ford’s
acquisition of Volvo cars, and a merger between Astra and Zeneca in the pharmaceuticalindustry. The number of foreign-owned firms in 1990 was 2,563 and it increased to
13,636 in 200912. It accounts for 1.5% of total number of firms. The Göteborg region
consists of 13 municipalities, and there are 2,261 foreign-owned firms in 2009 13 .
Recently inward FDI has become dominant in the service sector and in the field of R&D
rather than the manufacturing sector.
The Japanese government has also shifted their policy towards active
promotion of inward FDI. They hoped to increase inward FDI which was at low level incontrast to outward FDI. However, inward FDI did not increase as they expected. In
Japan, the number of foreign-owned firms with more than 50% of foreign capital was
3,329 in 2009 which accounted for 0.2% of total number of firms14. The total number offirms in Japan is twice that of Sweden. However, those firms with more than 50% of
foreign ownership in Japan are 75% less than those of Sweden. In addition, the inward
FDI performance index of Japan, which indicates the ranking of the relative inflow of
FDI to its economic size, was 136 among 141 economies in 2009, despite the fact thatthe inward FDI potential index ranked it 2615. These figures suggest that Japan is lessopen to foreign capital and businesses. Moreover, most foreign-owned firms locate their
11

Yumoto and Sato (2010).
Tillväxtverket (2010). The definition of foreign-owned firm, called foreign controlled enterprisein the Tillväxtverket’s report, is a firm held more than half of the voting power by one or more
foreign investors.
13
Business Region Göteborg (2010).
14
Statistics Bureau, 2009 Economic census for Business Frame.
15
UNCTAD (2011). Regarding Sweden, the inward FDI performance index and potential index
ranked 71 and 13 respectively.
12

21

headquarters either in Tokyo or other surrounding areas. Only 10% of foreign-owned
firms are based in Kansai.
The facts pertaining to both outward and inward activities all show thatJapanese firms are relatively less internationalized than Swedish firms. The reason forthis difference has not been fully investigated. In discussion with some Kansai firms andlocal governments, many feel no necessity for internationalizing their activities. A
number of Kansai firms are satisfied with their domestic businesses, since there are still
sufficient opportunities without the risk of foreign markets. This inability of Japanesefirms to look abroad may become a serious problem as the market contracts due to therapid aging of society. How do the attitudes of local firms affect the regional
development policies? One possibility is that local firms don’t utilize policies that
already exist in Kansai. This means that resources are not being used or perhaps
promoted effectively. Another problem is that a lack of use leads to a contraction of thebudgets and personnel allocated to regional development policy.
Furthermore, the stagnation of inward FDI in Japan is a result of a lack ofunderstanding about the current trends of FDI. A large part of recent FDI inflow activity
to developed countries is conducted by means of mergers and acquisitions. Conversely,
most local governments in Japan expect greenfield FDI, which means new
establishment firms creating new employment16. Although there has been an increase in
Cross-border M&As, the majority of Japanese firms are yet cautious to be ‘acquired byforeign capital’. These are some of the reasons why local governments stick toconventional inward FDI policy.
4.2 The internationalization of the administrative organizations
Globalization in the private sector has increased the importance ofinternationalization in the public sector. Local governments now need to cooperate moreclosely with foreign counterparts in addition to existing international friendshiparrangement. Regional development policies that include support for overseas activities
of local firms need to extend their targets to foreign firms. In this sense, international
issues are the responsibility of regional development 17 . These changes require anunderstanding of internationalization by the administrative organization and personnel
capable to handle it. Kansai and Västra Götaland share this change of circumstance.
Berg and Lindahl (2003) summarized the research and set up a model of
16

Actually, greenfield FDI is not always welcomed by local firms due to the increase of competition
with local firms.
17
Lindahl and Berg (2004), p.442. They analyze the internationalization of Västra Götaland.
22internationalization for administrative organization. They explain the process ofinternationalization through two components: internal factors including international
strategy and resource allocation within organization, and external factors represented by
the international participation.
On the other hand, there was a significant change of circumstances that relates
only to Västra Götaland: the affiliation to the EU in 199518. The affiliation to the EU
added a new, transnational level of governance for Västra Götaland. It enables Västra
Götaland to apply regional development policy using the EU structure fund. At the sametime, it required the internationalization of the local government, since applications for
the EU fund per se are for international operation19. Furthermore, internationalization isexpressed explicitly as a task of Västra Götaland in its regional policy strategy
statement. With respect to the model of internationalization, one internal factor is thewritten regional strategy. The application to the EU structure fund is regarded as one of
the external factors.
In contrast to this, the internationalization of local governments in Kansai is at
a low level, even though each prefecture has long been responsible forinternationalization. In most cases the international exchange division engages mainly
in traditional international cooperation through friendship agreements etc. The
responsibility for regional development projects is often found in the division ofcommerce and industry where internationalized personnel is lacking, and it issometimes shared between both divisions. At the regional level, the UKG does not
mention internationalization in its vision statement published in 2011. They have noconcrete plan for developing international adaptability of the UKG itself. They do
support measures for the internationalization of firms and promote inbound tourism.
These facts show that internationalization in Kansai does not appear in internal orexternal factors. One reason for this slow internationalization in Kansai is that there isno corresponding framework such as EU is for Västra Götaland. Japan does participate
in regional economic frameworks such as Asia-Pacific Economic Cooperation (APEC).
However, there is a clear difference between APEC and the EU. APEC targets only on
the trade liberalization and other economic aspects and doesn’t intervene in local
economies. They are too weak to leverage local governments into internationalizing18

We note that municipalities kommun, not landstings, were the main actors of international
operation before the start of Västra Götaland. One of the typical international activities formunicipalities is friendship city arrangement. In addition, some departments are involved ininternational projects for specific area.
19
Berg and Lindahl (2003) point out that a lot of municipalities are driven by the EU membership toformulate international strategy.
23their operations.

5. Concluding Remarks
This paper considered some similarities and differences between Kansai and
Västra Götaland. The results of the analysis are summarized as follows. Firstly, the tworegions have a similar industrial structure and similar experience of economic
stagnation over a long period of time. Secondly, the two regions share an expectation forregional coordination to stimulate their regional economy, and to improve the efficiencyof the local government. Västra Götaland succeeded integrating Göteborg and threelandstings, while Kansai is just now trying to figure out an appropriate framework. The
comparison of the two regions showed that there were some difficulties of integration
unique to Kansai. First of all, Kansai must solve the geographical border problem inorder to introduce the province system and to transfer the tax sources and tasks from thenation. Thirdly, the extent of internationalization between the two regions is different
concerning both aspects of public and private sectors.
With regard to regional coordination and internationalization, the two regions
move in the same direction, however, they are at different levels of achievement. One
should recognize that differences of system and circumstances unduly affectachievements. For example, the system of local governance in Sweden characterized as‘sandglass’ made it less an obstacle for the coordination between landsting relative toJapanese prefectures. At the same time, simple adaptation of the same system as Västra
Götaland – the province system – would not necessarily result in good governance in
Kansai where prefectures already have a lot of tasks20. These differences in achievement
are reflected in the realization of regional development policies. Therefore, Kansai has
to find an appropriate, efficient, feasible framework.
Although faced with different problems, the regional economies of Kansai and
Västra Götaland are facing the same challenges. They have to prepare supporting
measures against the problems, for example, aging managers of SMEs, the difficulty offinding successors, concentration of the young generation in the city and the decline insuburbs. Some measures of Västra Götaland such as the industrial cluster strategy,
support for entrepreneurs and SMEs are similar to what prefectures in Kansai have beenworking on. Further research on specific measures which would be useful to adapt for
20

Actually, other regions in Sweden including the Kalmar region choose regional coordination withan indirectly-elected assembly much similar to the UKG in Kansai.
24

regional development should be considered.

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26