SMEs in Japan: A new growth driver?


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SMEs in Japan: A new growth driver? is an Economist Intelligence Unit report, sponsored by Microsoft. The paper assesses the problems and prospects facing small and medium-sized businesses in Japan. How realistic is it to expect SMEs to become the new growth drivers of Japan’s economy? What pressing challenges do SMEs face in expanding their businesses? How are they faring in the bid to find growth in new markets and through new products and services? Have they been successful in internationalising their operations and profiting from innovation? And are government policies to support the sector helping?

The report is based on interviews with senior executives at SMEs in Japan, government officials and other experts, and a review of relevant literature published both in Japan and by supra-national bodieslike the IMF, OECD and World Bank. The Economist Intelligence Unit’s editorial team conducted research and wrote the report independently. The findings and views expressed in this report do not necessarily reflect the views of the sponsor.




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SMEs in Japan: A new growth driver?

  1. 1. Cover_final.pdf 12/1/2010 5:33:15 PM Paper size: 210mm x 270mm SMEs in Japan A new growth driver? LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom C Tel: (44.20) 7576 8000 M Fax: (44.20) 7576 8500 Y E-mail: london@eiu.comCMMY NEW YORKCY 750 Third AvenueCMY 5th Floor K New York, NY 10017, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: GENEVA Boulevard des Tranchées 16 1206 Geneva Switzerland Tel: (41) 22 566 2470 A report from the Economist Intelligence Unit Fax: (41) 22 346 9347 E-mail: Sponsored by
  2. 2. SMEs in Japan A new growth driver?ContentsPreface 2Executive summary 31. Introduction 5 SMEs in Japan’s economy 72. Challenges: Finance and human capital 9 Finding finance 9 The HR conundrum 10 Case study: Kamijima Heat Treatment—A tradition of skill 11 The evolution of SME policy 123. Opportunities 1: Internal balance, external growth 13 The importance of internationalising 14 Case study: Cubic—Small hotels, big ambitions 17 Case study: Horiba—From SME to titan 174. Opportunities 2: Innovation and technology 18 Driving SME innovation 19 Case study: Sanwa Dengyo—The China connection 215. Conclusion 22 © Economist Intelligence Unit 2010 1
  3. 3. SMEs in Japan A new growth driver? Preface SMEs in Japan: A new growth driver? is an Economist Intelligence Unit report, sponsored by Microsoft. The Economist Intelligence Unit’s editorial team conducted research for this paper and wrote the report independently. The findings and views expressed in this report do not necessarily reflect the views of the sponsor. Gavin Blair was the author of the report and David Line was the editor. Amie Nagano and Takato Mori were the lead researchers and editors of the Japanese translation. Gaddi Tam was responsible for design. We would like to thank all interviewees for their time and insights. December 2010 © 2010 The Economist Intelligence Unit. All rights reserved. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Economist Intelligence Unit.2 © Economist Intelligence Unit 2010
  4. 4. SMEs in Japan A new growth driver?Executive summaryM ore than 99% of all businesses in Japan are small or medium-sized enterprises (SMEs); they also employ a majority of the working population and account for a large proportion of economic output.While most of these companies are not as well known as Japan’s giants, they form the backbone of theservice sector and are a crucial part of the manufacturing and export supply chain. The health of this enormous sector is therefore crucial to the health of the economy overall. But SMEsare among the most pessimistic of Japanese businesses, having been hit hardest by the recession thatfollowed the financial crisis of 2008. And because many are reliant on the domestic economy, in whichdemand will dwindle as the population ages and shrinks, their prospects are uncertain. Against this background, how realistic is it to expect SMEs to become the new growth drivers of Japan’seconomy? What pressing challenges do SMEs face in expanding their businesses? How are they faring inthe bid to find growth in new markets and through new products and services? Have they been successfulin internationalising their operations and profiting from innovation? And are government policies tosupport the sector helping? This briefing paper, SMEs in Japan: A new growth driver?, sponsored by Microsoft, discusses thesecrucial issues. It is based on interviews with senior executives at SMEs in Japan, government officials andother experts, and a review of relevant literature published both in Japan and by supra-national bodieslike the IMF, OECD and World Bank. Its key findings include:• Japanese SMEs face particular problems securing finance. That banks are more reluctant to lend tosmall companies than big ones is not surprising. But such is the vulnerability of the sector, as many as aquarter of those who received emergency credit guarantees during the recent recession would have goneout of business without them. Japanese banks’ continued risk-aversion and a reliance on fixed assets forcollateral put many SMEs at a disadvantage when looking for funds. Banks need more effective ways ofmeasuring SMEs’ business value, while SME owners need better accounting to explain it. © Economist Intelligence Unit 2010 3
  5. 5. SMEs in Japan A new growth driver? • Finding the right employees is problematic, but tough economic times present an opportunity. Japan’s workforce has tended to favour the security of employment at large corporations, and attracting experienced and skilled workers can be difficult for SMEs. However, the cloud of the recent recession has brought two silver linings for SMEs: new entrants to the workforce are showing more interest in working for small companies, and larger businesses that are reluctant to fire workers can transfer the knowledge of experienced staff through employee loan programmes. • Growth requires the right mix of human capital—and a willingness to collaborate. While many Japanese SMEs take pride in the skills of their master craftspeople in niche industries, to grow successfully and scale their businesses requires the right balance of various types of human capital, including entrepreneurs and administrative staff. And while many lack the resources to expand alone, cooperation, even between apparent rivals in the same field, can be a key to growth. • Japanese SMEs lag their developed-market peers in tapping international markets. With a shrinking domestic market, many Japanese SMEs must internationalise to expand. While some are seeking to leverage external markets, as a sharp rise in exports in the years running up to the “Lehman Shock” showed, in general they have been comparably slow in making this shift. SMEs that are reluctant to globalise cite lack of access to information about overseas markets, lack of capable management resources in Japan, and difficulty securing financing as the main reasons. • Japanese SMEs spend comparatively little on innovation. While Japan as a whole spends a lot on RD in comparison with other developed economies, its SMEs do not. Lack of access to finance and risk-aversion are the principle reasons. Interviewees suggest successful innovation requires the right mix of policy support and helpful bureaucratic structures to encourage entrepreneurialism, which is often hampered by bureaucratic hurdles. Putting in place the means to easily commercialise intellectual property is also crucial. • While policy towards SMEs has evolved, access to assistance is often difficult. Policy has evolved to target SMEs as potential growth leaders, and central and local government programmes to support SMEs financially, organisationally, and in their bids to internationalise and innovate are plentiful. But poor publicity and complicated application procedures hinder their adoption and reduce their impact. In addition, some interviewees suggest policy measures need to focus less on financing SMEs and more on encouraging their growth and development.4 © Economist Intelligence Unit 2010
  6. 6. SMEs in Japan A new growth driver?Key pointsn SMEs account for an overwhelming majority of total enterprises in Japan, and a large part of employment and value added, making their health crucial to that of the economy as a whole.n Tough conditions for SMEs predate the recession of 2008-09, reflecting longstanding problems with the domestic economy.n Japan’s SMEs were hit hard by the financial crisis—particularly those in the export supply chain.1. IntroductionJ apan’s small and medium-sized enterprises (SMEs), like their counterparts around most of the globe, were hit even harder than larger companies by the worldwide economic crisis. Not only were SMEsaffected worse, but they had been struggling to cope with weak domestic demand even before the eventsreferred to in Japan as the “Lehman Shock”. Surveys of sentiment among small business owners show how tough conditions have been, for howlong. The Bank of Japan’s quarterly Tankan survey of business sentiment—the most closely watchedsuch indicator nationwide—has rarely shown positive readings from small business respondents inrecent years, and was still mired in negative territory in the third quarter of 2010, by which time largerenterprises had returned to a positive outlook (Figure 1). A similar survey on conditions that includesFigure 1Tankan, business conditions diffusion index, all industries%, quarterly Small Medium Large302010 0-10-20-30-40-50 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 2005 2006 2007 2008 2009 2010NB: Calculated by subtracting the percentage of enterprises that answered “bad” from the percentage that answered “good” when questioned about business conditions in the present quarter. The Tankan defines “small” enterprises as those with capital of between ¥20m and ¥100m; “medium” as those with capital of ¥100m-¥1bn, and “large” as those with capital exceeding ¥1bn.Source: Bank of Japan © Economist Intelligence Unit 2010 5
  7. 7. SMEs in Japan A new growth driver? Figure 2 Business conditions diffusion index for SMEs, all industries All SMEs Medium-sized enterprises Small enterprises -10 -20 -30 -40 -50 -60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 NB: Index caclutated by subtracting percentage of enterprises that answered “worsened” from percentage answering “improved” when asked about business conditions in comparison with previous quarter. Source: Organisation for Small Medium Enterprises and Regional Innovation, Japan (SMRJ). businesses with capital of less than ¥20m (excluded in the Tankan) also shows sentiment at these businesses has been poor for a long time (Figure 2). The contrast with SMEs in many other Asian economies, which have rebounded to dynamic growth and banished the memory of the financial crisis, is stark. While all small businesses face problems with finance, HR and management, Japan’s SMEs also face a raft of domestic challenges that are testing their resiliency and ingenuity to the limits. And while Japan’s SMEs may not be as well known as its corporate titans, their health is vital to the economic wellbeing of the country, not least because they account for an overwhelming majority of total enterprises and employment, and a considerable part of the value added in the economy. (In this Japan is hardly unusual; in most developed economies Figure 3 SMEs contribution to total, 2007 SMEs are similarly important, as Figure 3 shows). (%) The health of this sector, comprising more than 4m Number of enterprises Total employment Value added enterprises, is therefore of major importance for France 99.8 60.5 56.0 the health of the overall economy. Germany a 99.5 60.4 53.6 For this briefing paper, SMEs in Japan: A new Japan b 99.7 69.0 53.0 c growth driver?, Microsoft commissioned the South Korea b, c 98.9 71.0 45.5 Economist Intelligence Unit to examine the state UK a 99.6 54.1 51.0 of the SME sector in Japan, how it is responding to USd 98.9 57.9 na the challenges it faces, how effective government a Value added at factor cost b 2006 c Excluding services d 2004-05 policy has been in supporting small and medium- Source: OECD, Structural and Demographic Business Statistics; Japan METI/Ministry of Internal Affairs sized businesses, and what more could be done to aid them. The paper also assesses whether, in the face of shrinking domestic demand, Japan’s SMEs are internationalising successfully and tapping into the growth engine of fast-growing Asian economies. In light of the crucial role SMEs play in both developing and monetising new ideas, the paper also looks at innovation in the country’s small businesses and assesses whether today’s SMEs can become tomorrow’s6 © Economist Intelligence Unit 2010
  8. 8. SMEs in Japan A new growth driver?multinationals—the next Nintendos, Panasonics or Uniqlos. Rather than attempting a comprehensive survey of this enormous and varied sector, this paper setsout to identify some of the key issues facing these companies, how they may be addressed, and whatthe outlook is for Japanese SMEs—primarily as a means of generating discussion on these issues amongall stakeholders. The findings are based on interviews with various small-business owners, experts andofficials, conducted in October and November 2010, augmented with a review of the existing relevantliterature. What is an SME? Figure 4 Definition of SME Capital size Number of The definition of what constitutes an SME varies Industries (¥m) employees between countries: this paper uses the definition Manufacturing and others 300 or less 300 or fewer according to the Small and Medium-sized Enterprise Wholesale 100 or less 100 or fewer Basic Act and used by Japan’s Ministry of Economy, Retail 50 or less 50 or fewer Trade and Industry (METI). This classifies as SMEs Services 50 or less 100 or fewer businesses in the retail or services sector with less Source: METI than ¥50m (US$600,000) in capital, those in the wholesale sector with less than ¥100m (US$1.2m) in capital, and those in manufacturing with less than employees, those in services or wholesale with fewer ¥300m (US$3.6m) in capital. In addition it restricts than 100 employees, and those in manufacturing with the definition to those in retail with fewer than 50 fewer than 300 employees.SMEs in Japan’s economy Figure 5 Composition of SME sector in Japan (% of enterprises)SMEs are prevalent across the Japanese economy, Retail 20%constituting the lion’s share of enterprises in all Service industry 18%sectors. SMEs are most numerous in the retail, Restaurants,services and restaurant/lodging industries (Figure lodging industry 15%5), but among the most productive are those in Construction 12%the manufacturing sector. While many of those in Manufacturing 11%the services sector are wholly reliant on domestic Real estate industry 7%demand, a large proportion of SME manufacturers Wholesale 6%are essential suppliers to Japan’s famous largeexporters. Health, welfare 4% The significance of SMEs in the export supply Education, learning support 3% Transportation 2%chain explains in part why the sector was hit ICT industry 1%so hard by the recession of 2008-09. A study Finance and insurance 1%commissioned by METI’s SME Agency showed that Source: Derived from Ministry of Internal Affairs and Communications (Japan), “Establishment and Enterprise Census”, 2006the approximately ¥700bn (US$8.3bn) in declines © Economist Intelligence Unit 2010 7
  9. 9. SMEs in Japan A new growth driver? in new vehicle exports suffered by the domestic automobile industry between the third quarter of 20081 SME Agency, 2010 White and the first quarter of 2009 caused a decline in production at SMEs of some ¥400bn (US$4.8bn).1Paper on Small and MediumEnterprises in Japan Similarly, SME suppliers to the major electronics exporters were severely affected due to drop-offs in exports in that sector. Numerous other SMEs that do business with the major exporters and their suppliers were hit both directly and indirectly by the knock-on effects of the slowdown. Many of Japan’s SMEs were carried along by the export-led pre-Lehman boom—and suffered heavily when it ended. With domestic demand anaemic, can they prosper from new sources of growth, what challenges do they face in trying to do so, and are the government’s numerous policies to support them having the desired effect?8 © Economist Intelligence Unit 2010
  10. 10. SMEs in Japan A new growth driver?Key pointsn Although many policies have helped SMEs secure finance through the recent recession, banks’ risk-aversion and a reliance on fixed assets for collateral put many SMEs at a disadvantage.n There are positive signs that the workforce is more open to opportunities at smaller businesses, and that larger businesses can help transfer knowledge through employee loan programmes.n Policy has evolved to target SMEs as potential growth leaders, with central and local government schemes promoting entrepreneurialism and innovation. But awareness of many policies among SME owners remains low.2. Challenges: Finance and human capitalA lthough SMEs share many of the challenges of larger companies, they are also affected in distinctly different ways by the same issues. Finance and human capital are at the core of every business andare the predominant factors that determine whether an SME can break out of the sector to become alarger enterprise. The experience of SMEs with regard to these two crucial issues is to a large extent whatsets them apart from bigger businesses.Finding financeRarely having the kind of financial reserves that can see them through severe economic slowdowns, SMEsare typically dependent on banks and other creditors if times get tough. When credit dries up, as it didduring the recent financial crisis, SMEs are hit even harder, as lending institutions tend to view them ashigher-risk debtors than large companies. As lending by major banks plummeted during the recession, the government stepped in with anEmergency Guarantee Program that increased lending to SMEs from regional banks and state-affiliatedfinancial institutions (see Figure 6). Illustrating the vulnerability of much of the sector, a quarter of thosewho received these guaranteed loans reported they would have gone out of business without them. Even during more stable economic times, financing smaller enterprises is a challenge. Partly this is dueto risk-aversion at Japanese banks and a reluctance to lend without substantial fixed assets as collateral. “SMEs tend not to own very many fixed assets,” says Naohiro Nishiguchi, director of the InnovationNetwork Corporation of Japan (INCJ)—part of a government revitalisation initiative that draws on publicand private funds to foster next-generation businesses. “The lending system should move towards one thatplaces more emphasis on the business value of the intellectual property owned by the SME,” he suggests. Aqua Science Corporation of Yokohama, a manufacturing firm with 22 employees that has developed asteam syringe device for industrial cleaning used during the process of manufacturing semiconductors, © Economist Intelligence Unit 2010 9
  11. 11. SMEs in Japan A new growth driver? Figure 6 Outstanding lending to SMEs by government-affiliated financial institutions, etc Outstanding lending ¥trn, left axis Year-on-year change %, right axis 24 6 23 4 22 2 21 0 20 -2 19 -4 18 -6 17 -8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 Source: SME Agency, 2010 White Paper on Small and Medium Enterprises in Japan. Reprinted with permission. has a business structure that deliberately avoids the ownership of costly fixed assets like factories. The company’s president, Yoichi Isago, explains that these can pose a serious risk to cash flow given volatile cycles in the market. Aqua Science has nonetheless been successful in securing financing, partly owing to the strength of its intellectual property, but it has had to be creative—turning to overseas investors despite its small size. Mr Isago explains that he has tapped venture capitalists and partners from Taiwan, Korea and the US, as well as Japan, to secure finance, based on the strength of the company’s core product. “People saw the potential market value of the technology in hand,” he says. One reason for investor confidence may have been because Aqua Science, which was spun off from a US parent company in 2003, had proven technology and an established business model. But Mr Isago also compares the risk-averse Japanese mindset with the business culture elsewhere. In Japan, he says, “the culture is more focused on not making mistakes instead of one that promotes achievements.” Whereas businesspeople in China, Korea and Taiwan “are committed to their missions,” he says. “They accept risks for future gains.” For its part, the government is trying to make credit guarantee requirements for SMEs more flexible, says Ichiro Takahara, director-general of the SME Agency at METI. He explains that financing problems are multifaceted: SME owners often lack the ability to explain their businesses to potential lenders, while many private banks are unable to judge the growth potential of the business of SME applicants. To this end, METI has launched a committee to evaluate accounting standards at SME businesses and is promoting “relationship banking”, with closer partnerships between SMEs and financial institutions. It has also introduced a training programme for financial institutions to study national and prefectural governments’ SMEs programmes. The HR conundrum “The key for growth, whether for Japan [in general] or SMEs, is getting the right human-capital portfolio,” says Mr Nishiguchi. This may be easier said than done: human resources are always a challenge for SMEs, particularly in Japan where there has traditionally been a strong bias amongst the workforce10 © Economist Intelligence Unit 2010
  12. 12. SMEs in Japan A new growth driver?towards larger, stable employers. But there are signs that this has been changing in recent years. Scott Callon, president of Ichigo Asset Management, a Tokyo-based investment management company,believes there has been a shift in attitudes towards start-ups amongst Japan’s workers. He says he foundfew problems attracting quality personnel even in the early days of his company. Keisuke Yui, president of Cubic—a business with eight employees that provides consulting servicesto financially troubled capsule hotels, as well as running its own new style of “transit hub” hotel inKyoto—agrees that there has been a change in the bias towards working for major corporations. But heconcedes that the financial crisis has made some more cautious again about taking the risk of entering anew venture. In every crisis there lies opportunity, however. Hidemi Kamijima, president of Kamijima HeatTreatment, a metal-processing company in Tokyo’s Ota Ward with 45 employees, has noted an expansionof the pool of available labour as a result of the recession. He reports that the adverse employmentconditions are resulting in an increasing number of new graduates—a group currently facing particularlyhigh rates of unemployment—showing interest in his business. Another silver lining of the current tough times noted by Kamijima is the Japanese practice of “leasing”workers (shukko) from bigger companies who are loath to make long-term employees redundant. “Thischannel offers a good opportunity for us to get the kind of human capital that is otherwise difficult for asmall company like ours [to attract]—with an added bonus of only having to pay a part of their pay, if theyare leased,” says Mr Kamijima. (See also the case study below.) Mr Kamijima has used his personal networks, rather than formal channels, to help his company benefitfrom this kind of human-capital transfer. But such benefits may not be open to all SMEs without policyguidance. Indeed, some interviewees suggest policies that encourage the transfer of human capital may Case study: Kamijima Heat Treatment—A tradition of to master the skills–are the major challenges for the specialist skill factories in the sector. “Even the heat treatment work that does not require high-grade skills is coming to us these days as the level of craftsmanship in other factories is suffering,” says Mr Kamijima. The Kamijima Heat Treatment plant is located in the back streets of The company has been able to maintain its skilled workforce Tokyo’s Ota Ward, known as the city of craftsmanship, or monozukuri through a flexible approach: taking young interns, investing heavily no machi. Like many SMEs in Japan’s manufacturing supply chain, in training for existing workers and getting non-manual senior Kamijima is a niche business built on artisanship, a tradition it carries workers through “leasing” arrangements from larger companies. on today. As well as the modern vacuum furnaces for metal heat Even then, the future is uncertain for Kamijima. Business is only treatment, Kamijima’s skilled workforce also use the older salt bath 80% of what it was before the economic downturn, says Mr Kamijima, method, a practice that is gradually dying out. and he foresees his niche business increasingly chipped away by The labour-intensive salt bath method means that productivity improving machine technology. “The work that can be done by our is low, but there is still a need for it when treating larger precision craftsmanship only will definitely shrink,” he says. Nevertheless, components, keeping the factory’s 45 employees busy. “We get he is hopeful about the company’s new business areas—conducting orders from all around Japan despite being known for taking time and experiments on heat treatment for the RD departments of large being expensive,” jokes the company’s president, Hidemi Kamijima. companies, and providing manufacturing solutions to the aerospace The shrinking market and the difficulty of maintaining the high industry through a consortium established by the Tokyo Metropolitan levels of craftsmanship–it takes decades of on-the-job training Government (see p12 and p14). © Economist Intelligence Unit 2010 11
  13. 13. SMEs in Japan A new growth driver? be preferable to ones that merely dole out money. One idea is for salary subsidies (for a limited period) that could encourage the movement of senior employees from large companies to SMEs, with the added incentive that to maintain salary levels beyond the subsidy time limit, transferees would have to help grow the business. Currently, however, many SMEs must rely on their own small pool of human capital. Mr Nishiguchi points out that many of Japan’s SMEs are family owned businesses. And while this can be a merit in terms of the ability to make quick decisions, it can be a drawback if the management draws only on family resources. Almost certainly linked to the familial nature of many SMEs, they are making more use of female and older workers than large enterprises. According to data from the Ministry of Internal Affairs and Communications Employment Status Survey, SMEs use slightly more female workers, and nearly six times more workers aged over 65, than big businesses do—a practice that will almost certainly be adopted more widely given Japan’s demographic challenges. The evolution of SME policy survive, some argue a more considered strategy is now necessary. Naohiro Nishiguchi, director of the Innovation Network Corporation of Japan (INCJ), suggests the government needs to commit itself to Japan’s Small and Medium Enterprise Agency was established in 1948 foster accelerated growth of SMEs, with a view to transforming them to promote the sector, and SMEs have been increasingly recognised into new growth engines. He argues that rather than just providing by the government as an important sector for the economy. financial assistance for SMEs, the focus should be on breaking what Nevertheless, despite recent progress made on policies to promote the he describes as Japan’s “vertical hierarchical structure, [to] move sector’s development, many argue more could be done. towards a horizontal system where companies of all sizes have similar On the legislative front, the Small and Medium Enterprise Basic Law access to effective business resources.” was amended in 1999 to redefine SMEs as a source of economic growth Recognising the importance of the sector, local governments have and dynamism for Japan—a radical shift from the notion of SMEs as begun to take concrete steps to stimulate growth among SMEs, in a disadvantaged group, as they were classified when the original law particular through industry-specific and geographical clustering. was passed in 1963. For example, in 2009 the Tokyo Metropolitan Government created a Then, in 2003, the law on establishing a company was changed, consortium called the Advanced Manufacturing Association of Tokyo allowing a new kind of enterprise, the kakunin kaisha, to be formed for Enterprises for Resolution of Aviation Systems (AMATERAS). This only ¥1. Until that time, a minimum of ¥10m in start-up capital was draws together 10 companies with different engineering expertise required to start a traditional kabushiki kaisha—the reason the listed to provide integrated manufacturing solutions for the aerospace capital of so many companies founded before then was exactly that industry in Japan and overseas. Meanwhile, the Fukuoka Prefectural amount. The Nikkei newspaper reported that by January 2005, more Government is planning to establish an association to help local SMEs than 20,000 such new enterprises had been formed. link directly to their counterparts in Asia, to parts of which Fukuoka is The central government took numerous measures to assist SMEs geographically closer than it is to Tokyo. as they suffered through the recent recession, principally in the form Whilst there are also numerous other forms of assistance and of loan guarantees and direct assistance through state-affiliated initiatives aimed specifically at SMEs, lack of awareness of such financial institutions. In addition, the tax rate for profits above a programmes is a key problem. Ichiro Takahara, director-general at certain level at some SMEs (with capital below ¥100m) has been the SME Agency, concedes that publicising various support measures lowered recently from 22 to 18%—a measure that is due to expire in is one of the agency’s biggest priorities. “There are many cases when March 2011, although the government is looking into extending it. people are simply not aware of the available measures,” he says. Although this emergency support was crucial in helping many SMEs12 © Economist Intelligence Unit 2010
  14. 14. SMEs in Japan A new growth driver?Key pointsn To grow successfully and scale their businesses, SMEs need to balance various types of human capital: technical experts, entrepreneurs and administrative staff.n Cooperation, even between apparent rivals in the same field, can be a key to growth and can help overcome the potential hurdle of limited resources.n With a shrinking domestic market, Japanese SMEs must internationalise. While some are seeking to leverage external markets, in general they have been comparably slow in making this shift.3. Opportunities 1: Internal balance, external growthI t is obvious that for Japan to engineer a sustainable recovery from its recent recession, its SMEs must be able to seize opportunities for growth. This in turn means ensuring they have the right internalstructure to scale up their businesses, the ability to tap markets outside Japan as domestic demandstagnates, and the means to profit from innovation. This is easier said than done, especially as many SMEs suffer from an inability to marshal their ownresources efficiently for growth—particularly human capital. Mr Nishiguchi identifies three sets ofhuman capital that are vital for scaling businesses up. One consists of the ideas/know-how people(who typically earn the most respect in many small businesses as masters of their craft). But the othertwo—entrepreneurs and administrative support staff—are equally crucial. While maintaining this kindof balance may seem obvious, it can get lost in the day-to-day bustle of running a small business, whenstepping back to look at the bigger picture may seem an unaffordable luxury. The importance of maintaining a balance of each type of employee is reiterated by Atsushi Horiba,the current president of Horiba—a supplier of high-tech analytical solutions to the automotive,semiconductor, medical and environmental industries that has grown from a small business to amultinational corporation with over 5,000 employees (see also the case study on p17). “Pride in craftsmanship is not enough to scale up your business,” says Mr Horiba, who insists a“balancing act” is the key. He explains how Horiba’s own corporate culture was formerly so focused on thetechnology side of the business that it “treated technicians as stars and the others like secondary actors”.Mr Horiba made efforts to change this, to ensure that the sales and administration personnel were alsovalued in the business and had the means to become stars in their own right. The challenges faced by SMEs reliant on highly skilled, niche craftsmanship are frankly explained by MrKamijima, who acknowledges that the kind of skills necessary for the delicate salt-bath heat treatment in © Economist Intelligence Unit 2010 13
  15. 15. SMEs in Japan A new growth driver? which his company specialises are increasingly being threatened by more modern methods. “Retaining craftsmanship is important but not sufficient to sustain business,” he says, echoing Mr Horiba. To overcome the potential hurdle of limited resources and avoid getting too narrowly focused on in- house technical skills, Mr Horiba advises SMEs to actively look for alliances with other companies, even competitors. Japan’s larger corporations—sometimes apparent rivals from the same fields—have a long and deep tradition of cooperating with each other in a variety of different capacities; a practice that SMEs could emulate to their benefit. “Becoming a part of a win-win team is particularly important for SMEs,” says Mr Horiba. Recalling, with some pride, when Horiba forged a technical alliance with Hitachi back in 1959, he describes the arrangement as being between “a flea and an elephant, but on an equal footing.” Kamijima, for its part, has benefited from joining a consortium of businesses launched in 2009 by the Tokyo Metropolitan Government—the Advanced Manufacturing Association of Tokyo Enterprises for Resolution of Aviation Systems, or AMATERAS. This draws together 10 companies with different engineering expertise to provide integrated manufacturing solutions to the aerospace industry—both in Japan and, importantly, in key overseas markets. The importance of internationalising In light of Japan’s persistently sluggish domestic economy and demographic profile—with an ageing and shrinking population—its companies, including SMEs, should be making the most of growth opportunities outside their domestic market. To be sure, many are doing so: Aqua Science’s Mr Isago explains his company takes a “borderless approach”, taking advantage of the fast-moving and enticing growth markets in Asia’s developing markets in particular. Indeed, many of Japan’s SMEs have come to rely more on international markets. While exports account for a lower percentage of sales at SMEs than at larger enterprises, the rates of export growth in the years running up to the Lehman Shock was actually faster at smaller firms. According to Bank of Japan figures, exports accounted for 4.4% of SMEs’ sales in 2002, but this had risen to 7.4% by 2008. Large enterprises saw their exports grow from 23.7% of sales to 27.8% over the same period. In sales volumes, SMEs saw exports double to ¥5trn (US$60bn) while those for big companies grew a more modest 37% to ¥71.6trn (US$860bn). However, in comparison with their counterparts in other developed economies, Japanese SMEs are2 European Commission,Internationalisation of laggards in terms of internationalisation. A recent report on the internationalisation of SMEs by theEuropean SMEs, 2010. This European Commission (EC)notes that despite an identical correlation in the EU and Japan between size ofdefines “internationalised” as“either exporting, importing, company and the degree to which it is internationalised, the level of international activity by EU SMEs isinvesting abroad,co-operating internationally, “considerably higher” than by their Japanese counterparts.2or having international According to the EC report, some 58% of EU SMEs that employ between 101 and 250 people export,subcontractor relationships”. compared with 30% of Japanese SMEs in the range of 101-300 employees (Figure 7). (More recent data cited by the SME Agency, post-financial crisis, show only 18.4% of Japanese SMEs of 201-300 employees3 SME Agency, 2010 White export, with lower proportions in all smaller enterprise sizes.3)Paper on Small and MediumEnterprises in Japan One obvious explanation for this discrepancy is that European SMEs have the benefit of trading within the rich and proximate EU internal market. But even excluding those that trade only within this market,14 © Economist Intelligence Unit 2010
  16. 16. SMEs in Japan A new growth driver?Figure 7SMEs engaged in export in Japan and the EU, by size(%) Japan EU27 extra Internal Market trade EU27 all export UK only605040302010 0 Up to 20 employees 21 up to 100 employees 101 up to 300 employees (up to 250 for Europe)Source: European Commission, Internationalisation of European SMEs, 2010and including the UK, which shares some characteristics with Japan of a large island economy—albeit onethat enjoys EU trade privileges—shows a similar discrepancy. Figures for FDI are comparable: in the EU27even of enterprises up to 20 workers, some 2% invest abroad, whereas in Japan this is only 0.3% (Figure8).Figure 8SMEs in Japan and the EU that invest abroad, by size(%) Japan EU27 UK only25201510 5 0 Up to 20 employees 21 up to 100 employees 101 up to 300 employees (up to 250 for Europe)Source: European Commission, Internationalisation of European SMEs, 2010 Given Japan’s shrinking domestic market, the relatively lower internationalisation of its SMEs is acause for concern, especially considering the opportunities that Asia’s burgeoning economies present.While some Japanese SMEs like Aqua Science have not been afraid to dive in, many are not ready totake the plunge, regardless of the opportunity. According to the SME Agency’s research, SMEs thatare reluctant to globalise cite lack of access to information about overseas markets, lack of capablemanagement resources in Japan, and difficulty securing financing as the main reasons (excluding theexcuse that they are preoccupied with the domestic market).4 4 Ibid. Another issue is that of language. Despite considerable resources dedicated to foreign languagelearning in Japan, the average level of English remains significantly lower than in many comparable © Economist Intelligence Unit 2010 15
  17. 17. SMEs in Japan A new growth driver? countries. As Ichigo’s Mr Callon—a fluent Japanese speaker—concedes: “There can be a language issue: there isn’t as deep a pool of English speakers in Japan as there is in Hong Kong or Singapore.” However, he maintains it is possible to get a workforce internationally functional, “because there are a lot of incredibly hard-working and dedicated Japanese with a solid educational background in English.” The government is certainly aware of the need to get Japan’s SMEs to internationalise. Mr Takahara of the SME Agency notes that competition is increasing for SME manufacturers that produce high-quality niche products, requiring that many businesses face up to the global dimensions of the international economy. He also concedes that while Japan’s manufacturing SMEs have tended to focus on the technical quality of their products, they have not made the most of international markets. “It’s difficult to earn with equipment [alone],” he says. “We have a weakness in system exports. For this, we can learn a lot from countries like Germany, France and Korea.” Currently the government offers internationalisation assistance to SMEs via several channels, including Japan Chambers of Commerce, JETRO, the Organisation for Small and Medium Enterprises and Regional Innovation, as well as offering direct funding assistance for some overseas operations (for instance via the Fiscal Investment and Loan Program). Yet, as mentioned above, lack of awareness and complicated application procedures hinder the take-up of such programmes. According to research commissioned by the SME Agency, only 39% of Japanese SMEs that are globalising have used any globalisation assistance (including government and private-sector support).16 © Economist Intelligence Unit 2010
  18. 18. SMEs in Japan A new growth driver?Case study: Cubic—Small hotels, big ambitions consulting contracts with a number of hotels, on a no-results no- fee basis, whereby the operators don’t pay unless their earnings rise above a certain point.Cubic, a small Tokyo-based capsule hotel business with just eight Mr Yui also developed a vision for transforming the capsule hotelemployees, may not be the stereotypical SME in that it has used into a new category of accommodation with high-end service andlessons learned in turning around its own business to give advice to amenities, stripped down to the bare essentials. The first of these isother struggling hotels. But it is atypical in other ways—including its the 9h (“nine hours”) hotel in Kyoto, which opened in 2009.president’s international ambition and commitment to innovation. Despite the small size of his operations, Mr Yui is already firmly Having enjoyed working in venture capital, Keisuke Yui came to focused on expanding his vision beyond Japan. Having attracted athe capsule hotel business reluctantly when his father passed away good deal of global media interest for the sleek minimalist designunexpectedly just over a decade ago. His father’s business had, of his first “transit hub” hotel, he is currently talking to potentialunbeknownst to him, accumulated debts of ¥500m (US$6m). After partners in locations including London, Rotterdam, Moscow, Newthe bank greatly reduced the debt in a refinancing arrangement as York and Hong Kong.part of the mass disposal of non-performing loans taking place at However, to expand into an international operator, he expectsthe time, Mr Yui was able to see a way out. to have to form a new company with partners such as property He turned the business around, “mainly by improving the companies taking a stake in the business. “This is still essentially aservice, and targeting women and overseas guests,” and paid off family company, with shares held by family members,” says Mr Yui.the debt. He then put the know-how he and his staff had acquired “There’s a limit to how far that kind of company can go.”to use by sending them to struggling capsule hotels. Now Cubic hasCase study: Horiba—From SME to titan companies tend to be too homogeneous. Just like pure gold is soft and susceptible to damage, homogenised organisations can’t endure even a simple impact,” Mr Horiba suggests. He thus notSince its establishment in 1945 by Masao Horiba (the current only manages various nationalities, but also insists on sendingpresident’s father), while he was still a student, the Horiba Group his Japanese employees abroad to give them opportunities tohas grown steadily to become a multinational giant. With its roots “experience differences and the related challenges of dealing within scientific research, the company makes high-tech instruments unfamiliar things—something they would tend to miss out if theyand systems for manufacturing, healthcare, RD and environmental were to remain in Japan.”monitoring across 37 companies in 22 countries. The group now has Currently around 3,000 of the group’s 5,100 employees areover 5,100 employees and in 2009 had sales worth US$1.24bn. As a non-Japanese, including the heads of three of its four key businessformer SME that went global, Horiba offers some useful lessons. divisions. In addition, 90% of the board members, 30% of the Atsushi Horiba, the current president, explains that while the management and 15% of non-managerial Japanese employees havecompany was built on craftsmanship, its entrepreneurial spirit in-depth experience abroad, with overseas stints of between threedrove it to look for markets far beyond its base in Kyoto from its and 20 years.early days. As well as establishing its own operations overseas, Another key to growth is the willingness to take risks. “CorporateHoriba expanded through a series of acquisitions of foreign capacity depends on willingness to make mistakes or take risks, andcompanies. Mr Horiba says the company’s aggressive stance in the company’s ‘regenerative strength’; its ability to turn failure intomoving abroad has allowed it to enjoy the first-mover advantage success,” Mr Horiba says. This attitude helps keep innovation alive.that in turn has enabled the company to excel in Japan and globally, “Delivering a hit [innovation] at the first attempt rarely happens.despite its relatively small size. Even for us, with good human capital, technical know-how and a At Horiba, differences that are often seen as risks in Japan’s global network, the success rate is around 20-30%,” he concedes.corporate culture are affirmed as virtuous diversity. “Japanese © Economist Intelligence Unit 2010 17
  19. 19. SMEs in Japan A new growth driver? Key points n While Japan as a whole spends a lot on RD in comparison with other developed economies, its SMEs do not. Lack of access to finance and risk-aversion are major reasons. n Government policies to support innovation are plentiful—but poor publicity and complicated application procedures hinder their adoption. n Putting in place the means to commercialise intellectual property—both within Japan and in foreign markets—is crucial. n Focusing on Japan’s cultural strengths—such as high service standards—could be fruitful for SMEs looking to differentiate themselves in an increasingly competitive global marketplace. 4. Opportunities 2: Innovation and technology “A s in any country, up-and-comers like SMEs tend to be drivers of innovation and change, so they’re extraordinarily important for the economy,” says Ichigo’s Mr Callon. Indeed, smaller companies are generally expected to be more innovative and nimble than big lumbering corporations. However, data show that while Japan as a whole continues to lead the way in RD, its SMEs are investing proportionally less in innovation than those in other countries. According to the OECD’s Science, Technology and Industry Scoreboard 2009, Japan invested 3.4% of its entire GDP in RD in 2007—the highest level amongst the G7 nations and well above the OECD average of 1.9%. In fact, Japan accounted for around 20% of all the growth in RD spending in OECD countries between 1997 and 2007. And while 78% of RD in Japan is financed by private business—compared with an OECD average of 54%—SMEs accounted for only 6% of this, one of the lowest shares in the OECD area. Another study by the OECD that aggregates data on the innovation performance and policies of SMEs in its member states similarly shows Japan lagging its peers in all aspects of innovation (Figure 9). These findings should be a major concern for a sector that is expected to be a future growth engine for the Japanese economy. The International Monetary Fund’s Japan Country Report 2010 sheds some light on the causes of this discrepancy between the healthy RD spending of the country as a whole, and the low share occupied by SMEs. The study found that, “For larger firms, manufacturers and exporters, RD spending is driven by profit expectations and not affected by cash flow or financing structure.” But for SMEs, service-sector and5 IMF, Japan: Selected Issues, non-exporting firms, “financing constraints hinder RD spending, and, by extension, innovation”. 5 TheIMF Country Report No.10/212, July 2010 difficulty faced by Japan’s SMEs in accessing finance during times of economic uncertainty is undoubtedly going to have repercussions for future innovation and growth. The government cannot be faulted for a lack of policy options to stimulate innovation at SMEs: the OECD notes the presence of 17 programmes to encourage small business innovation, including research18 © Economist Intelligence Unit 2010
  20. 20. SMEs in Japan A new growth driver?Figure 9Innovation performance of SMEs(%) France Germany Japan UK South Korea25201510 5 0 Firms collaborating Firms with new-to-market Process innovation Product innovation on invoation activities product innovationsNote: Data is percentage of respondents in national SME surveys: France 2005-06; Germany 2004-06; Japan 2002-04; South Korea 2002-04; UK 2007.Source: Derived from OECD, SMEs, Entrepreneurship and Innovation, 2010and development support through subsidies or contract grants, and support for technological applicationdevelopment, such as patent fee reductions, loan guarantees, capital investment loans and loans forfacilities. However, in common with other support measures for small businesses, part of the problem is notso much lack of policy options as low take-up of those on offer, whether as a result of low awareness orbecause SME owners find the application procedures onerous. The OECD notes in its summary of Japan’sSME innovation policies that its programmes “suffer from a lack of applications, and [have] been found tobe administratively difficult to implement. In particular the methods of application are too complex.”6 6 OECD, SMEs, Entrepreneur- ship and Innovation, 2010 Mr Isago of Aqua Science agrees this is a problem. “Public measures may be available but access isbad,” he says, citing difficulty in finding information, a lack of flexibility in eligibility and burdensomeapplication procedures—topped by lack of clarity in decision-making. “I want to know who is saying andensuring that Japan is going to be the innovation-oriented nation,” he says.Driving SME innovationMoney alone, even with plentiful government support, cannot drive invention or conjure theentrepreneurial spirit needed for starting and growing new ventures. Japan is often characterised ashaving a very risk-averse culture, though this would appear to stand in stark contrast to the actions of itscompanies that became global leaders in the second half of the twentieth century. “Innovation is really the only thing,” suggests Cubic’s Mr Yui: “You can’t just keep moving forwardswith kaizen,” referring to the Japanese notion of continual gradual improvement, which has been acorporate mantra at giants like Toyota. “At some point things have to shift to a completely new platform.That’s innovation.” Though Mr Yui believes any number of companies have the potential to be “gamechangers”—for instance in the electric vehicle sector—he thinks that the lack of a “Silicon Valley-typecommunity of venture capitalists” willing to take risks on new ideas hampers innovation in Japan. Mr Nishiguchi of the INCJ also suggests that while there are plenty of inventions and inventors inJapan, the kind of innovation required to commercialise intellectual property (IP) is lacking. “Thesituation is detrimental to growth,” he says simply. © Economist Intelligence Unit 2010 19
  21. 21. SMEs in Japan A new growth driver? Mr Nishiguchi believes that Japan must learn not only to develop and find global markets for its own IP, but look for it abroad and bring ideas back to be commoditised at home. “Countries that just nurture IP won’t benefit from tax income or employment,” he concludes. This is essentially what Aqua Science Corporation’s Mr Isago accomplished. Leaving the US firm he was working for, he persuaded them to let him take technology that the company had ceased developing. Having focused on RD for the past eight years, he is now taking the technology out to the global market. Mr Callon doesn’t believe Mr Isago is one of a kind, or that the country suffers from a lack of entrepreneurial spirit. “There’s overwhelming human talent in Japan, but sometimes it’s trapped by bureaucratic restrictions; we need to think how to allow that talent to flourish in more entrepreneurial ways,” he says. Mr Callon suggests that, despite improvements, barriers to entry for new companies and higher penalties for failure are what hold many entrepreneurs back. The fact that Japan ranks 98th of 183 economies for starting a business in the International Finance Corporation’s latest “Doing Business” rankings suggests how difficult it is for Japan to benefit from its entrepreneurial talent. (It ranks first for7 IFC, Doing Business 2011, closing a business, however.)7 Mr Callon also points out that the labour market can still be inflexible. “In other countries you can tryjapan a start-up at 32, and if it doesn’t work out then you can go and find a job. Here, if you start up and fail, there’s a much smaller mid-career market. The risks of failure are just so much higher.” To be sure, technological advances have helped to bring down barriers: for even the smallest enterprises, connecting with business partners, clients or customers from a wide geographical area is now so common as to be unremarkable. Mr Callon points out that the growth of the Internet has also greatly reduced costs for advertising and communications for SMEs. “The ability now to put up a webpage at almost no cost means start-ups have far greater ability to acquire customers and grow their businesses compared to ten years ago” he says. As well as help reach broader domestic audiences, IT can help SMEs that have expanded internationally manage their subsidiaries. Masato Yamaji, president of the Sanwa Dengyo Group, a plant engineering business with 260 employees headquartered in Kagawa prefecture, explains how the group uses an innovative Internet-based system to ensure close co-operation between staff in Japan and in the company’s subsidiaries in China (see the case study on p21). There may be other ways for Japan’s SMEs to move forward, without relying only on technology. Mr Yui doubts that focusing on areas already dominated by multinational tech companies will be fruitful—“I think trying to do that is like playing Othello when you’re already boxed-in,” he says. Instead, he suggests Japan should look to its cultural strengths, such as attention to detail and high standards of hospitality as the basis for new ventures. “The level of service in Japan is so high that even what is regarded as normal here translates as very high-end by global standards.” Although this may sound predictable from someone attempting to create a new category of hotel, Horiba’s president suggests something similar in his own high-tech field. Mr Horiba says the company’s ability to service its clients is becoming ever more important as product differentiation narrows: “The Japanese way of doing business that values trust and reliability, for instance, has a lot of potential.”20 © Economist Intelligence Unit 2010
  22. 22. SMEs in Japan A new growth driver?Case study: Sanwa Dengyo—The China connection competitors. By capitalising on the company’s strength in IT, Sanwa Dengyo has established a system whereby the engineers in Japan can use online tools to closely liaise with and manage theMasato Yamaji is the second-generation boss of the Sanwa Dengyo staff in China who programme the factories’ automated systemsGroup, a plant engineering business headquartered in Kagawa and design plant facilities. Moreover, the system also allows youngPrefecture, with 260 employees across the group’s seven companies. Japanese engineers to train and manage staff—a way of giving themLike many firms in Japan, Sanwa is facing the challenge of a mature management experience before they might normally obtain it.and shrinking domestic market. The market has declined “by more The company’s early presence in China has also led to its securingthan half” compared with the boom times before the bursting of the contracts for the maintenance and modification of Japaneseeconomic bubble. Survival now depends on finding new markets, companies’ local plant facilities. This is an area of business it iswhether through innovation or going overseas, while finding ways to seeking to grow further, leveraging “the sixty years of track record”slash costs. it has in Japan. While Mr Yamaji describes this side of the business Typically the plant-engineering business in Japan relies on as “high-risk and low-return”—meaning the group’s domesticdomestic demand, Mr Yamaji says, with most SMEs reluctant to competitors are unwilling to do it—he suggests the company isinvestigate opportunities abroad. Choosing to adopt a proactive not in a position to be choosy about the kind of work it takes on.approach, however, he decided to shift some of the group’s “We will find a way into the future, even if it means taking on workoperations to China more than nine years ago, despite concerns nobody else wants to do.”about the risks of technology and know-how being leaked to local © Economist Intelligence Unit 2010 21
  23. 23. SMEs in Japan A new growth driver? 5. Conclusion T here’s no doubt that Japan’s SMEs were hit hard by the global recession, or that they were having a tough time even before then. Many have not yet recovered. But for those that survived the financial crisis, there should be some consolation in the fact that conditions are unlikely to get that bad again soon. However, there is little room for complacency, and business sentiment amongst SMEs remains negative. The sector, so vital to the Japanese economy, needs support and nurturing if it is to be a future driver of growth. Aside from its vital role as a supplier to Japan’s big brand names, next-generation innovation and future corporate giants are expected to emerge from its ranks. “I don’t look at it as we have a problem,” says Ichigo’s Mr Callon. “I look at it like we have a vibrant SME class: let’s keep it that way, let’s grow it.” Policy initiatives and reforms have lowered barriers to entry, and there is more increased support and advice available. But the consensus from interviewees for this report is that more can be done. In particular, better promotion of existing programmes, as well as more convenient access to them, is needed—as even those administering the initiatives acknowledge. As for growth prospects, the doubling of SMEs’ exports in the six years before the recession hit shows that they have been globalising—though not to the extent of their counterparts elsewhere. While they may not yet have to follow the lead of clothing giant Uniqlo or internet marketplace Rakuten in making English their internal language, a more international outlook is clearly needed. Creativity is something that every SME needs and no government programme can provide. As some of the case studies in this report have shown, even hardships can provide opportunities. SMEs need to be creative in everything from their product development to financing to human resources. Japan also needs to find new ideas from abroad to commercialise here, rather than have some of its best technologies leveraged by other countries.22 © Economist Intelligence Unit 2010
  24. 24. SMEs in Japan A new growth driver? Innovation may come in the fields of service, design or retailing, rather than just technology, but inwhatever arena it is vital if the SME sector, and therefore Japan, is to prosper. © Economist Intelligence Unit 2010 23
  25. 25. Whilst every effort has been taken to verify the accuracyof this information, neither The Economist IntelligenceUnit Ltd. nor the sponsor of this report can accept anyresponsibility or liability for reliance by any person on thisreport or any of the information, opinions or conclusionsset out herein.Cover image - Nomadic Luxury/Stone/Getty Images
  26. 26. Cover_final.pdf 12/1/2010 4:16:20 PM Paper size: 210mm x 270mm SMEs in Japan: A new growth driver LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom C Tel: (44.20) 7576 8000 M Fax: (44.20) 7576 8500 Y E-mail: london@eiu.comCMMY NEW YORKCY 750 Third AvenueCMY 5th Floor K New York, NY 10017, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: GENEVA Boulevard des Tranchées 16 1206 Geneva Switzerland Tel: (41) 22 566 2470 A report from the Economist Intelligence Unit Fax: (41) 22 346 9347 E-mail: Sponsored by