MMRCDISCUSSION PAPER SERIES

No. 415

A Survival Strategy of Medium-sized B2B Enterprises inJapanese Machinery Industry:
Common Strategies Found in Many Quality Enterprises
Taichi Kishimoto
Faculty of Economics, Keiai University
Shohei Hamamatsu
Graduate School of Economics, The University of Tokyo
Yasuyuki Kishi
Faculty of Economics, Niigata University
October 2012

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
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http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

	  A Survival Strategy of Medium-sized B2B Enterprises in Japanese
Machinery Industry:
Common Strategies Found in Many Quality Enterprises

Taichi Kishimoto
Associate Professor of Faculty of Economics
Keiai University
Shohei Hamamatsu
PhD Candidate of Graduate School of Economics
The University of Tokyo
Yasuyuki Kishi
Associate Professor of Faculty of Economics
Niigata University
Abstract	  For the past few years, we gathered information by interviewing management personnel inlong-standing Japanese domestic medium-sized enterprises. We specifically visited enterprises in themachinery industry that specialized in B2B business. Site visits were made for a total of 38
enterprises in wide ranges of regions and categories. These enterprises appear very different at thefirst glance; however, from the perspective of management strategy, they were all quite similar.
Similarities come from one set of common strategies found in many enterprises (=26 enterprises)	
 regardless of region, field, or category.

	
 Keywords
long-standing medium-sized enterprises, “high general versatility” products, equipments, andprocesses, definition of business domain, problem-based solution services, usage of knowledge andtechnology, and spiral of accumulation.

11. Problem Involved and Topic.
	  A perplexing phenomenon is at work in Japanese manufacturing industry today. The phenomenon
includes drastic fall in domestic growth rate, unceasing yen appreciation, and overseas transfers oflarge-scale production facilities as a result. Ever since mid-1980s, business environment for small
and medium enterprise manufacturing has been in decline for a lengthy period. Fundamental
textbook-economic principles dictate a large fall in the number of small- and medium-sizedenterprises under such a business environment. If those numbers were maintained, it is presumed to
be a result of new enterprises replacing the old, with most surviving small- and medium-sizedenterprises growing into large-scale enterprises. In reality, the number of small-sized enterprises
with less than 20 employees has indeed decreased drastically. However, the number of
medium-sized enterprises with 20 to 300 employees has only seen a small decrease. 1 In addition,
the number of mid-sized enterprises has been maintained without those surviving enterprises
growing into large-scale enterprises. 2	  The business environment for Japanese domestic manufacturing industry has considerably
worsened over the years. Then how did so many medium-sized enterprises survive over the years
without major scale-ups? An intriguing phenomenon was discovered while investigating the above
problem.
	  For the past few years, we gathered information by interviewing management personnel inlong-standing Japanese domestic medium-sized enterprises. We specifically visited enterprises in themachinery industry that specialized in B2B business.3 Site visits were made for a total of 38
enterprises in wide ranges of regions and categories, and business fields from automobile
manufacturing to electronics. Even in the same field of electronics, some enterprises manufactured
cell phone parts, while others manufactured printer parts. 4 To be even more precise, there was anenterprise that produced printer heads, while another enterprise produced printer springs. The
enterprises were spread throughout Japan and belonged to various business categories such as
equipment manufacturing and mechanical processing, in addition to parts manufacturing.

1

The definition in this article essentially follows the Small and Medium-sized Enterprise Basic Act in Japan. In
Small and Medium-sized Enterprise Basic Act, small and medium enterprises for manufacturing industry aredefined as enterprises with stated capital under 300 million yen and less than 300 permanent employees. In
addition, those enterprises with less than 20 permanent employees are defined as small businesses.
2
Please refer to Kishimoto [2011a] and Kishimoto [2011b], as this phenomenon is observed in these data.
3

Machinery industry specifically refers to transportation machinery, electromechanical, generalmachinery, and precision machinery industries.
4

However, the number of enterprises visited for interview exceeds 39 with small businesses, large-scale
enterprises, or B2C enterprises included. In total, approximately 100 enterprises were interviewed.

2	  These enterprises appear very different at the first glance; however, from the perspective ofmanagement strategy, they were all quite similar. Similarities come from one set of common
strategies found in many enterprises regardless of region, field, or category. Furthermore, it cannot
be explained with common counter arguments such as niche strategy or differentiation strategy suchas core technical competency.
	  Of course, not all enterprises visited have applied these strategies. In reality, 26 enterprises havebeen confirmed to use this set of strategies (See Chart 1), with the remaining enterprises survived byembracing other business strategies. Furthermore, the possibility of sampling bias cannot be
discounted. However, 26 enterprises represent over 70% of the 38 enterprises interviewed, which isa significant percentage. This is a phenomenon worthy of closer analysis and arguments throughhypothesis formulation rather than hypothesis testing. Therefore, this article will consider thefollowing two topics:	  1) The strategies used by many long-standing medium-sized enterprises.
	  2) How these strategies ensured the survival of enterprises over a long term.

2. Information Gathering and Sample Selection	  Before moving to the main topic, here let us briefly explain the method for information gatheringand a concise review of existing research.
	  Information gathering is mainly based on results of interviews and observations made during site
visits.5 Most interviews were conducted by authors themselves, but transcriptions of interviews andnotes taken by other researchers were also used for some enterprises.6 Research was conducted on
26 long-standing medium-sized enterprises engaging in primarily B2B transactions in the machineryindustry. Enterprises are considered to have maintained the medium-sized enterprise status if they
have continuously operated as an independent company and generally had 20 to 300 permanent
employees in Japan between 1990 and 2011.7
	  Managers or equivalent executive positions were interviewed, regardless of whether or not theauthors were conducting the interview. In addition, guided tours of headquarters and factories werealso held for some enterprises in our research. Durations for interviews and site visits vary by5

Of course, other methods such as literature research were also used as extra references.

6

For example, transcription of the interview published by NHK [2011]was used for “D. Enterprise.” However,this is the only enterprise that used publicly available recorded interview. Interviews for other enterprises wereconducted by researchers we worked with on other research projects. Their interview notes and transcripts ofrecorded data were used.
7
Some enterprises in our research have left the 20 to 300 range for very short periods of time. The sample size
was considered to be more important than strict qualification for the purpose of our study.

3company, but at least 90 minutes were spent on each company.8
	  Using interviews and site visits as the method for information gathering has two major drawbacks:
insufficient sample size and sample bias. However, an effort was made to address these problems.
The former problem was addressed by increasing the sample size. Interviews and site visits wereconducted in 38 companies, and this number is considerably larger than typical information
gathering conducted for this type of research. The latter problem was addressed by selecting
enterprises in a variety of industry, region, manufactured products, and categories.9	
  However, thissample is still very limited compared to the parent population, and the existence of bias cannot bedenied. Specifically, it should be noted that the sample consists of primarily financiallywell-performing enterprises. The reason for such possibility of bias is because enterprises with poor
financial performance typically turn down requests for interview.
	  Despite these drawbacks, we consider this method to be the most effective for information
gathering for research involving hypothesis formulation. There are alternative methods such as
literature research and other public domain materials, as well as survey research. Understanding ofcases in detail and information outside of the main topic can be very effective for formulation of new
hypotheses. However, in the case of small- and medium-sized enterprises, it is considerably difficult
to obtain information from public domain sources compared to large-scale enterprises. On the other
hand, survey research is often effective when a clear hypothesis already exists, but it is not suited for
detailed information gathering without a clear hypothesis.

3. Blind Spots of Existing Research	  By focusing on activities of long-standing small- and medium-sized enterprises in Japan, andgathering information in detail from various industries and regions, let us determine a common
pattern and observe the logic behind that pattern. The following is the summary of the research.
	  There is a large amount of research on small- and medium-sized enterprises in the Japanesemachinery industry. However, none of such studies

focused on the topic discussed in our research,

to our knowledge. On the other hand, given the interest of each researcher the appearance of blind
spots for this kind of research in today’s Japanese academic circle is understandable.
	  Common research fields for Japanese small- and medium-sized enterprises in the Japanese
8

More than four hours were spent for an interview in some cases. In addition, some companies were visited
multiple times.
9

The enterprises selected for the research were located in eight prefectures: Tokyo, Kanagawa, Saitama,
Shizuoka, Nagano, Aichi, Niigata, and Yamagata.

4

machinery industry are supplier system, industrial agglomeration (including cluster analysis), andsmall- and medium-sized enterprises (SME) research. Supplier system and industrial agglomeration
research are fields of high interest for theory formulation, and there are plenty of resources
available. 10 However, both fields focus on the system as a whole. To them, small- andmedium-sized enterprises are nothing more than components of the system, and researches on SMEs
were also conducted to understand the mechanism of the system as a whole. For that reason, there isa scarcity of research that focused on activity patterns of small- and medium-sized enterprises, andobservations beyond their fields of interest such as supplier system or industrial agglomeration. The
available research resources are not (small and medium-sized) business strategy theories, but mostly
business systems theories or business relationship theories.
	  On the other hand, researchers interested in small- and medium-sized enterprises do exist among
researchers in Japan Academy of Small Business Studies. However, vast majority of theseresearchers are solely interested in information gathering of individual enterprises. As such, abstractobservations made on business strategies of small- and medium-sized enterprises other than venture
capitals are extremely rare.11 In addition, the few research papers that contain abstract analysis
usually apply existing principles and frameworks of business strategy without any modification.
Making abstract analysis on information gathered and formation of hypothesis is nonexistent.12	 	  On a different note, there are cases where researchers who studied business strategies oflarge-scale enterprises shifting focus on small- and medium-sized enterprises as well in Japan.

10

There are many literature researches for these fields. Major industrial agglomeration researches include works
by Kiyonari and Hashimoto [1997], Seki [1993], Watanabe [1997], and Watanabe [2011]. Major suppliersystem researches include works by Asanuma [1997], and Fujimoto, Nishiguchi, and Itoh [1997].
11
At the very least, this statement is true for business strategy theories. For example, Watanabe [2008]
examined academic papers and literatures up to 2006, such as SME Edition “Research on Japanese SME”,“Research on Japanese SME 1980-1989”, SME General Structure Edition “Research on Japanese SME
1990-1999”, and Osaka University of Economics SME Business Research Department’s “SME Quarterly
Journal” in order to gather information for their research topics. Academic papers and literatures used for thisresearch surpass 20,000 in number. However, none of these sources were in the field of “business strategy.” In
addition, government-owned Shoko Chukin Bank, Ltd has awarded “SME Research Awards” for authors in
SME research since 1976. There are authors who used SME business strategy being awarded for venture capitalenterprises (for example, Ohta [2008]), but none for long-standing enterprises. There are few researches that did
not have business strategy as the main topic, but briefly discuss it. However, these studies only use businessstrategy as a case study, and no abstract analysis was made (for example, Yoshimi [2009])
12
Inoue [2008], Inoue [2009], and Suematsu [1972] fall into this category. These researches make analysis byapply positioning school of frameworks and German economic theories. However, SME researchers who madeabstract analysis on information gathered and formed hypothesis are do existent. Unfortunately, most of theseresearchers focus on business systems theory rather than SME business strategy. A prime example of this is
Yukio Watanabe. Watanabe is one of the very few researchers who conducted interview research and site visits
just like authors of this paper, and attempted abstract analysis on information gathered. However, as it can beseen in works such as Watanabe [1997] and Watanabe [2011], his main focus is in industrial agglomeration orindustrial division structure. His major literary works also focus on mechanisms like “wholesaler transactions”
or “convex social division structure.”

5However, the interest and effort of these researchers were somehow directed towards suppliersystems.13
	  For Japanese domestic small- and medium-sized enterprises in the manufacturing industry, there
are few widely known theories even though these are not based on academic experimental studies.
Examples of such theories are: “possession of scientifically advanced technology” such as
ultra-precision processors as the source of competitive advantage; “Ability to meet customer
demands” such as delivery date or customized products; “high productivity” of enterprises; and thereason for long-standing survival as “constant positioning in niche market.” These theories will befurther explored in the next chapter and Chapter 7.
	  In any case, for research on business strategies of long-standing Japanese domestic small andmedium enterprises, studies using inductive hypothesis formulation for analysis after information
gathering are nearly nonexistent. In other words, there are no hypotheses that can be used for
hypothesis testing is the current situation.

4. Common Strategies Found in Many Quality Enterprises	  Taking the current situation into consideration, we begin our analysis with the intention to analyze
the following hypotheses. These hypotheses are formulated based on the result of information
gathering through interviews and site visits of 38 enterprises (especially the 26 enterprises that wereconsidered to employ the common strategies). Due to the space constraint, this research paper only
explores the abstract hypotheses formulated, and individual cases are being used only to assist theunderstanding of each hypothesis.
	  Out of a total of 70 long-standing Japanese B2B medium-sized enterprises interviewed in themachinery industry, 30 enterprises employed the following strategies.

	  (A) Corporate Strategy- The enterprise achieves long-standing survival by focusing on the long-standing survival of one
single core business.
*The enterprise does not achieve long-standing survival by possessing multiple business operations,or shifting to other business operations as current operation move into a decline.

13

A prime example of this is the leading expert in Japanese business strategy theory, Hiroyuki Itami. Itami has
released Itami [1984], which became the pioneering study for Solution Based View in business strategy theory.
Later he co-authored supplier systems theory studies (for example, Itami, Kagono, Kobayashi, and Sakakibara[1988]) and industrial agglomeration theory studies (for example, Itami, Matsushima, and Kitsukawa [1998]).

6	
  (B) (Core Business) Business Domain- The enterprise establishes a business domain by focusing on “high general versatility” productparts, equipment, and processes.
* The enterprise does not establish its business domain from the perspective of “long-standing nichemarket.” However, the enterprise may eventually end up in the “long-standing niche market,” butthat is not always the case.
	  (C) (Core Business) Method of Differentiation- The enterprise differentiates its products and services from the competition by providing“problem-based solution services” at a reasonable price.
*“possession of scientifically advanced technology,” “ability to meet customer demands,” and “highproductivity” are necessary or are one of the reasons for the above differentiation, but these inthemselves are not the main method of differentiation for the enterprise.
	  (D) (Core Business) Value Chain- The enterprise does not only manufacture the products or offer services, but also committed to
product development. In addition, the enterprise is also dedicated in sales and marketing.
*The enterprise does not only manufacture and subcontract other works.
	  (E) Business Strategy Duration
The enterprise does not necessarily have to continually employ the above business strategies for 20
years, but has employed a single business strategy for a long period of time.
*The enterprise does not ensure long-standing survival of its core business by temporarily
employing different strategies.

	  (B), (C), and (D) will require further explanations using case studies.
	  By “high general versatility” product parts, equipment, and processes, we mean products andservices that have potential for use in multiple industries. Precision springs are a prime example ofsuch products. Precision springs are used not only in watches, but also in printers, cell phones, andeven in ballpoint pens and even in catheters for medical use. However, the general versatility of suchproduct parts, equipment, and processes vary depending on how the enterprise defines its businessdomains. If a precision spring manufacturer defined its target market as “clients that use precisionsprings,” then clients other than the watch industry would be able to use the product. On the other
hand, if the enterprise defined itself as “an enterprise that manufactures parts for watch,” then its
general versatility would be lost. “General versatility” is greatly influenced by defined businessdomains.

7	  As for (C), every client has multiple needs for every products and services. These needs arebroadly divided into two types:
	  (i) “Common needs by clients and orders for a product”	  (ii) “Unique needs for each client and order”
	  Using precision spring as example again to explain, “a certain tension” would fall under (i), whileneeds such as “springs that does not cause ink leak for ballpoint pen” would fall under (ii).
	  In B2B transactions, fulfillment of needs (ii) often leads to solution of client’s problems. There
two approaches to fulfill needs (ii):	  (α) Segment the product lineup in advance for different uses.
	  (β) Discover problems after exchanges with clients, and build up lineup to solve the problems.
	  Basic stance for the seller in approach (β) can be further split into two approaches:	  (β1) Passive problem to customer needs.
	  (β2) Manufacturers assertively provide solution to problems.
	  We will refer to (α) as “make-in-advance”, (β1) as “problem-based”, and (β2) as “assertive” typesolution approaches. The services that fulfill (ii)’s needs by approach (β2) would be referred to as“problem-based solution services”.
	  Using precision springs as an example again, strategy (C) mentioned earlier would be an
enterprise that did not obtain cell phone spring orders through reasons such as cheaper price, ability
to meet deadline, product qualities, or high-precision processing technology. Rather, the orders are
made because the enterprise fulfills customer’s unique needs such as “Make the phone slide smoothand have visually pleasing design, but still have few defects…” for a reasonable price. In addition, if
their approach to solution of needs is still “problem-based”, they would fall under (C). Furthermore,
if the enterprise received additional orders without unique needs as an exchange for fulfilling
detailed and unique needs as described above, they would also be considered as (C) case. In reality,
there are many such “exchange” barter cases.
	  Finally, regarding (D), this research paper uses the terms “product development” and “marketing”
in a broad sense. “The enterprise adding new structural designs and changing the designs of its
existing product lineup” is considered to be “product development”. Furthermore, “design” here also
includes process designs in addition to product designs. For example, an enterprise processing wirerods into spring shapes must make decisions related to design. These decisions include what
functions the springs would have (function design), what shape they would be (structural design),
what kind of process would be used to manufacture (process design), and what kind of operations
will be completed in what order in each step of the process (operation design). To be considered to8

be deeply committed to product development, the seller (small- and medium-sized enterprises) must
be conducting such product development for their business activity on a regular basis.
	  On the other hand, marketing refers to “all activities involving contact with clients”. This refers
not only to pursuit of new clients, but also activities that improve relationship with existing clients.
In addition, visiting clients in their own offices and activities aiming to bring clients to the company
are included. Exhibition of sample products held in the manufacturing enterprise is a prime exampleof the latter. To be considered to be deeply committed to marketing, the medium-sized enterprises
must be conducting such activities on a regular basis.

5. Logic behind the Long-Standing Survival	  In our observation, we have reached the conclusion that the above strategies are very rational
strategies for the long-standing survival of enterprises without expansion of business scale. Let us
list the results of our observations below as abstract hypotheses.
	  The 26 enterprises we have observed have all achieved long-standing survival by focusing on thelong-standing survival of one single core business. For these enterprises to achieve long-standing
survival with corporate strategies:	  (a) Core business must maintain lasting competitive advantage.
	  (b) Core business must remain successful enough for survival of the enterprise.
	  These two items are absolute necessity.

(a) How are lasting competitive advantages maintained (for the core business)?
	  As (C) and (E) in the previous chapter may suggest, the 26 enterprises we observed all maintained
their competitive advantages by providing “problem-based customer solutions” at a reasonable priceto differentiate themselves. Therefore, the question “how these differentiations are maintained” must
be answered to answer the original question. However, “the reason these enterprises can offer‘problem-based solution services” must be considered first to answer that question. We now
consider this first.
	  In fact, the common strategies other than (C) are major reason for making “problem-based
solution services” possible.
	  To offer “problem-based solution services”, enterprises obviously must understand unique needs
in client orders, and must accurately communicate the unsolvable problems to clients. This can only
be achieved if the company is deeply committed to marketing.
	  On the other hand, deep commitment to product development would be an essential action by the9enterprise to maintain problem (unique needs in orders) solutions. Indeed, “how” to change “one of”
the product’s function, structural, process, and operation design would vary on a case-by-case basis.
However, there is no guarantee that “one of” the change in design in is going to solve the problem.
In this regard, it should be easily understood by thinking about the nature of detailed unique needs inorders. It is considered to be a problem because existing products’ functions, structures, processes,
and operations cannot address it.
	  Fortunately, not all designs are constructed from scratch. Some designs have shared productdevelopment, product knowledge, and technology. Product knowledge and technology mentioned
here are cases like “it is possible for us to manufacture this part in this product design, using thisprocess, with this operation, and the product’s this part can have these shapes and functions, andcertain cost target or deadline can be met,” to be specific. They point to the knowledge andtechnology that enable causal association between manufacturing methods (product design andprocess design) and services provided.
	  Such knowledge and technology are typically accumulated through experience in past experienceof orders that required changes in partial designs. The existence of delivery deadlines and strongpressure of uncertainty in daily operations - - such knowledge and technologies required to solve
problems are highly sought. Furthermore, knowledge and technologies are obtained through theunrelenting effort to deliver services.
	  The strategies (B) and (E) are vital for efficient application and effective accumulation of theabove knowledge and technologies. The enterprise establishes a business domain by focusing on“high general versatility” product parts, equipment, and processes. By continuously employing
strategies (A) to (D), the enterprises can make more accumulated knowledge and technology
available to solve problems (unique needs in orders), thereby raising the probability of problem
solution. Here again, let us look at an example we once discussed before: the precision spring
manufacturer. This company established its business domain as clients using high general versatility
products, providing problem solutions. This is why even for solutions for a cell phone maker’s order:“make the phone slide smoothly…” can be effectively handled by using part of the knowledge andtechnologies accumulated from orders for printer spring or other cell phone’s springs in the past.
Past solutions can be applied because these are all spring-related problems. Unfortunately, not all
problems can be solved using existing knowledge and technologies. For that reason, new knowledge
and technologies are accumulated after solution of problems and delivery of services. Since
strategies (B) and (E) were employed, the probability of knowledge being applicable increase forsolutions of more advanced problems for the next order. If the next order was for medical (catheter)10spring, it would still be a spring-related problem. Thus, the probability of knowledge andtechnologies gained from slide cell phones being applicable would be high.14
	  By employing the common strategies listed earlier in daily problem solution process, efficient useof knowledge and technology, and effective spiral of accumulation that are required for solution ofproblems in the enterprise’s product parts, equipment, and processes will be made possible. As aresult, “problem-based solution services” for increasingly difficult problems can be offered as thetime passes.
	  From the above observation, it can be said that there exists a significant advantage for forerunners,in their ability to offer “problem-based solution services” in products, equipments, and processes fora reasonable price. The enterprises that employed the above common strategies earlier will always
be steps ahead of enterprises that employed the strategies later. In addition, such advantages can be
maintained as long as the strategies are kept. This is the main reason for lasting differentiation.
	  Meanwhile, it is possible for a new enterprise to employ the common strategies, and provide
solutions to more problems. In such cases, the competitive advantages held by forerunners can belost. However, many enterprises have barriers to adaptation of the common strategies, or reasons that
reduce incentives of adaptation. We cannot go too far into depth due to space constraints, but for
example, enterprises in developing countries have competed by employing the strategy of fulfillingcommon needs by clients and orders for a lower price. Their competitive advantage is gained by
employment of that strategy, and their incentives for attempting the strategy of differentiation byfulfilling unique orders are low. Western enterprises often compete by fulfilling detailed and uniqueneeds, but it is common for them to take the “make-in-advance” approach. There are also many
Western clients seeking such services, so their incentives for “problem-based” approach are low. On
that note, the common strategies listed earlier are also not suitable for large-scale Japaneseenterprises. We will explore more into the reason later, but it is difficult for large-scale enterprises to
employ such strategies due to structural issues of the organizations. On the other hand, long-standing
Japanese medium-sized enterprises can be expected to have employed these common strategies, buteach enterprise focuses on different products, equipments, and processes. An attempt to change
products, equipments, and processes would mean the abandonment of current strategies. Thus, it israrely attempted.

14For the sake of simplicity, we have used two different products for orders for our example. In reality,

there is an overwhelming ratio of cases where same products are handled, but problems are different.
However, changes in product itself do exist.

11

(b) The reason maintaining successful core business leads to survival of the enterprise.
	  Even if an enterprise establishes a competitive advantage, it cannot achieve long-standing survival
unless there is also a certain amount of demand for that core business. However, when the above
strategies were employed, the probability of maintaining long-term demand is high. There are
essentially two possible reasons to explain it.
	  The first reason, to be specific, is the nature of the strategy (B) itself. Because the enterprise setsclients of “high general versatility” product parts, equipments, and processes as its business domain,
it would not be vulnerable to fluctuations of an industry’s life cycles and demands from a region. In
reality, the precision spring enterprise in our example began as a supplier of springs for watches tomajor accounts in their own region. As demand for it declined, the enterprise shifted to
manufacturing of springs for printers, cell phones, pens, and medical uses (catheters). In addition, it
maintained sales revenue by expanding its client base to other regions in Japan, and overseas.
	  There are usually technological problems for industry shifts, but when the enterprise employ thecommon strategies, “efficient use of knowledge and technology, and effective spiral of accumulationthat are required for solution of problems” will be made possible, so it is hard to conceive
insurmountable knowledge or technological barriers. The spiral of accumulation should also exist toa certain extent between different industries.
	  However, even if the above industry and client transfers are possible, they would run out of
options if the demand for “problem-based solution services” ceased for the economy as a whole. But
this is highly unlikely because creative activities such as development of new products andinnovation are unceasing in the society as a whole, and maintains a certain scale of business. There
are two external reasons for this assumption.
	  Development of new products and innovation always involve some form of new design (productdesign and process design). However, not everything is constructed from scratch. Most new designs
are based on existing products, equipments, and procedures. In fact, most development of new
products and innovations do not involve brand new creations. It can be said that customization ofexisting products occupy the vast majority of all new designs. Therefore, unique needs by clients for“high general versatility” product parts, equipment, and processes will continue to exist. For
example, “make the phone slide smoothly…” in chapter 4 was a problem incurred from an order fora new slide cell phone. To be even more specific, “springs that does not cause ink leak for ballpointpen” was a need that must be fulfilled in creation of a new ballpoint pen that used neither oil-based
nor water-based ink, but a “neutral” ink.
	  Of course, these needs can be fulfilled by “make-in-advance” approach rather than12

“problem-based” approach. However, neither approach is absolutely better than the other. They havetheir own pros and cons, so is “problem-based” approach even necessary? Usually, Western
manufacturers of assembled products are said to employ the modular approach, while Japanesemanufacturers employ integral approach in product designs. In theory, “make-in-advance” isappropriate for integral designs, and “problem-based” is appropriate for integral designs. However,the slide cell phone order in the example above was made by a Western client. Furthermore, it was
an international corporation.

6. Potential for B2B Manufacturing Industry as a Whole	  Thus far, we have only examined case study in the precision industry

until this chapter for

explanations. However, the common strategies and logic behind long-standing survival has potential
to be applicable in the entire manufacturing industry, at least in the B2B business.
	  The fact that the enterprises we have determined to have employed the common strategies haverelatively diverse business domains (see Appendix Table 1) may support the above statement.
Unfortunately, our sample size is still too small, and the possibility of subjectivity cannot be
discounted, so it is insufficient as evidence. However, the evidence for the potential we assert is notbased on insufficient facts. The following is our logical analysis.
	  A detailed explanation should not be necessary for parts manufacturing as a whole, regardless ofindustry or region. The common strategies and logic would

be applicable to manufacturers thatsatisfy the condition in Chapter 4 and 5, “the enterprise defines its business domain as clients thatuse “high general versatility” product parts.” Even if it is a large spring, ultra-precision gear, or
traffic mirror manufacturer, instead of a precision spring manufacturer.
	  So, the problem is not parts manufacturers, but whether it would also apply to other service
providers such as polishers, heat processors, and assemblers, as well as industrial machinery
manufacturers of engineering machinery, FA equipment, and other tools. By considering theseindustries from “final product value chain” standpoint, the possibility of application begins toemerge.
	  Indeed, there are differences between each industry from “final product value chain” standpoint.
Parts manufacturers and manufacturing service providers handle different products and the numberof operations responsible would differ. Using two enterprises that handle watch gears, a cutting
processor would be responsible for cutting operation of the gears alone in the gear manufacturing
process, but it will probably handle other parts manufacturing operations that require cutting process.
On the other hand, a gear manufacturer would only produce gears, but it would be responsible for all13

operations required in gear manufacturing. On a different note, industrial machinery manufacturer
and operation service providers in parts manufacturing would operate in different locations. Even forwatch gear operation processors, gear manufacturers and cutting processors, would conduct cutting
operations in their own factories. However, if the manufacturer uses machine tools like lathe, gear’s
cutting operation would occur in the factories of clients who purchased the machinery.
	  However, all enterprises have one thing in common despite differences: being part of the value
chain for the final product. Using the previous example, the gear manufacturers, cutting processors,
and the lathe processors are all common in that they are part of the value chain for watches.
	  This commonality supports the potential. The common strategies are applicable across industries.
In other words, these strategies can be used across the value chain. As such, it is not limited in parts
manufacturing industry, but is also possible in operation service providers and industrial machinery
manufacturing industries. For example, it is theoretically possible for the enterprise to “define its
business domain as clients that use “high general versatility” products” as clients that requirecontamination detectors, comb-shaped lathe, or ultra-precision cutting operations.

7. Ideas and challenges.
	  Finally, let us now list a few suggestions and remaining problems as secondary analysis. Fourideas were derived from observations in this research paper.
	  First, there is the possibility that many enterprises may have achieved long-standing survival by
employing these sophisticated business strategies. Some SME managers responded, “We do nothave any set of business strategies.” In fact, some enterprises in 26 companies interviewed that
employed the common set of strategies for this study gave similar responses. However, these words
cannot be taken literally. It is true that some business strategies are not consciously employed bythese mangers. However, “whether or not their business activities (such as profit maximization or
long-standing survival) result in actual business strategies (such as positioning or resource
accumulation)” is not a matter of their conscious decisions. By analyzing from a third-person
perspective, at least 26 companies observed in this research have employed very sophisticatedbusiness strategies. In addition, the common strategies employed by these 26 companies employedbusiness strategies that led to long-standing survival without expansion of business scale. It is a setof business strategies rarely seen in large-scale enterprises. We have stated in Chapter 2 that abstract
hypothesis formulation made by information gathering on business strategies of small- andmedium-sized enterprises were blind spots in research. The suggested idea above further emphasizes
the importance of such research projects.

14	  Second, there is the possibility of common business strategies found in multiple regions, andcategories, and business fields. The existing theoretical researches for SMEs are mainly for suppliersystem and industrial agglomeration (cluster analysis). Such types of research tend to limit
themselves in a single industry or region. But this possibility suggests the importance of researches
that would encompass multiple industries and regions.
	  It should be noted that such types of research should focus on business strategies of individual
enterprises as an industrial theory research over agglomeration researches such as business systems
theory. In addition, industrial theory research may bring new lights to business systems theory. All
business systems are made up of enterprises and business relationships. However, existing businesssystems theories mainly focused systematic activities by large-scale enterprises or business
relationships of multiple enterprises. On the other hand, business activities of SMEs were neglected
for the most part. These are reasons for the necessity of future research in SME business strategy
theories.
	  Third, source of competitive advantages for Japanese manufacturers must be interpreted usingmeans other than commonly accepted theories. This is not to say the commonly accepted theories
are wrong. However, there are things that cannot be explained using these theories alone.
	  At the very least, it can be said for the 26 companies observed, as the analysis made in previous
chapters show. To elaborate: the “ability to meet customer demands” such as delivery date or
customized products; “possession of scientifically advanced technology” such as ultra-precision
processors as the source of competitive advantage; “high productivity” of enterprises; and the reason
for long-standing survival as “constant positioning in niche market” may not have been the requiredconditions for long-standing survival according to commonly accepted theories. However, thosewere not the actual sources of lasting competitive advantages. In fact, the lasting competitive
advantages were maintained by ‘continuously providing problem-based customer solutions’ at areasonable price.” Furthermore, the commonly believed causes are the eventual results rather thanconditions for the long-standing survival. All these competitive advantages should

be naturally

gained by employing common strategies (A) to (E).
	  Of course, we are aware that our study is only a case study. However, the need to re-evaluate
commonly accepted theories using long-standing medium-sized enterprises not observed in thisresearch is apparent.
	  Fourth, there is the possibility of better than expected positive division of labor between
large-scale enterprises and SMEs in Japanese machinery. To be specific, large-scale enterprises
handle new product development and innovation in basic designs of product function, structure,

15

value chain, or production process. SMEs handle detailed designs for product parts, equipment, andprocesses. It should be apparent that SMEs fulfill their functions by providing “problem-based
solution services” for a reasonable price.
	  Large-scale enterprises and SMEs were not considered to have such a positive relationship incommon business theories. The term that represents this best is “niche”. Large-scale enterprises canenter niche markets, but they do not because such markets are not financially attractive. The SMEs
handle that unattractive market. It can be said that the term “niche” has implicit division of labor in
economy as a whole.15
	  Of course, there is room for even more positive relationship in division of labor. For example, a
relationship known as “approval plan” transaction is a prime example in his research of theautomotive industry.16 “Approval plan” transaction, in layman’s terms, is a transaction relationshipwhere suppliers handle part of the product design. However, only division relationship in certain
supplier systems and regions are addressed in supplier systems and agglomeration theories. Thosetheories did not envision a situation where a country’s machinery manufacturing industry being
supplied by SMEs, through “problem-based solution services” with “high general versatility”
product parts, equipment, and processes, for multiple products and industries.17
	  Unfortunately, it would be difficult to maintain the costs of detailed design for each product part,equipment, and process (in other words, problem solving) as enterprises scale-up, if such division
relationship were to spread to the entire economy. However, this division relationship seems to exist
in reality.
	  The fact remains that at least one more condition must be met for enterprises to provide highquality “problem-based solution services” at a reasonable price, and this condition is somethingother than common strategies discussed in this research paper. This condition is daily, yet extensive
interaction between marketing, product development, and production. Even if the sales andmarketing department accurately comprehend client’s unique and detailed orders, the client’s
problems cannot be solved unless the information reaches product development or production
15For example, Penrose [1959], the business growth theory author, has discovered the existence of thisdivision of labor relationship in capitalist societies by expanding business growth theory logic into
economic theory. In addition, he states this division relationship is the reason there are always certain
number of SMEs present.
16Please refer to Asanuma [1997] for further analysis.
17Watanabe [1997], it is stated that similar situation exist in Japanese machinery industry using theconcept of “convex social division structure.” However, Watanabe’s observations did not focus on new
product development or innovation. In addition, the focus of observation was on processing service
industry alone, and lacks analysis that considered both processing service and product manufacturingindustries.

16

departments that make changes in product design and process design. The marketing department
must be also stay up to date with product development and production status in order to accurately
communicate problems that cannot be solved by the company, to the client.
	  Due to the limited number of employees, SMEs must have relatively horizontal organizational
structure, and there is no need to add vertical chain of command. In addition, SMEs do not need to,and cannot divide job functions as specifically as large-scale enterprises. However, as enterprises
scale-up, the organizational structures will naturally stratify, subdivide, and become specified duefrom operational performance issues, as described by organizational theory research led by Chandler[1962] suggest. Unfortunately, change in organizational structure creates difficulty in daily, yet
extensive interaction between departments. This is the greatest reason why large-scale enterprises
cannot employ the set of common strategies mentioned in this study.
	  Although few ideas and suggestions for future researches were made, this research paper is still
incomplete as theoretical research paper. The sample size must be increased, hypotheses require
further testing, and analyses formulated in this research must be compared to other studies,
especially their relationships with business strategy theories of large-scale enterprises. There aremany more topics that require further study.
	  Further elaboration of hypotheses is imperative over all else. The logic behind the common
strategies as a cause for long-standing survival clearly requires additional explanations. Specifically,
the common strategy set’s barriers to enterprises other than Japanese medium-sized enterprises, andcauses that reduce the incentives of its employment need elaboration. “How can enterprise shift toother clients and industries” is another question that requires further exploration. For example, anenterprise that relied on a specific client for majority of its sales would require a significant
innovation to gain new clients, even if products and services offered stayed the same. Unfortunately,
we did not have the opportunity to discuss this type of dynamic changes.
	  There are other hypotheses that require further elaboration. “Categorization of enterprises that
employ the common strategies” is one of such hypotheses. This study only focused oncommonalities as an introductory research. Although the 26 companies observed share many
common traits in business strategies, it must be possible to further categorize them in smaller
patterns. “Why the common strategies cannot expand the scale of core business” is another questionthat must be answered. One of the most interesting phenomena observed in this study is the fact thatenterprises achieved long-standing survival without scale-ups, but needless to say, that observation
alone is insufficient analysis of the phenomenon.
	  Finally, medium-sized enterprises that achieved long-standing survival also require a thorough17

analysis. With that in mind, B2C enterprises and manufacturing enterprises other than those in theindustrial machinery industry must also be considered for our study. The purpose of such research is
to conduct a comparative analysis by reversing the argument to further understand this topic.
However, the existence of enterprises that achieved long-standing survival is the greatest reason forsuch research. In enterprises we interviewed, some “possessed multiple core businesses, and shiftedto other businesses as one went into decline”, yet these medium-sized enterprises managed tosurvive for over 100 years. We have also conducted interviews with B2C medium-sized enterprises,
and these businesses employed business strategies similar to the common set of strategies discussed
in this study, but their business domain was not defined as “clients that use “high general versatility”
product parts, equipment, and processes.” There are a couple of such enterprises that achieved
long-standing survival. It may be an obvious fact, but there is more than one survival pattern.

18

Chart 1: The enterprises determined to have employed the common strategies and their businessdomains (26 companies)

Parts (9 companies)

Equipment (9 companies)

Processing (8 companies)

Company A

Company J

Company S

Large spring

Comb-shaped
lathe

B

Ultra-precision

K

Wood

molded gear

Ultra-precisionpressing/T

non-metal

Precision

sheet

metal

machine tool
C

Shaft

L

UltrasonicU

equipmentD

Traffic mirror

M

Large

metal

casting

Wet-blast surface

Vprocessing

Deep drawing/pipe
bending press

equipment
E

Precision springN

CylindricalW

grinding machine
F

Carbide toolO

Powderingprocessing
X

equipment
G

Centerless grinding

P

Wood

machineStainless/vacuum

Electrical/

laser

processing/Y

non-metal

Carbideprecision

processing

machine toolH

Rubber molding

Q

ContaminationZ

detectorI

Roofattachment

R

Electrical
processing

Vertical grinding

tool

machine(Note 1) 26 out of 38 companies researched employed the set of common business strategies.
(Note 2) The business domain of each enterprise was determined through author’s interview and site
visits.

19

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