2016

White Paper on Small andMedium Enterprises in Japan
Earning Power to Open the Future

National Association of Trade Promotion
for Small and Medium Enterprises

Outline of the 2016 White Paper on
Small and Medium Enterprises in Japan
Part I of this report takes a look at recent developments among SMEs, and analyzes their productivity.
Based on the information analyzed in Part I, Part II presents an analysis of initiatives for strengthening the earning
power of SMEs. More specifically, it examines such themes as IT utilization, overseas expansion and risk management, andanalyzes the finance aspects of initiatives for strengthening earning power and management capabilities to appropriately
implement them.

Part I

Developments among SMEs in fiscal 2015l Economic developments in Japan / Developments among SMEs
The Japanese economy is on a gradual recovery trend, although some weaknesses still remain in certain areas. As
shown by increased corporate profits, wages, and employment, a “positive growth cycle” has been set in motion, whereby
increased consumption and investment lead to further increases in corporate profits.
Among SMEs, operating profits have reached record high, the number of bankruptcies has declined, and the rate of
decline in the number of SME businesses has slowed down. At the same time, however, the increase in operating profits
among SMEs is largely owing to a decline in the prices of raw materials and energy, and is not accompanied by an increasein sales. This section thus provides a general overview of issues facing SMEs, as represented by a stagnation of capital
investment by SMEs, the aging of facilities, and the deepening issue of labor shortage.
● Present status of SME productivity
Japanese SMEs particularly in the service industries are said to have low productivity. However, in addition to analyzing
SME productivity by industry, this section shows that there exist in all industries certain numbers of SMEs that have higher
productivity than larger enterprises, and that these enterprises are particularly active in making investments.

Part II

The earning power of SMEs

● Changes in circumstances surrounding SMEs
This section examines medium to long-term changes in the socioeconomic structure that have an impact on SMEs, suchas population decline, declining birthrates, and aging population; the weakening of businesses centered on subcontractorprincipal contractor relationships; the expanded utilization of information and communications technologies; increases inoverseas demand; and frequent occurrences of natural disasters.
● IT utilization for improving productivity
Among all SMEs, a certain percentage is unable to assess their company’s business conditions or face other such issues
that could be resolved by utilizing IT. Yet, IT is not actively utilized, due to a lack of IT personnel, the uncertain effectivenessof introducing IT, and other such reasons. There are also enterprises that have introduced IT but have yet to see any tangible
results of having done so.
An analysis is therefore presented of the advantages of IT utilization and the initiatives of high-revenue enterprises tostrengthen their earning power through IT utilization.

● Overseas expansion for increasing sales
The numbers of middle and wealthy classes of people are increasing overseas, the number of foreign visitors to Japan isreaching record highs, and the agreement on TPP is heightening expectations of deepening relations with foreign countries.
However, SMEs that engage in export, direct investment, and inbound marketing are still very few, even though they may
be increasing.
Therefore, this section shows how overseas expansion, including inbound marketing, strengthens earning power andincreases the number of workers in Japan, and analyzes initiatives related to overseas expansion among high-revenue
enterprises.
● Risk management to support earning power
The increasing frequency of natural disasters and the expanded utilization of IT have heightened awareness of information
security among large enterprises, such that they have begun to promote countermeasures, but initiatives among SMEs are
said to be lagging behind.
Thus, the present state of SME initiatives and issues are analyzed in reference to business continuity plans, information
security measures, and assessment of risks related to the development of new businesses. This section will also showthat these initiatives, whether in emergency situations or at ordinary times, lead to improved management or otherwise
contribute to strengthening earning power.
● Finance to support SME growth
Financing is important to strengthening the earning power of SMEs. Thus, this section will analyze the relationshipbetween financial institutions and SMEs, and discuss ideal financing solutions that accurately assess the businessperformance of enterprises. The present state and issues of non-financial aid will also be analyzed to show the importanceof providing management support services in collaboration with support organizations.
● Management capabilities that determine SME earning power
The management capabilities of the business manager is extremely important to executing investments toward
strengthening earning power while establishing a good relationship with financial institutions and other relevantorganizations. Thus, this section categorizes SMEs from the aspects of recurring profit margin and equity to total assets to
examine the characteristics of enterprises that have earning power and enterprises that have a lower recurring profit margin
but a higher equity to total assets than the average of large enterprises. It also analyzes of their investment trends, thedecision-making policy of managers, corporate culture, etc.
Additionally, given the advancing ages of SME managers, changes in the awareness of older managers and in theirinvestment behavior are analyzed, and the importance of drawing up methodical business succession plans is discussed.

Contents
Part I

Developments among SMEs in fiscal 2015 . . . . . . . . . . . . . . . . . . 1

Chapter 1 Economic developments in Japan .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 2Chapter 2 Developments among SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
Section 1 Present state of SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
Section 2 Profit structure and issues among SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35

Chapter 3 Analyzing SME productivity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 61
Section 1 Changes in circumstances surrounding SMEs and SME
productivity .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 61
Section 2 Present status of SME productivity . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 3 Comparison of SME productivity by industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 74
Section 4 Summary. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 80

Part II

The earning power of SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Chapter 1 Factors that determine the earning power of SMEs. .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 88
Section 1 The environment for SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 88

Chapter 2 IT utilization among SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 116
Section 1 Necessity of IT investment for improving productivity .  .  .  .  .  .  .  .  .  . 116
Section 2 Extent and effects of IT utilization at SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 116
Section 3 Issues involving effective IT usage and initiatives
at high-revenue enterprises .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 136

Chapter 3 Initiatives among SMEs to tap into overseas demand.  .  .  .  .  .  .  .  .  .  .  .  . 158
Section 1 Changing trends in overseas expansion —The importance ofoverseas expansion against the background of the TPP— .  .  .  .  .  .  .  . 158
Section 2 Investment in overseas expansion among SMEs:
Status and outcomes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 162
Section 3 Problems related to investment in overseas expansion andinitiatives of high-revenue enterprises .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 185

i

Chapter 4 Risk management, supporting the earning power .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 210
Section 1 Risks facing SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 210
Section 2 Establishing a business continuity plan (BCP) to
ensure business continues stably.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 230
Section 3 Information security risks .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 254

Chapter 5 Financing to support growth in SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 271
Section 1 Changes in the structures of funding circulation .  .  .  .  .  .  .  .  .  .  .  .  .  . 271
Section 2 The importance of funding growth in SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 306
Section 3 Enhancing systems to support the growth of SMEs. .  .  .  .  .  .  .  .  .  .  . 364

Chapter 6 Management capabilities that determine SME earning power .  .  .  .  .  . 388
Section 1 Growth in growing enterprises and the limiting factors .  .  .  .  .  .  .  .  . 388
Section 2 Managers’ ages and earning power .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 454

SME policies implemented in fiscal 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Chapter 1 Detailed support for SMEs in disaster-affected regions .  .  .  .  .  .  .  .  .  .  . 476
Section 1 SME and micro-businesses measures with respect to
the Great East Japan Earthquake.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 476
Section 2 Countermeasures for the overlapping debt problem .  .  .  .  .  .  .  .  .  .  . 476
Section 3 Support for restoration of plants, etc. . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 477
Section 4 Other measures. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 477

Chapter 2 Support for productivity improvement among SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  . 479
Section 1 Enhancement of technological capacity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 479
Section 2 Improvement of transaction conditions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 480
Section 3 Examination of policies by advisory councils, etc. .  .  .  .  .  .  .  .  .  .  .  .  . 481

Chapter 3 Support for overseas expansion by SMEs and micro-businesses.  .  .  . 482
Section 1 Development of an information provision andconsultation framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482
Section 2 Support for the development of new products and services .  .  .  .  . 482
Section 3 Other support policies for overseas expansion .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 482

ii

Chapter 4 Support for sustainable development of micro businesses. .  .  .  .  .  .  .  . 485
Section 1 Strengthening the framework of accompanying-style
management support .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 485
Section 2 Support for market cultivation .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 485
Section 3 Development of the business environment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 485

Chapter 5 Promotion of regional economic revitalization and regeneration .  .  .  . 487
Section 1 Strengthening management support frameworks .  .  .  .  .  .  .  .  .  .  .  .  . 487
Section 2 Utilization of local resources.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 487
Section 3 Revitalization of shopping districts and city centers .  .  .  .  .  .  .  .  .  .  . 488
Section 4 Support for market and demand cultivation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 489
Section 5 Human resource and employment measures.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 490
Section 6 Support for new and secondary business startups .  .  .  .  .  .  .  .  .  .  .  . 492
Section 7 Support for business succession .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 494
Section 8 Other regional revitalization measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 495

Chapter 6 Development of the business environment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 497
Section 1 Cash-flow assistance and business generation support .  .  .  .  .  .  .  . 497
Section 2 Enhancing financial capacity .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 499
Section 3 Measures for pass-throughs of consumption tax.  .  .  .  .  .  .  .  .  .  .  .  .  . 500
Section 4 Measures for business stabilization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 500
Section 5 Measures concerning public demand. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 501
Section 6 Promotion of human rights awareness .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 502

Chapter 7 Initiatives by industries and area.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 503
Section 1 Measures for SMEs in agriculture, forestry and fisheries .  .  .  .  .  .  .  . 503
Section 2 Measures for SMEs in the transport industry .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 504
Section 3 Measures for small and medium building contractors andrealtors .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 505
Section 4 Measures for the environmental sanitation business .  .  .  .  .  .  .  .  .  .  . 506

Chapter 8 Other SME policies. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 507
Section 1 Environmental and energy measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 507

iii

Section 2 Promotion of IT .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 508
Section 3 Measures on intellectual property. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 508
Section 4 Promotion of standardization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 511
Section 5 Promotion of surveys and public information activities .  .  .  .  .  .  .  .  . 511

SME policies planned for fiscal 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513
Chapter 1 Detailed support for SMEs in disaster-affected regions .  .  .  .  .  .  .  .  .  .  . 516
Section 1 Cash-flow assistance .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 516
Section 2 Countermeasures for the overlapping debt problem .  .  .  .  .  .  .  .  .  .  . 516
Section 3 Support for the restoration of plants, etc. . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 517
Section 4 Other measures. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 517

Chapter 2 Support for productivity improvement among SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  . 519
Section 1 Enhancement of technological capacity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 519
Section 2 Improvement of transaction conditions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 520

Chapter 3 Support for overseas expansion by SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 522
Section 1 Development of an information provision and consultation
framework.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 522
Section 2 Support for the development of new products and services .  .  .  .  . 522
Section 3 Other support policies for overseas expansion .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 522

Chapter 4 Support for sustainable development of micro businesses. .  .  .  .  .  .  .  . 525
Section 1 Strengthening the framework of accompanying-style
management support .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 525
Section 2 Development of the business environment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 525

Chapter 5 Promotion of regional economic revitalization and regeneration .  .  .  . 526
Section 1 Strengthening management support frameworks .  .  .  .  .  .  .  .  .  .  .  .  . 526
Section 2 Utilization of local resources.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 526
Section 3 Revitalization of shopping districts and city centers .  .  .  .  .  .  .  .  .  .  . 527
Section 4 Support for market and demand cultivation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 528
Section 5 Human resource and employment measures.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 529

iv

Section 6 Support for new and secondary business startups .  .  .  .  .  .  .  .  .  .  .  . 531
Section 7 Support for business succession .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 533
Section 8 Other regional revitalization measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 534

Chapter 6 Development of the business environment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 536
Section 1 Cash-flow assistance and business generation support .  .  .  .  .  .  .  . 536
Section 2 Enhancing financial capacity .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 538
Section 3 Measures for pass-throughs of consumption tax.  .  .  .  .  .  .  .  .  .  .  .  .  . 539
Section 4 Measures for reduced consumption tax rate system .  .  .  .  .  .  .  .  .  .  . 539
Section 5 Measures for business stabilization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 539
Section 6 Measures concerning public demand. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 540
Section 7 Promotion of human rights awareness .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 540

Chapter 7 Initiatives by industries and area.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 541
Section 1 Measures for SMEs in agriculture, forestry and fisheries .  .  .  .  .  .  .  . 541
Section 2 Measures for SMEs in the transport industry .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 543
Section 3 Measures for small and medium building contractors andrealtors .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 543
Section 4 Measures for the environmental sanitation business .  .  .  .  .  .  .  .  .  .  . 544

Chapter 8 Other SME policies. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 546
Section 1 Environmental and energy measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 546
Section 2 Promotion of IT .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 547
Section 3 Measures on intellectual property. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 547
Section 4 Promotion of standardization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 550
Section 5 Promotion of surveys and public information activities .  .  .  .  .  .  .  .  . 550

Appended notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561
Supplementary statistical data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565
Index of figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609

v

Cases described in this report
Part I

Developments among SMEs in fiscal 2015

Chapter 3

Analyzing SME productivity

Name of enterprise, etc.
Case 1-3-1
Ohkushi Corporation

Chiba City,
Chiba PrefecturePart II

The earning power of SMEs

Chapter 2

IT utilization among SMEs

Name of enterprise, etc.
Case 2-2-1
NAKAGAWA Corporation
Case 2-2-2
Shibazono Kaihatsu Corporation

Case 2-2-3
ID’s Co., Ltd.

Case 2-2-4
WEIC Corporation

Case 2-2-5
Yoshihana Co., Ltd.

Case 2-2-6
Kobayashi Manufacture Co., Ltd.

Case 2-2-7
Eagle Bus Co., Ltd.

Case 2-2-8
Happy Co., Ltd.

Chapter 3

Case

Page

A business that has been successful in boosting
its rate of repeat business and increasing its
sales through the introduction of information
technology

81

Case

Page

Location
Taito City,Tokyo

A long-established company that has usedbottom-up improvement and visualization ofprocesses to focus IT investment

125

Adachi City,Tokyo

A company that boosted its earnings by making
processes visible through the introduction ofcloud computing

130

Tomigusuku City,
Okinawa Prefecture

A company that boosts the added value andproductivity of retailers using Big Data and cloudcomputing131

Chuo City,Tokyo

A company that promotes the aggressive useof IT systems by SMEs through the provision ofbusiness support services using AI and cloudcomputing132

Kaga City,
Ishikawa Prefecture

A company that has improved its efficiency andincreased its profit rate by attracting customers
through its website and introducing a cloudcomputing system

141

Hakusan City,
Ishikawa Prefecture

A company that has increased its productivity bylistening to employee opinions and reforming its
systems to ensure employee satisfaction

142

Kawagoe City,
Saitama Prefecture

A bus company that improved its unprofitable
routes through a fusion of digital and analogue:
The introduction of an original system to reform
its work processes and the conducting ofcustomer surveys

143

Uji City,
Kyoto Prefecture

A company that optimized its business andincreased profitability through the introductionof an electronic records system that centrally
manages its services

144

Initiatives among SMEs to tap into overseas demand

Name of enterprise, etc.
Case 2-3-1
Asai Nursery, Inc.

vi

Location

Location
Tsu City,
Mie Prefecture

Case

Page

An example of an agriculture-commerceindustry joint venture that has realized increased
productivity through the use of Dutch cultivation
techniques161

Case 2-3-2
Kahoku Lighting Solutions
Corporation

Case 2-3-3
Nanbu Bijin Co., Ltd.

Case 2-3-4
WILLER TRAVEL, Inc.

Case 2-3-5
SUEHIRO EPM Corporation

Case 2-3-6
YUKI Precision Co., Ltd.

Case 2-3-7
Saito Optical Science
Manufacturing Ltd.

Ishinomaki City,
Miyagi Prefecture

A company that has enhanced costcompetitiveness and realized high added value
by establishing overseas production bases andstrengthening its domestic business

167

Ninohe City,
Iwate Prefecture

A company that increased its sales by boostingoverseas exports of sake with the acquisition of
kosher certification

183

Osaka City,
Osaka Prefecture

A company that has succeeded in tapping theinbound tourism market by developing andmarketing products for overseas tourists visiting
Japan

184

Yokkaichi City,
Mie Prefecture

A company that has succeeded in winningoverseas demand by unifying with a will to solve
its customers’ problems

192

A company that has opened up new fields andChigasaki City,
taken up the challenge of entering the aerospace
Kanagawa Prefecture industry using its twin strengths, quality andreliability

193

A company that has promoted technologicalinnovation in the market and generated domestic
and overseas demand by supplying technologies
and providing consultation services

194

A company that has succeeded in overseas
expansion by cultivating the essential personnel
in-house

205

A company that has succeeded in advancing
into the overseas market and taking its businessto the world by fostering its personnel anddeploying diverse human resources

206

Misato Town,
Akita Prefecture

Case 2-3-8

Chuo City,
Fuji Filter Manufacturing Co., Ltd. Tokyo

Case 2-3-9
Yamanaka Engineering Co., Ltd.

Chapter 4

Higashiosaka City,
Osaka Prefecture

Risk management, supporting the earning power

Name of enterprise, etc.
Case 2-4-1
Kaneki-Yoshida Co., Ltd.

Case 2-4-2
Tohken Thermo Tech Co., Ltd.

Case 2-4-3
Kawakamikiko Co., Ltd.

Case 2-4-4Ishizaka Sangyo Co., Ltd.

Case 2-4-5
Taisei Fine Chemical Co., Ltd.

Location

Case

Page

Minami-Sanriku
Town,
Miyagi Prefecture

A marine product processing company that in
the immediate aftermath of the Great East Japan
Earthquake secured a base for procuring raw
materials and alternate production enabling it tocontinue doing business215

Osaka City,
Osaka Prefecture

A company taking what it had learned inovercoming an unexpected bad situation in an
overseas business and applying those lessons to
its subsequent overseas development initiatives

223

Takasaki City,
Gunma Prefecture

A company that determined in advance what
it imagined its acceptable limits were whenentering the Korean market, and then was able to 224
control the effects when it decided to withdraw
on their basis

Miyoshi Town,
Saitama Prefecture

A company training employees, improving
operations, and achieving an increase in sales by
putting external certifications to use

228

Asahi City,
Chiba Prefecture

A company where the strong awareness ofthe proprietor is driving Business Continuity
Management, and linking it to cost cutting andemployee training on a regular basis

248

vii

Case 2-4-6
Oizuru Corporation

Case 2-4-7
Doei Industry Co., Ltd.

Case 2-4-8
Japan Metal Stamping
Association (JMSA)

Case 2-4-9
Okayama Prefectural Industrial
Promotion Foundation (OPTIC)

Case 2-4-10
Hospitality One Co., Ltd.

Case 2-4-11
AZ-COM Data Security Co., Ltd.

Case 2-4-12
COMIT Co., Ltd.

Chapter 5249

An enterprise that solved succession problems
Isehara City,
by getting support from an industry group while
Kanagawa Prefecture it obtained ISO22301 certification and improved
how it was assessed as a company

251

Mizuho Town,
Tokyo

Minato City,Tokyo

A trade association that creates tools forassisting in BCMS building and has set up its
own qualification system

252

A support agency that provides enterprises in
the prefecture with assistance in drafting BCPs,
Okayama City,and promotes tie-ups between mainly model
Okayama Prefecture
enterprises that have produced BCPs withenterprises in other regions

253

Minato City,Tokyo

A home care services startup seeking to develop
its business with a strength in an information
security structure that takes its industry to a new
level

263

Chichibu City,
Saitama Prefecture

A company that has increased sales by obtaining
external certification for information security
and actively investing in both tangibles andintangibles

269

Minato City,Tokyo

A company that acquired external certification in
information security on its own, improved the way 270
outsiders saw it, and is aiming to develop further

Financing to support growth in SMEs

Name of enterprise, etc.
Case 2-5-1
Eltes Co., Ltd.

Case 2-5-2
Hatagoya & Company

Case 2-5-3Morita Komuten Co., Ltd.

Case 2-5-4
Kure Credit Union

Case 2-5-5
Futaba Tsushinsha Co., Ltd.

Case 2-5-6
Komiya Shoten, Ltd.

viii

A company pursuing work on business continuity
management systems internally and externally,and linking those initiatives to improving its
own operations and its business partners’
assessments

Location

Case

Page

Minato City,Tokyo

An enterprise that has forged friendly
relationships with financial institutions by carefully 321
explaining the details of its business

Taito City,Tokyo

An enterprise that procures capital without
personal guarantees from its president by being
forthcoming with information releases

326

Tanba City,
Hyogo Prefecture

An enterprise that used the Hyogo SME
Technological and Managerial Capability
Evaluation Program to broaden the scope of
capital it procures

333

A credit union that collaborates with theKure City,
Hiroshima Industrial Promotion Organization to
Hiroshima Prefecture proactively provide financing based on businessfeasibility evaluations

335

Chuo City,Tokyo

A debt-free enterprise that with assistance fromfinancial institutions is investing in growth through 342
business diversification

Chuo City,Tokyo

A company that has extricated itself fromchanges in borrowing conditions and begun its
march to growth352

Case 2-5-7
Nitto Co., Ltd.

Case 2-5-8
Taiyo Seiki Iron Works Co., Ltd.

Case 2-5-9
Osaka City Shinkin Bank

Case 2-5-10
Toyokawa Shinkin Bank

Chapter 6

Yokohama City,
A company using crowdfunding to pursue new
Kanagawa Prefecture product development

363

Osaka City,
Osaka Prefecture

A company growing by getting management
support services from financial institutions

370

Osaka City,
Osaka Prefecture

A credit union putting extra effort into its
matching efforts to improve their success rate

375

Toyokawa City,
Aichi Prefecture

A credit union that focuses on developing
executives by running a management cramschool386

Management capabilities that determine SME earning power

Name of enterprise, etc.
Case 2-6-1
Cerarica Noda Co., Ltd.

Location

Case

Aikawa Town,
An old company that has survived by using
Kanagawa Prefecture tradition and being flexible to the times

Page
421

Shinjuku City,
Tokyo

Creating high added value by offering customers
every aspect of printing, from marketing tologistics

426

Shibuya City,Tokyo

A pioneering enterprise building a new market in
the herbal industry

427

Nishio City,
Aichi Prefecture

A long-standing company that opened up a newmarket for matcha in food products

428

Yao City,
Fuji Electronics Industry Co., Ltd. Osaka Prefecture

Supplying customers with a foundation forcompetitiveness, continually growing by taking along-term view

436

Case 2-6-2
Mizukami Insatsu Co., Ltd.

Case 2-6-3
Tree of Life Co., Ltd.

Case 2-6-4
Aiya Co., Ltd.

Case 2-6-5

Case 2-6-6
Makino Seiki Co., Ltd.

Case 2-6-7
Asada Mesh Co., Ltd.

Case 2-6-8
Kobayashi & Co., Ltd.

Case 2-6-9
Material Co., Ltd.

Case 2-6-10
Nihon Dento Kougyo Co., Ltd.
Case 2-6-11
Fukurokujyu Brewery Co., Ltd.

Case 2-6-12
Amauchi Industry Co., Ltd.

Aiming to endure and growing dramatically
Aikawa Town,
by developing new products and expanding
Kanagawa Prefecture
overseas

437

Matsubara City,
Osaka Prefecture

Capturing a high world share through R&D
investment attuned to changing times

438

Taito City,Tokyo

A firm that has stayed in the black for 64 years by448
following a policy of steady progress

Ota City,Tokyo

Achieving sustained development andcontributing to growth of its entire community
through continued investment in humanresources development

449

Saitama City,
Saitama Prefecture

A plating company that took the occasion ofa change of leadership to reform employee
awareness and break into new fields, aiming to
be an enterprise loved by society

468

Gojome Town,
Akita Prefecture

Upon change of leadership, sake brewerswitches to an added-value strategy to restore
profitability469

A precision sheet metal working company thatYokohama City,
aims to no longer “wait for work” but instead
Kanagawa Prefecture“think and work” to meet customer needs

470

ix

Introductory notes

1. In this report, the term “small and medium enterprises (SMEs)” refers to small and medium enterprises as defined under
Article 2, Paragraph 1 of the Small and Medium-sized Enterprise Basic Act, and the term “micro enterprises” refers to“micro enterprises” as defined under Article 2, Paragraph 5 of said act. In addition, “medium enterprises” refers to SMEs
other than micro enterprises. (More specifically, SMEs and micro enterprises may roughly be categorized as follows.)

Industry1) Manufacturing, construction,transport, other industries(excluding 2)-4))*
2) Wholesale3) Services*
4) Retail

Capital

Number of regular
employees

Micro enterprises
included among SMEs
at left
Number of regular
employees

Up to ¥300 million

Up to 300

Up to 20

Up to ¥100 million
Up to ¥50 million
Up to ¥50 million

Up to 100
Up to 100
Up to 50

Up to 5Up to 5Up to 5SMEs
(meet one or more of the following conditions)* The following industries are separately stipulated as shown below, based on government ordinance related to SME legislation.
[SMEs]
1) Manufacturing• Rubber product manufacturing industry: Up to ¥300 million in capital or up to 900 regular employees
3) Services• Software industry & information service industry: Up to ¥300 million in capital or up to 300 regular employees• Hotel industry: Up to ¥50 million in capital or up to 200 regular employees[Micro enterprises]
3) Services• Accommodations industry & amusement industry: Up to 20 regular employees

2. This report draws largely on recompiled statistical data published by the Japanese Government and the results of surveys
conducted by various private-sector entities. Sources, methods of calculation and other relevant information are specified
where data are cited, but notes specific to each data source are summarized below.
(1) Ministry of Economy, Trade and Industry (METI), Census of Manufactures		This survey provides statistics on numbers of business establishments. Surveys of all business establishments are
conducted in years ending in 0, 3, 5 and 8 (up to the FY2008 survey), and surveys of business establishments andsimilar entities with no less than four workers are conducted in all other years.
		In this report, business establishment data for each year are consolidated for analysis. It should be noted, however,that if a business establishment has three workers one year and four the next, it is treated as a new entry. (Conversely,
a business establishment that goes from having four workers is treated as having exited.)x(2) METI, Census of Commerce		This survey provides statistics on numbers of business establishments.
(3) METI, Basic Survey of Japanese Business Structure and Activities
		This survey covers only incorporated businesses with 50 or more workers and a capital or investment of at least ¥30
million. Thus, the results do not include micro businesses. Note that the formal name of the survey is “Ministry of
Economy, Trade and Industry’s Basic Survey of Japanese Business Structure and Activities,” but it shall herein bereferred to as “Basic Survey of Japanese Business Structure and Activities.”(4) Ministry of Finance (MOF), Financial Statements Statistics of Corporations by Industry, Annually and Financial
Statements Statistics of Corporations by Industry, Quarterly		
As these statistics focus exclusively on incorporated businesses, they do not reveal overall trends among microenterprises. In consideration of sample sizes and response rates, moreover, the results concerning micro enterprises
need to be viewed with some latitude. It should also be noted that the quarterly version does not include corporations
with a capital of less than ¥10 million.
(5) Ministry of Internal Affairs and Communications (MIC), Establishment and Enterprise Census, Economic Census
for Business Frame and MIC/METI, Economic Census for Business Activity
		This census provides statistics on both business establishments and enterprises. In this report, enterprise-based
analyses using these statistics also include sole proprietorships. However, the size of sole proprietorships isdetermined based on the number of workers at their head office or principal place of business only, as name gathering
is unfeasible. Additionally, the Economic Census for Business Frame and the Economic Census for Business Activity
cover the same survey subjects as the Establishment and Enterprise Census, but differ from it in that they (1) capture
a greater range of business establishments and enterprises by using commercial and corporate registers and otheradministration records, and (2) adopt a method of surveying enterprises and establishments en bloc by having head
offices report information on their branches and other operations. It should thus be noted that numerical differencescompared to the results of the Establishment and Enterprise Census do not all indicate increases or decreases.
3. This report contains analyses based on questionnaire surveys on SMEs and micro-businesses and other respondents
conducted by various private-sector organizations commissioned by the Small and Medium Enterprise Agency (SME
Agency). It should be noted, however, that not all enterprises surveyed have responded to these questionnaires.
4. The indicators for SMEs and micro-businesses vary more widely than those for large enterprises. Thus, when examining
statistics on SMEs and micro-businesses, it should be noted that the mean values may not necessarily represent thestandard state of SMEs and micro-businesses.
5. The map of Japan shown in this report does not necessarily represent the entire territory of Japan.

xiPart I
Developments among SMEs in fiscal 2015

Chapter 1
Economic developments in JapanThe Japanese economy began to pick up toward the end of 2012, and a “positive growth
cycle” has been set in motion. Increased corporate profits have led to an increase in wages andemployment, which in turn have further increased corporate profits by stimulating consumption
and investment. However, compared to the increases in corporate and household incomes, therecovery trend has yet to reach such expenditures as capital investment and personal consumption.
Added to this weak internal demand was the impact of the economic deceleration in China andother emerging countries, such that a weakness has also begun to appear in the production aspect
in recent years. This chapter will review the developments in the Japanese economy in fiscal 2015
in terms of such GDP components as consumption, investment, and exports.

1.

Recent developments in the Japanese economy

From the end of 2012 to 2013, the Japanese economy
showed movements of picking up, including an
increase in corporate profits and an improvement in theemployment environment. In 2014, the consumption tax
increase and the subsequent last-minute surge in demand
and reactionary fall caused a large fluctuation, but theeconomy once again showed signs of recovery by the endof 2014, and the gradual recovery trend continued into
2015. At the same time, however, recovery has lagged
in social expenditures such as capital investment andpersonal consumption.
In light of changes in real GDP growth since 2015, thefirst quarter marked a relatively high positive growth of+1.1% compared to the previous quarter, but the second
quarter posted a slight negative at -0.1%. GDP growth
once again entered the positive zone in the third quarterand reached +0.3%, but fell to -0.3% in the fourth quarter(Fig. 1-1-1). All in all, this amounted to an annual growth2

of +0.5% in 2015. In terms of demand categories, personal
consumption showed signs of picking up in the firstquarter of 2015 on the back of a continuous improving
trend in the employment and income environments, butturned to negative in the second quarter. It marked apositive once again in the third quarter, but fell to negative
territory again in the fourth quarter. This shifting between
positive and negative growth signifies a general lack ofstrength in the economy. Similarly, capital investment
remained mostly unchanged despite an improvement seenin corporate profits, with a slight negative in the second
quarter of 2015 which turned to a modest positive in thethird and fourth quarters.
In sum, real GDP was positive for the year andthe economy was on a gradual recovery trend, but
improvements were slow to appear in social expenditures
such as personal consumption and capital investment.

Part I Developments among SMEs in fiscal 2015

Real GDP growth rate

(Comparison withprevious quarter, %)Private consumption
Private residential investment
Private non-residential investment
Change in private inventories

Chapter 1

Fig. 1-1-1

Public demand
Exports
Imports
GDP growth rate
2015 average +0.5%(Quarter)(Year)

Source:Notes:

Cabinet Office, System of National Accounts.
1.	 2005 chained yen system
2.	 Figures are based on “Quarterly (secondary) preliminary GDP estimates for the fourth quarter of 2015” (announced
March 8, 2016).

Next, when we examine the business conditions ofactual companies in terms of the business conditions
DI presented by the Bank of Japan’s (BOJ) Short-Term
Economic Survey of Enterprises in Japan (hereinafterreferred to as BOJ Tankan), business conditions generally
improved from 2013 to March 2014 in terms of bothsize and industry, but thereafter leveled off from June,
partly due to the reactionary last-minute surge in demand
accompanying the consumption tax increase (Fig. 1-1-2).
The overall good condition continued into 2015, andthe ratio of companies, including manufacturing andnon-manufacturing companies and large enterprises andSMEs, that describe business conditions as favorable,
surpassed the ratio of companies that describe them as
unfavorable. In terms of industry and enterprise size,
manufacturing industries as a whole saw unchanging
business conditions among both large enterprises andSMEs. While an improvement trend was seen among thechemical industries and other such business categories

owing to a decline in purchase costs accompanying thedrop in crude oil and resource prices, production in thegeneral-purpose, production and industrial machineryindustries proceeded cautiously due in part to the impactof the economic deceleration in emerging countries.
Business conditions in non-manufacturing industries,
and particularly the retail sales, B-to-C service, and theaccommodations, eating and drinking services, showed
an upward trend owing to the increase in the numbersof foreign visitors to Japan, with the September andDecember survey marking the highest level among large
enterprises since November 1991. SMEs lagged slightly
behind large enterprises, but nevertheless showed amodest improvement on the whole.
In the latest survey conducted in March 2016, however,the business conditions of manufacturing industries
dropped mainly among large enterprises, and showed aslight drop in both large and SME non-manufacturingindustries.

3Chapter 1 Economic developments in Japan

Fig. 1-1-2(DI, %p)

Business conditions DI by industry and enterprise size
Large manufacturing industries

SME manufacturing industries

Large non-manufacturing industries

SME non-manufacturing industries(Forecast)(Quarter)(Year)

Source:Notes:

2.

BOJ, Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan).
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital of ¥20 million or more and less than ¥100 million.
2.	 Business conditions DI is an index representing the percentage (%) of companies that describe business conditions
as favorable, minus the percentage of companies that describe them as unfavorable.

Long-term trends in the Japanese economy

Next, let us examine how the Japanese economy haschanged over the years based on nominal GDP. Nominal
GDP is also used as a target for a “strong economy that
produces hope,” which is one of the three new goals of“Abenomics” and aims to increase nominal GDP to ¥600
trillion. With regard to the past twenty years, nominal
GDP continued a year-on-year increase until the mid1990s, supported by robust personal consumption, capital
investment, public demand, and exports. However, fromthe latter half of the 1990s to the first half of the 2000s,
it began to decline mainly due to a slowdown in housing
and capital investments (Fig. 1-1-3). Thereafter, a gradual
recovery trend was observed until 2007 mainly supported
by exports and capital investment, but the 2008−2009
Lehman crisis triggered a drastic drop in capital investment
and exports, and caused nominal GDP to plunge. The low

4level continued over the next several years until 2013,
when personal consumption, capital investment, andexports acted as upward factors and allowed nominal
GDP to surpass the previous year’s level and reach ¥479
trillion. In 2014, increases in exports, change in private
inventories, and public demand contributed to pushingnominal GDP up to ¥487 trillion, even while personal
consumption continued to be stagnant. Nominal GDP
continued its increasing trend in 2015 and marked ¥499
trillion, with the decrease in imports on account of thedrop in crude oil prices acting as an upward factor.
The nominal GDP level has continued its upward trend
since 2012 and shows signs of recovery, but has yet toreach the level in the latter half of the 1990s and before
the Lehman crisis.

Part I Developments among SMEs in fiscal 2015(％)
10

Long-term trends in nominal GDP (growth rate, actual amount)
Private consumption
Change in private inventories
Imports of goods and services

Private residential investment
Public demand
Nominal GDP amount (right axis)

Private non-residential investment
Exports of goods and services¥523 trillion

Chapter 1

Fig. 1-1-3(Trillion yen)
530
520

¥513 trillion
5¥499 trillion 510
500

0
490

¥487 trillion

480¥479 trillion

5¥471 trillion

470
460

10

450
440

15
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source:(Year)

Cabinet Office, System of National Accounts.

Nominal GDP is calculated based on actual market
transaction prices, and do not reflect price changes caused
by inflation and deflation, so let us examine changes in real
GDP that excludes price changes (Fig. 1-1-4). From theend of the 1990s to 2006, when nominal GDP practicallyremained unchanged or otherwise showed a slightly
downward trend, real GDP grew gradually, indicating a

deflationary trend. Both nominal and real GDP fell in thewake of the Lehman crisis in 2008 and 2009, but while real
GDP gradually recovered thereafter, nominal GDP did not
begin recovering until after 2012. In 2015, nominal GDP
growth rate surpassed real GDP growth rate, marking the
beginning of the end to the deflationary situation.

5

Chapter 1 Economic developments in Japan

Fig. 1-1-4

Changes in the actual amounts of nominal GDP and real GDP
Nominal GDP

Real GDP(Trillion yen)

Real
Nominal GDP

al

Re

ina

l

m
No

P
GD

(Year)

Source:Cabinet Office, System of National Accounts.

In the next section, we shall look at GDP in terms of
consumption, investment, exports and imports, and othersuch components, and examine the changes that haveoccurred in each component. Indicators relevant to each3.

component will also be examined, and factors involvedin their trend will be discussed. Reference to change inprivate inventories shall be omitted, as they account for
only a small fraction of the total.

GDP component trends (1): Consumption

Let us first look at private consumption as anindication of personal consumption trends. In the fourth
quarter of 2015, it stood at approximately ¥304 trillion,
accounting for 58% of real gross GDP, and was the largest
component among all GDP components. In terms of realquarterly GDP, private consumption displayed a gradually
increasing trend from the first quarter of 2011 to the firstquarter of 2014 and marked an increase of approximately¥26 trillion (+8%) over that period, owing in part to anincrease in consumer confidence and improvement of theincome and employment environments (Fig. 1-1-5). In thesecond quarter of 2014, it dropped due to the reactionary
fall in demand following the consumption tax increase,but thereafter turned to a slight recovery trend. The
recovery trend continued steadily in 2015 amid signs ofimprovement in the real income of all employees, which

had been maintaining a steady level1), but in the fourth
quarter of the year, household consumption dropped to-0.9% from the previous quarter as a consequence ofthe large fall in demand for winter clothing due to therecord-setting warm winter. Additionally, when looking
at changes in the consumption composite index, whichis calculated by integrating household consumption
expenditure and retail sales amounts as a comprehensive
statistic of personal consumption, we see roughly thesame trend as private consumption, with a gradualincrease from the first quarter of 2011 to the first quarterof 2014 and a downward trend thereafter. The fact thatboth indexes continue to maintain a steady level but have
not returned to their 2013 level indicate that personal
consumption continues to be somewhat stagnant.

1) See Fig. 1-1-7 for a graph of changes in the real income of all employees.

6Part I Developments among SMEs in fiscal 2015

(Trillion yen)

Private consumption and consumption composite index
Private consumption

Consumption
tax increase

Consumption composite index (right axis)

Chapter 1

Fig. 1-1-5(Index, 2005 = 100)

¥322 trillion¥307 trillion¥306 trillion ¥304 trillion¥296 trillion(Quarter)(Year)

Sources: Cabinet Office, System of National Accounts, Consumption Composite Index.

While personal consumption has weakened, theconsumption environment shows an improving trend in
employment. The overall unemployment rate was 4.6%
on average in 2011, but thereafter continued to decline
to reach 3.4% on average in 2015, dropping for thefifth consecutive year and marking the lowest rate in 18
years since 1997 (Fig. 1-1-6). The ratio of job offers toapplicants also shows improvement. Where it was 0.65 on
average in 2011, it surpassed 1.0 in the latter half of 2013,
such that the number of effective job offers became larger
than the number of job applicants. The increasing trend
continued thereafter and reached 1.20 on average in 2015,
marking an increase for the sixth consecutive year and thehighest level in 24 years.

7Chapter 1 Economic developments in Japan

Fig. 1-1-6

Overall unemployment rate and the ratio of job offers to applicantsOverall unemployment rate

Ratio of job offers to applicants (right axis)(%)(Times)Ratio

of job

nts

plica

o ap

st
offer

is)

t ax
(righ

times

: 1.20verage2015 a2015 average: 3.4

Overall un%

employment rate(Month)(Year)

Sources: MHLW, Employment Referrals for General Workers; MIC, Labor Force Survey.

Next, let us see how employee incomes have changed.
In terms of real employee compensation, which is the total
amount of compensation paid to employees throughout
Japan minus price changes, an increasing trend was
generally seen after the Lehman crisis (Fig. 1-1-7).
Although it fell significantly in the second quarter of 2014as an impact of the consumption tax increase, it turned toa gradual recovery trend thereafter.
As real employee compensation is the total amount ofcompensation paid to all employees in Japan, it is affectedby increases in both per capita wage and the number of
employees. Thus, to examine which of the two factored8

into the changes in real employee compensation, let
us examine the changes in real wages and number of
employees.
When their respective average in 2010 is given a valueof 100, the fourth quarter of 2015 showed a drop in thereal wage index to 94.6 but an increase in the employee
number index to 103.0. Real wages have begun to pickup, but it still remains below the 2013 level. Comparedto this, the number of employees has gradually increased
since 2013. Thus, the increase in employee compensation
can be attributed mainly to an increase in the number of
employees.

Part I Developments among SMEs in fiscal 2015

Real employee compensation, real wages, and number of employees
Real employee compensation

Real wage index (right axis)

Number of employees (index, right axis)(Trillion yen)(Index, 2010 = 100)nnsatio ¥246 trillion

mpe
ee co

mploy

Real eChapter 1

Fig. 1-1-7¥263 trillion¥258 trillion

ployeesr of em

Numbe

Rea

¥249 trillion

l wa

ges

(Quarter)(Year)

Sources: Cabinet Office, System of National Accounts; MHLW, Monthly Labour Survey; MIC, Labor Force Survey.

The drop in real wages can be attributed to two
underlying factors. One is the increase in prices amid a
gradual escape from a deflationary situation, as mentioned
earlier, and the other is the increase in part-time workers
owing to an improvement in the employment environment.
With regard to the former, a look at the overall
consumer price trend of food items and sundry goods
shows positive year-on-year growth since September
2013, with a continuous increase of around 1% over theprevious year (Fig. 1-1-8 (1)). Such increases in the pricesof sundry goods are thought to be also bringing down
consumer confidence.
With regard to the latter, an analysis of the changes
in total cash salaries (nominal wages) that are actually
paid to workers shows that among three relevant factors,
including increases in the salary of general workers, thesalary of part-time workers, and the composition ratio ofpart-time workers, the increase in the composition ratioof part-time workers in particular is driving total cash
salaries in the negative direction (Fig. 1-1-8 (2)).

9Chapter 1 Economic developments in Japan

Fig. 1-1-8 (1) Consumer prices
Consumer prices (excl. fresh food, petroleum products and other specific components)(Change from previous year, %)Excludes the impact of theconsumption tax increase

Decrease

Increase

April 2014 consumption tax increase(Month)(Year)

Source:Note:

Cabinet Office, Consumer Prices (excl. fresh food, petroleum products and other specific components).
Consumer prices (excl. fresh food, petroleum products and other specific components) are the overall consumer priceindex that excludes fresh foods, minus petroleum products, electricity expenses, city gas expenses, rices, cut flowers,
chicken eggs, landline fees, medical consultation fees, nursing fees, tobacco, public high school tuition, and private highschool tuition).

Fig. 1-1-8 (2) Breakdown of total cash salaries into factors of changes
Salary of general workers

Salary of part-time workers

Composition ratio of part-time workers

Total cash salaries(Change from previous year, %)(Month)(Year)

Source: Prepared based on MHLW, Monthly Labour Survey.
Notes:
1.	 The breakdown into factors of changes was derived by the following formula.
		∆W/W= [∆Wn×{(1-r)+(1-r-∆r)}/2]/W: Salary of general workers				 +[∆Wp×{r+(r+∆r)}/2]/W: Salary of part-time workers				 +[∆r×{Wp+(Wp+∆Wp)-Wn-(Wn+∆Wn)}/2]/W : Composition ratio of part-time workers
		 W : Total cash salaries (total of all employment styles)
		 Wn : Total cash salaries of general workers
		 Wp : Total cash salaries of part-time workers
		 r : composition ratio of part-time workers
2.	 Total of all surveyed industries, business establishments with more than 5 employees.
3.	 The composition ratio of part-time workers is estimated based on a real value obtained by multiplying the total
cash salary index of all regular workers, general workers, and part-time workers by a reference value and making acorrection so that total cash salaries could be chronologically linked.

Above, we saw that real wages decreased even while
the employment environment improved and employeecompensation also increased owing to the increase in

10

number of employees. Next, let us take a look at changes
in consumer confidence. The consumer confidence index,
which represents consumers’ awareness of economic

Part I Developments among SMEs in fiscal 2015

income,” “employment environment,” and “judgmentof appropriate time to buy durable consumer goods”)
and examine the component that is impacting the change
in consumer confidence, we see that the consumer
confidence index, which continued to decline from thethird quarter of 2013 to the second quarter of 2014, waspushed down by “standard of living” and “increase inincome” in 2013, and mainly by “judgment of appropriate
time to buy durable consumer goods” in the first quarterof 2014 (Fig. 1-1-9 (2)). In 2015, “standard of living”
stabilized, thereby boosting the consumer confidence
index to positive territory, and even increased beyond
the index as a whole in multiple quarters. With respect
to “increase in income,” however, a slight increase wasseen, but not enough to reach the level of the index. Thisimplies that the sluggish increase of wages is leading to astagnation of consumer confidence.

Chapter 1

trends, weakened in the first half of 2014 partly as an
impact of the consumption tax increase, but began to show
signs of recovery in 2015 (Fig. 1-1-9 (1)). A standstill
continued after July, but from October to December, an
improvement began to appear once again. Nevertheless,the most recent January and February surveys showeda drop in the consumer confidence index due to stock
market falls, and the overall assessment was revised
downward for two consecutive quarters. It fell below
the 2007 level before the Lehman crisis, and hovered at
levels below the standard level of 50 (=the number ofconsumers who respond that consumer confidence “willget worse” or “will get somewhat worse” in the future
outnumbers those who respond that it “will improve” or“will somewhat improve”).
When we break down this consumer confidence index
into its components (“standard of living,” “increase in

Fig. 1-1-9 (1) Consumer confidence index(Index, seasonally adjusted value)

April 2014 consumption tax increase(Month)(Year)

Source:Notes:

Cabinet Office, Consumer Confidence Survey.
1.	 Indexes were created by asking consumers to give a rating from 1 to 5 regarding their outlook for the coming six
months in regard to the four components of “standard of living,” “increase in income,” “employment environment,”
and “judgment of appropriate time to buy durable consumer goods.” For all components, an index value of 50 was
given when “no change” was selected as the response.
2.	 The survey method was changed in April 2013 (from the visiting and leaving method to a postal survey method).

11

Chapter 1 Economic developments in Japan

Fig. 1-1-9 (2) Consumer confidence index by component — differences from previous
quarterStandard of living

Increase in income

Employment environment

Judgment of appropriate time to buy durable consumer goods

Consumer confidence index(Points)“Standard of living” and“Increase in income”
contributed to anegative impact“Increase in income”
became stagnant“Judgment of appropriate time to buy
durable consumer goods” contributed
to a negative impact“Standard of living”
stabilized andcontributed to a
positive impact(Quarter)(Year)

Source:Cabinet Office, Consumer Confidence Survey.

As seen above, personal consumption remained levelin general, and lacked strength. This is thought to bebecause even while consumer prices were on an increasing
trend amid the Japanese economy’s gradual escape fromdeflation, the increase in wages lagged behind the increasein prices, and real wages declined. This led to a decline in
consumer confidence, and caused overall consumption to
stagnate.

4.

GDP component trends (2): Investment

Next, let us examine developments in the private
investment sector (residential and non-residential
investments). Private residential investment accounts forapproximately 3% of overall real GDP, and private nonresidential investment approximately 14%. Together, they
make up approximately 16% of overall real GDP.
In terms of real quarterly trends, private residential
investment gradually increased roughly 20% from 2011
to the first quarter of 2014 (Fig. 1-1-10). It decreased
from the second to fourth quarter of 2014 and once again
turned to a gradual increase in 2015, but has yet to returnto the level before the first quarter of 2014. Private non-

12

Meanwhile, the employment environment showed
an improvement, and the overall number of employees
increased mainly among non-regular workers. Owing tothis, employee compensation, which represents the total
earnings of all citizens, increased even in terms of realvalues that exclude the impact of price increases. Thus,
an increase in real wages is seen as the key to increasing
consumption through increases in consumer confidence
and employee compensation.

residential investment showed a large drop in the wakeof the Lehman crisis, and made a gradual recovery on thewhole after 2010, but again dropped in the second quarterof 2014. In recent years, it has generally remained on thesame level, and has not yet returned to the level before theLehman crisis.
In this way, private investment showed a gradual
recovery after the Lehman crisis, but slackened in thesecond quarter of 2014. Thereafter, private residential andprivate non-residential investment progressed in differingways, but both have yet to return to the level before theLehman crisis.

Part I Developments among SMEs in fiscal 2015

Private non-residential investment

Private residential investment (right axis)(Trillion yen)(Trillion yen)

¥73 trillion

Chapter 1

Fig. 1-1-10 Private non-residential investment and private residential investment¥73 trillion¥15 trillion¥13 trillion¥12 trillion¥62 trillion(Quarter)(Year)

Source:Cabinet Office, System of National Accounts.

Next let us turn to private residential investment andexamine the trend in the actual number of housing starts.
The number of new housing starts largely slumped after
the Lehman crisis, mainly among owned and issued
houses, but from 2010 to 2013, a gradual recovery wasseen among practically all types of housing (Fig. 1-1-11).

In 2014, new housing starts plunged mainly among
owned and rented houses as a reaction against the lastminute surge in demand accompanying the consumption
tax increase, but recorded a year-on-year increase in 2015
as the impact of the reactionary fall faded.

13

Chapter 1 Economic developments in Japan

Fig. 1-1-11 Number of new housing starts (differences from previous quarter, total)
Owned houses

Rented houses

Issued houses(No. of houses,
difference from previous quarter)

Houses for sale

Total (right axis)(No. of houses)(Quarter)(Year)

Source:

MLIT, Statistics on Construction Starts.

Next, let us examine private non-residential investment
and the changes that have occurred in the real amountof capital investments (Fig. 1-1-12). Capital investment
declined from the fourth quarter of 2008 to 2009 due
mainly to the impact of the Lehman crisis, and thereafter
maintained its low level. Signs of gradual recovery wereseen in 2014, but the level before the Lehman crisis has
yet to be reached.

14

Meanwhile, a look at the ordinary profits of enterprises
shows a larger decline compared to the decline in capital
investment from 2008 to 2009, but a significant recovery
in 2010. After leveling off thereafter, ordinary profits
shifted to increase in 2013, and now maintain a higher
level than before the Lehman crisis.
In this way, ordinary profits have reached a record
high level, but capital investment remains low, and therecovery trend is weak.

Part I Developments among SMEs in fiscal 2015

Amount of capital investment

Chapter 1

Fig. 1-1-12 Capital investment and ordinary profits
Amount of ordinary profits(Trillion yen, four-quarter backward moving average)ts

ry profi

OrdinaCapital investment(Quarter)(Year)

Source:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.

Here, let us take a look at corporate production
activities in terms of the indices of industrial production
for mining and manufacturing industries, and the indicesof tertiary industry activity for tertiary industries such as
the wholesale trade and services industries (Fig. 1-1-13).
The indices of industrial production have shown
movements of picking up since 2013, but weakened in the
middle of 2014. From the end of 2014 to the beginning of
2015, they picked up once again, but are now seesawing
once again. The indices of tertiary industry activity

displayed a gradual rising trend after falling in the wakeof the Great East Japan Earthquake in March 2011, but
the impact of the consumption tax increase in April 2014
pushed them back down, particularly in the wholesale
and retail trade industries. In May 2014, movements ofrecovery were seen, but weaknesses are appearing in someareas amid fluctuations. With both indices continuing toseesaw, corporate activities can in no way be said to bestrong, and such trend is thought to be contributing to theweakening of capital investment.

15

Chapter 1 Economic developments in Japan

Fig. 1-1-13 Indices of industrial production and indices of tertiary industry activity(Index, 2010 average = 100)

Mining and manufacturing industries

Tertiary industries

try indicesTertiary indus

s

ice

ind

rod

al p

stri

u
Ind

ion
uct

(Month)(Year)

Source:

METI, Indices of Industrial Production, Indices of Tertiary Industry Activity.

Another reason for the decline in private investments
could be that corporate profits are increasingly being
applied to expenditures other than capital investment.
A look at the trend in R&D expenses (Fig. 1-1-14),
which represent investments in intangible assets, reveals
an increase over the past two years and a recovery to

16practically the same level as before the Lehman crisis.
As discussed above, the reason why capital investment
is stagnant even while operating profits are at a record
high level is assumed to be because corporate production
activities are weak, and earned profits are being allocatedto R&D expenses.

Part I Developments among SMEs in fiscal 2015

Chapter 1

Fig. 1-1-14 R&D expenses(Trillion yen)

(FY)

Source:5.

MIC, Survey of Research and Development.

GDP component trends (3): Public demand

Public demand accounts for approximately 24% of
overall real GDP in real amount. Let us examine thispublic demand by breaking it down into final government
consumption expenditure, which represents the total
expenditure of government services; public-sector fixed
capital formation, which represents the purchase amountof fixed assets such as dams, dikes and roads by thegovernment; and public stock increase, which represents
the amount of changes in government inventory, such aschanges in crude oil inventories (Fig. 1-1-15 (1)).
Final government consumption expenditure as a wholecontinued on an increasing trend since 2008, and now

marks an increase of some ¥10 trillion compared to the2008 average. Public-sector fixed capital formation had
been on a decline since the second quarter of 2010, butbegan to level off or slightly increase from 2013. Publicstock increase is trending at a slow pace.
Final government consumption expenditure iscontributing to an overall increase in public demand, but
in terms of purpose, “health” has largely influenced thisincreasing trend during the past eight years as a result of
an increase in medical expenses, as medical expenses areincluded in the government’s burden (Fig. 1-1-15 (2)).

17Chapter 1 Economic developments in Japan

Fig. 1-1-15 (1) Public demand (differences from previous quarter, total)
Final government consumption expenditure

Public-sector fixed capital formation

Public stock increase

Total public demand (right axis)(Trillion yen, difference from previous quarter)(Trillion yen)¥125 trillion
Government expenditure
has driven an increasein public demand¥118 trillion

Public-sector fixed capitalformation impacted publicdemand in the negative
direction in many stages¥112 trillion

Source:Cabinet Office, System of National Accounts.

Fig. 1-1-15 (2) Breakdown of final government consumption expenditure(differences from previous year)
General public services

DefensePublic order, safety

Economic operations

Environmental protection

Residential and regional amenities

HealthLeisure, culture and religion

Education

Social protection(Trillion yen, difference from previous quarter)

Source:18

Increase in “health” in all years

Cabinet Office, System of National Accounts.

Part I Developments among SMEs in fiscal 2015

GDP component trends (4): Exports and imports

Lastly, let us examine the export and import of goods
and services. Export is a factor that boosts GDP, and importis a factor that conversely depresses GDP. Additionally,
exports and imports account for approximately 17%
and 15% of overall real GDP, respectively. Immediate
trends show that net export, which is equal to exports
minus imports, largely decreased in the fourth quarter of2008 and the first quarter of 2009 due to the decrease inexports accompanying the Lehman crisis, and remainedin negative territory in the first quarter of 2009, thereby
producing an excess of imports (Fig. 1-1-16). Thereafter,
it picked up owing to a reactionary increase in exports,
and exports returned to surplus, but after 2011, it turned
once again to a gradual decreasing trend, accompanying
a gradual increase in imports. The second quarter of 2014
saw a picking up once again, owing mainly to a growthin exports.

Chapter 1

6.

Fig. 1-1-16 Export and import of goods and services(differences from the previous quarter, total)
Export of goods and services

Import of goods and services

Net export of goods and services (total amount)(Trillion yen)
¥21 trillion¥12 trillion¥6 trillion¥-1 trillion

Source:Cabinet Office, System of National Accounts.

Next, let us examine recent export trends in terms ofvolume factor and cost factor. When examining export
volume index and export cost index, which indicate thelevels of export volume and cost when the 2010 level aspresented in the Trade Statistics of Japan issued by the
Ministry of Finance is given a value of 100, cost increased
significantly in 2013, but volume decreased in 2012 andremained low thereafter (Fig. 1-1-17). This means that the

recent increase in export amount is not attributed to anincrease in export volume but an increase in export cost.
Furthermore, when we examine export cost in detail
based on the high-added-value index, which expresses
the degree of the added values of export goods, we see a
gradual increase in high-value-added products from 2007
raising export cost.

19Chapter 1 Economic developments in Japan

Fig. 1-1-17 Export volume index, export cost index, and high-added-value index
Export volume index

Export cost index(Index, 2010 = 100)

High-added-value index (right axis)(high-added-value index, export cost index / export price index)(Month)(Year)

Sources: MOF, Trade Statistics of Japan; BOJ, Corporate Price Index, Trends Developments in Real Exports and Real Imports.
Notes:
1.	 The figures for export volume index are seasonally-adjusted values by the Cabinet Office.
2.	 High-added-value index = export cost index (Trade Statistics of Japan) / export price index (Corporate Price Index)

Next, in terms of regional contribution to export
volume in comparison with previous quarters, export
volume declined from the second to fourth quarter of 2012
mainly with regard to exports to Asia and EU, and while
an improvement was seen in the first half of 2013, a level
trend continued thereafter (Fig. 1-1-18). In the second
and third quarters of 2015, exports dropped, largely due
to a decline in exports to Asia in the second quarter anda decline in exports to the U.S. in the third quarter. The
fourth quarter saw a slight increase on the whole, butwhile the value of exports to EU and Asia increased, thevalue of exports to the U.S. decreased. GDP based onexport value was on a gradual recovery trend after 2014,
but GDP based on volume remained level after 2014 andturned to decrease in the second and third quarters of
2015, as discussed above.

20

In light of trends in the representative exchange rate
against the dollar, the yen began to strengthen in mid-2007
and reached the 70 yen level to the dollar in the latter halfof 2011. However, it showed a weakening from aroundthe beginning of 2013, such that it hovered at around 120
yen in the latter half of 2015 before slightly regaining
its strength and settling at around 113 yen to the dollar(Fig. 1-1-18). Export value increased in the first half of2013 and from the latter half of 2014 to the first quarter of2015, but while export volume also increased during these
periods, the exchange rate also moved in the direction ofa weak yen, thus indicating that exchange rate also factors
in the increase in export value.

Part I Developments among SMEs in fiscal 2015

U.S.

(%)

EU

Asia

Other

Chapter 1

Fig. 1-1-18 Export volume index (regional contribution)
Total(Year/quarter)

Source:Note:

Prepared based on MOF, Trade Statistics of Japan.
Seasonally-adjusted values by the Cabinet Office.

Fig. 1-1-19 Exchange rates (yen/dollar)(Yen/dollar)¥133.5¥123.7¥122.6¥119.3¥113.1¥101.0¥101.7
¥97.7

¥76.7

¥78.2

(Year)

Source:Note:

BOJ
Tokyo Interbank exchange rate, spot (as of 17:00), monthly average.

When we look at the real growth rates of global
economies in the context of exports, we see a shrinking
from 2011 mainly in newly emerging countries anddeveloping countries (Fig. 1-1-19 (1)). In China, forinstance, the growth rate declined after peaking in thefirst quarter of 2010, marked a single-digit growth after
the second quarter of 2011, and declined down to the 6%
level (Fig. 1-1-19 (2)). From this, we can surmise thatexport volume is being impacted by the deceleration of
the economy mainly in developing countries.

21

Chapter 1 Economic developments in Japan

Fig. 1-1-20 (1) Real growth rate of global economies
Entire world

Developed countries

Newly emerging and developing countries(Comparison with previous year, %)(Forecast)(Year)

Source:

IMF, World Economic Outlook (Oct. 2015).

Fig. 1-1-20 (2) Real growth rate in China(Comparison with previous year, %)
%

%

%
%

(Quarter)(Year)

Source:Chinese National Bureau of Statistics

Lastly, let us take a look at the import and export ofgoods and services. Because this includes direct purchases
in Japan by non-resident households, or in other words

22

expenditures by foreign tourists, we shall examinechanges in the inbound consumption index (Fig. 1-1-19).
Direct purchases in Japan by non-resident households

Part I Developments among SMEs in fiscal 2015

reached a little below ¥2 trillion in 2014 and marked a tenfold increase from twenty years ago. Today, said directpurchases have increased to account for approximately
0.7% of overall domestic consumption.

Chapter 1stood at around ¥0.2 to ¥0.3 trillion in the 1990s, but grew
after 2003 to around ¥0.8 to ¥0.9 trillion. They fell again
in the wake of the Great East Japan Earthquake in 2011,
but showed a large increase thereafter, such that theyFig. 1-1-21 Direct purchases in Japan by non-resident households (nominal GDP)
Direct purchases in Japan by non-resident households(Trillion yen)

Ratio to domestic consumption (right axis)
(%)

(FY)

Source:7.

Cabinet Office, System of National Accounts.

SummaryJapan’s economy in fiscal 2015 showed a continued
recovery trend in the end of 2012, but a lagging wasseen in the recovery of expenditures such as capital
investment and personal consumption. Personal
consumption slackened due in part to the fall in real
wages accompanying a rise in consumer prices, andprivate non-residential investment has also yet to reachthe level before the Lehman crisis. Meanwhile, theemployment environment is continuously improving,
and the consumption and investment environments are
improving in some areas, with an increase in employeecompensation, which represents the earnings of theentire country, and a record high level of ordinary profits.
Hereafter, it is hoped that personal consumption will pickup, capital investment will increase, and the economy willhead toward gradual recovery.

23

Chapter 2
Developments among SMEs
In the previous chapter, we examined recent developments in the Japanese economy throughGDP-related statistics. In this chapter, we will focus on the present state and issues of SMEs.
Section 1 will examine the present state of SMEs in terms of the number of SME enterprises, theirbusiness conditions, financing, etc. Section 2 will unravel the profit structure of SMEs and shedlight on issues that SMEs are facing.

Section 1
1.

Present state of SMEs

Number of SMEs

Before looking into the present state of SMEs, let us
verify the number of SMEs based on the 2014 Economic
Census for Business Frame, which was announced in
November 2015.
The number of SMEs has been declining over the longterm (Fig. 1-2-1), with a decline of 44,000 during themost recent two years, from 2012 to 2014. However, therate of decline has become gradual. While the number ofFig. 1-2-1

SMEs declined by an average of 135,000 per year from
July 2009 to February 2012, it declined by an average of
18,000 per year from February 2012 to July 2014.
In terms of enterprise size, the number of microenterprises declined by 91,000 over the two years from2012 to 2014, but the number of medium enterprises
contrarily increased by 47,000 over the same period, for a
total decline of approximately 44,000.

Numbers of SMEs
Micro businesses(10,000
businesses)

Medium enterprises

Economic Census

Establishment and Enterprise Census

SMEs
4.837 million

SMEs
4.690 million

SMEs
4.326 million

SMEs
4.198 million

SMEs
4.201 million-348,000-44,000
SMEs
3.853 million

Annu
alof -13 average
5,000

SMEs
3.809 million

Annual averageof -18,000+ 47,000-91,000

Sources: Recompiled from MIC, Economic Census for Business Frame; Establishment and Enterprise Census and MIC, METI, 2012
Economic Census for Business Activity.
Notes:
1.	 Number of enterprises = Number of companies + Business establishments of sole proprietors
2.	 The 2009 and 2014 Economic Census for Basic Frame was conducted on July 1, and the 2012 Economic Census for
Business Activity was conducted on February 1.
3.	The Economic Census is based on an expanded scope of businesses and enterprises based on administrative records
such as commercial and corporate registration records, and adopts a “head office collective survey method” whereby
the business owner in the head office provides collective information of all branch offices, etc. Therefore, it is not
appropriate to compare the results of the Economic Census with the results of the Establishment and Enterprise
Census on simple terms.

24Part I Developments among SMEs in fiscal 2015

surpassed exits by 24,000 (Fig. 1-2-2 (1)). With respect tochanges in enterprise size, 68,000 micro enterprises grew
into medium enterprises, and 63,000 medium enterprises
downsized into micro enterprises. This means there
were 5,000 more micro enterprises that became medium
enterprises than the opposite. From this, it could be said
that the increase in medium enterprises was more a resultof new market entries than the growth of existing microenterprises into medium enterprises. Changes to and fromlarge enterprises were seen among about 1,000 enterprises.

Section 1

Next, we shall examine whether the changes in thenumbers of medium enterprises and micro enterprises
are attributed to market entries and exits, or to changes
in enterprise size (from micro to medium enterprise, frommedium to large enterprise, etc.).
Let us first look at medium enterprises. Over the twoyears from 2012 to 2014, there was an increase of 47,000
medium enterprises. With respect to market entries andexits, this figure was partly a result of there being 72,000
entries and 48,000 exits, such that the number of entries

Fig. 1-2-2 (1) Breakdown of the number of medium enterprises (2012 à 2014)(10,000 businesses)

Other+18,000
Entry+72,000

Micro → Medium+68,000

Large → Medium+1,000Exit-48,000

Medium → Large-1,000Decrease

Medium → Micro-63,000

Increase

Increase of
47,000 medium
enterprises

Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.
Notes:
1.	 Among enterprises whose corporate information could not be confirmed in the 2014 or 2012 Economic Census, those
whose offices are said to have all entered the market are regarded as “entries,” and those whose offices are said tohave all exited the market are regarded as “exits.”
		 Enterprises that did not fall under these categories, and enterprises whose business type changed to or from a primaryindustry were categorized as “other.”
2.	 Under this tabulation method, the numbers of entries and exits may be larger than the actual numbers, because
enterprises composed of a single office that have relocated their office are counted among both entries and exits, eventhough they have not actually newly entered or exited the market.

When we look at new market entries by medium
enterprises from 2012 to 2014 in terms of industry, we see
a noticeable number of entries in the service industries1).
In particular, there were 15,000 new entries in theaccommodations, eating and drinking services industries,
and 12,000 new entries in the medical, health care andwelfare industries (Fig. 1-2-2 (2)). Meanwhile, entries in
the manufacturing industries stood at 2,000, partly due tothe different standards regarding medium enterprises2).
The number of market exits by medium enterprises overthe same period in terms of industry shows that the largest
number of exits was in the service industries, as was
the case with entries, but “manufacturing industries andother” and “commercial industries” (wholesale and retailtrade industries) accounted for a larger share of the total
than in the case with entries.

1) Here, “manufacturing industries and other” refer to the manufacturing and construction industries and other industries; “commercial
industries” refer to the wholesale and retail trade industries; and “service industries” refer to the medical, health care and welfare,accommodations, eating and drinking services, living-related and personal services and amusement services, scientific research, professional
and technical services, and other services industries.
2) Generally, in “commercial industries” and “service industries,” businesses with six or more employees are considered to be medium
enterprises, while in the “manufacturing industries and other,” businesses must have 21 or more employees to be considered a medium
enterprise.

25

Chapter 2 Developments among SMEs

Fig. 1-2-2 (2) Entries and exits of medium enterprises by industry (2012 à 2014)
Other
5,000
Other services
9,000

Entries of
mediumenterprises
72,000Accommodations,eating anddrinking services
15,000

Medical, health careand welfare
12,000Retail trade
15,000

Living-related andpersonal services
and amusement
services
5,000

Scientificresearch,
professional andtechnical services
3,000

Wholesale trade
4,000
Manufacturing
2,000
Construction
1,000

Other
4,000

Exits ofmediumenterprises
48,000

Other services
6,000
Accommodations,eating anddrinking services
9,000

Retail trade
11,000

Living-related andpersonal services
and amusement
services
2,000
Scientificresearch,
professional andtechnical services
3,000
Medical, healthcare and welfare
4,000
Wholesale trade
5,000
Manufacturing
4,000
Construction
1,000

Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.
Notes:
1.	 “Other services” is total of real estate and goods rental and leasing, education, learning support, compound services,and services (not elsewhere classified).
2.	 “Other” is total of mining and quarrying of stone and gravel, electricity, gas, heat supply and water, information andcommunications, transport and postal activities, and finance and insurance.

Next, let us look at the breakdown of the number ofmicro enterprises. Over the two years from 2012 to 2014,
the number of micro enterprises declined by 91,000.
With 286,000 entries and 457,000 exits, the number ofexits largely surpassed the number of entries by 171,000(Fig. 1-2-3 (1)). With respect to changes in enterprisesize, 63,000 medium enterprises downsized into microenterprises, and 68,000 micro enterprises grew into
medium enterprises. Since this means there were 5,000
more micro enterprises that became medium enterprisethan the opposite, it could be said that the decline in thenumber of micro enterprises was mostly due to exits,
and was influenced by the much larger number of exits
compared to the number of entries3).

3) Under this tabulation method, the numbers of entries and exits particularly among micro enterprises, which are mostly composed of a single
office, may be larger than the actual numbers, because enterprises composed of a single office that have relocated their office are counted
among both entries and exits, even though they have not actually newly entered or exited the market.

26

Part I Developments among SMEs in fiscal 2015

Section 1

Fig. 1-2-3 (1) Breakdown of the number of micro enterprises (2012 à 2014)(10,000 businesses)

Other+86,000

Medium → Micro+63,000
Large → Micro
+52

Exits
-457,000

Micro → Medium-68,000

Decrease

Micro → Large-59

Decrease of
91,000
micro enterprises

Increase

Entries+286,000

Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.
Notes:
1.	 Among enterprises whose corporate information could not be confirmed by the 2014 or 2012 Economic Census, those
whose offices are said to have all entered the market are regarded as “entries,” and those whose offices are said tohave all exited the market are regarded as “exits.”
		 Enterprises that did not fall under these categories, and enterprises whose business type changed to or from a primaryindustry were categorized as “other.”
2.	 Under this tabulation method, the numbers of entries and exits may be larger than the actual numbers, because
enterprises composed of a single office that have relocated their office are counted among both entries and exits, eventhough they have not actually newly entered or exited the market.

The number of entries and exits by micro enterprises
between 2012 and 2014 might be calculated as being
larger than the actual numbers3), so we shall subtract the
number of exits from the number of entries to obtainthe “net number of entries and exits,” and examine thisnet number by industry (Fig. 1-2-3 (2)). As a result, we
see that the number of entries surpassed the number ofexits in the medical, health care and welfare industries(+5,000 businesses) only, and exits surpassed entries byroughly the same amount in the three large categoriesof “manufacturing industries and other”4) (total -52,000
businesses), “commercial industries” (total -62,000
businesses) and “services” (total -57,000 businesses; incl.
medical, health care and welfare).

4) Here, “manufacturing industries and other” refer to the manufacturing and construction industries and other industries; “commercial
industries” refer to the wholesale and retail trade industries; and “service industries” refer to the medical, health care and welfare,accommodations, eating and drinking services, living-related and personal services and amusement services, real estate and goods rental andleasing, and other service industries.

27

Chapter 2 Developments among SMEs

Fig. 1-2-3 (2) Net entries and exits (number of entries – number of exits) of microenterprises by industry (2012 à 2014)(10,000 businesses)
Medical, health care and welfare+5,000Construction-20,000
Manufacturing-27,000
Wholesale trade-11,000

Net entries/exits of
micro enterprises-171,000

Retail trade-51,000
Real estate and goods
rental and leasing-18,000

Living-related and personal services
and amusement services-26,000

Accommodations, eating
and drinking services-10,000
Other services-8,000Other-5,000Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.
Notes:
1.	 “Other services” is total of scientific research, professional and technical services, education, learning support,
compound services, and services (not elsewhere classified).
2.	 “Other” is total of mining and quarrying of stone and gravel, electricity, gas, heat supply and water, information andcommunications, transport and postal activities, and finance and insurance.

Next, let us examine changes in the numbers of SMEs
from 2012 to 2014 by industry, in terms of the numbersof entries and exits and changes in enterprise size
(Fig. 1-2-4). The numbers of SMEs declined by 43,000 asa whole, but there was an increase in the medical, healthcare and welfare industries and wholesale industry, with aparticularly large increase of 15,000 in the medical, health28

care and welfare industries. At the same time, the numberof enterprises in the retail trade industry and most otherindustries declined, but a breakdown shows an increasein the numbers of medium enterprises in industries otherthan the manufacturing industries, indicating that the
number of micro enterprises has declined more than thenumber of medium enterprises increased.

Part I Developments among SMEs in fiscal 2015

Numbers of SMEs by industry (2012 à 2014)(10,000 businesses)
Medical, health careand welfare
Total+15,000
Micro+6,000Medium+9,000Wholesale
trade

Other

Other services

Real estate andgoods rental
and leasing

Construction

Total-7,000

Total-12,000

Medium+1,000Medium+1,000

Manufacturing

Retail trade

Section 1

Fig. 1-2-4

Total
-500
Total
+2,000Total-400Medium+3,000Medium+2,000Micro-1,000Micro-2,000Medium+20,000

Micro-20,000

Micro-13,000
Micro-7,000

Total-16,000
Medium-1,000

Total-26,000
Medium+12,000

Micro-15,000

Micro-38,000
Increase/decrease in the number of
medium enterprises

Increase/decrease in the number ofmicro enterprises

SME total

Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.
Notes:
1.	 “Other services” is total of scientific research, professional and technical services, accommodations, eating anddrinking services, living-related and personal services and amusement services, compound services, and services(not elsewhere classified).
2.	 “Other” is total of mining and quarrying of stone and gravel, electricity, gas, heat supply and water, information andcommunications, transport and postal activities, and finance and insurance.

When the increases and decreases in the number ofSMEs from 2012 to 2014 are calculated by prefecture, we
see that the number increased in only 5 of all 47 prefectures(Fig. 1-2-5). Of these 5 prefectures, the largest increase
was in Tokyo (+4,707), followed by Miyagi (+2,120)
and Okinawa (+753). The largest decrease was in Osaka(-5,388), followed by Niigata (-3,010) and Aichi (-2,931).5)
Let us take a look at the contribution of enterprise size
to increases and decreases in these prefectures. Of the top
5 prefectures, the number of micro enterprises increasedin Miyagi and Okinawa (Miyagi +877; Okinawa +9), but
decreased in the remaining three prefectures (Tokyo -5,445;
Fukuoka -1,735; Nara -139) and in all other prefectures.

On the other hand, the number of medium enterprises
increased in all 47 prefectures, including Osaka andNiigata, where the number of SMEs declined significantly(Osaka +3,978; Niigata +396). Despite the nationwide
decline in the number of micro enterprises, the number ofmicro enterprises increased or only gradually declined in
prefectures where the number of SMEs increased on thewhole. Furthermore, as the number of medium enterprises
has increased nationwide, it is clear that the decline in thenumber of micro enterprises was particularly large inprefectures where there was a significant decline in thenumber of SMEs.

5) For changes in the number of SMEs in all prefectures, see Appended note 1-2-1.

29

Chapter 2 Developments among SMEs

Fig. 1-2-5

Numbers of SMEs by prefecture and enterprise size (2012 à 2014)

Micro enterprises

Medium enterprises(Reference: nationwide total)
Medium enterprises: +46,854
Micro enterprises:-90,560

SME total

SME total:-43,706(Businesses)
Tokyo

Miyagi

Okinawa

Fukuoka

Nara

Shizuoka

Total
+190

Total
-2,645

Medium+329

Medium+711

Hokkaido

Aichi

Niigata

Osaka

Total
-3,010Total-5,388

Medium+396

Medium+3,978

Total+4,707
Medium+10,152

Micro-5,445

Total+2,120Medium+1,243

Micro
+877

Total
+753
Medium
+744
Micro
+9

Total
+556
Medium+2,291Micro-1,735Top 5 prefectures with the largest increases

Micro
-139

Micro
-3,356

Total-2,667
Medium+1,910Micro-4,577

Total-2,931
Medium+3,098Micro-6,029Micro-3,406Micro-9,366

Top 5 prefectures with the largest decreases

Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.

2.

Numbers of bankruptcies, suspensions and closures, and dissolutions

Next, let us examine changes in the number ofbankruptcies (Fig. 1-2-6 (1)). In 2015, there were 8,812
cases of bankruptcies, marking a level below 10,000 for
the second consecutive year and the lowest level in 25
years since the 1989–1990 bubble economy. The annual
number of bankruptcies has been showing a year-on-year
decline for seven consecutive years since 2009. Whenlooking at the trend after 2000 by enterprise size, we seethat in 2015 there were 6 cases of bankruptcies amonglarge enterprises, 1,159 among medium enterprises,
and 7,647 among micro enterprises. Compared to 2008,
when the number of bankruptcies reached a peak inrecent years, the number of bankruptcies among medium
enterprises decreased by 4,210. Similarly, the numberof bankruptcies among micro enterprises also decreased
by 2,510 (approx. 25%) from 2008, such that cases ofbankruptcies decreased among enterprises of all sizes.
With respect to the number of business terminations6)
that are not included among bankruptcies, such assuspensions, closures and dissolutions, an increasing
trend was seen until 2013, unlike with the number ofbankruptcies. It still remains at a high level, although itturned to a decline in 2014 and continued its decline in2015 (Fig. 1-2-6 (2)).

6) “Suspensions and closures” refer to businesses that have terminated in a state of surplus asset, with more assets than liabilities. “Dissolutions”
refer to businesses that have given up continuing their business. Neither is included among “bankruptcies.”

30

Part I Developments among SMEs in fiscal 2015

No. of bankruptcies

Large enterprises

Medium enterprises

Section 1

Fig. 1-2-6 (1) Number of bankruptcies (long-term)
Micro enterprises(Cases)Microenterprises
Mediumenterprises
Largeenterprises

Source:Note:Tokyo Shoko Research, Ltd., Business Failure News (Monthly).
The figures for number of bankruptcies by enterprise size represent figures for after 2000 only.

Fig. 1-2-6 (2) Number of suspensions, closures, dissolutions, and bankruptcies
Suspensions, closures, and dissolutions

Bankruptcies(Cases)

Source:Tokyo Shoko Research, Ltd., 2015 Survey of Business Suspensions, Closures and Dissolutions.

31

Chapter 2 Developments among SMEs

3.

Business conditions of SMEs

Here, let us verify business confidence among SMEs
according to the Survey on SME Business Conditions
conducted by the SME Agency and SMRJ (hereinafter,
Business Conditions Survey) and the business conditions
DI presented in the Bank of Japan’s Short-Term Economic
Survey of Enterprises in Japan (BOJ Tankan) (Fig. 1-2-7).
The BOJ Tankan also includes large enterprises under
the scope of its survey, and can be used to compare thetrends of large enterprises and SMEs, but at the sametime, it focuses only on enterprises with a capital of ¥20
million or more and relatively large-scale enterprises. On
the other hand, the Business Conditions Survey does notinclude large enterprises, but some 80% of the enterprises
surveyed are micro enterprises. For this reason, both the
BOJ Tankan and Business Conditions Survey will be used
to compare business confidence among large enterprises
and SMEs.
Business confidence among SMEs dropped largely inthe wake of the Lehman crisis, but showed signs of picking
up thereafter, so that in 2013, it returned to the level in2007 before the Lehman crisis in both surveys. 2014 saw
a large fluctuation between the first quarter (January to
March) to third quarter (July to September) of the year,
due to the last-minute surge in demand accompanying
the consumption tax increase and subsequent reactionary
fall in demand, and generally maintained a steady level

32

thereafter, although some weakening has begun emerge.
On the whole, the BOJ Tankan shows that the numberof enterprises who said business conditions are “good”
surpassed those that said business conditions are “poor”
since the fourth quarter (October to December) of 2013,
and the Business Conditions Survey also shows a 30.7
point increase in the business conditions DI comparedto the first quarter of 2009, seven years ago when the DI
marked the largest decline after the Lehman crisis.
At the same time, the BOJ Tankan continues to showa large difference between large enterprises and SMEs,
and the Business Conditions Survey also indicates thatthe smaller the enterprise, the stricter the conditions they
continue to face, since business confidence among microenterprises is at a lower level compared to SMEs as awhole, to begin with.
Furthermore, when looking at the business conditions DI
by region and industry in terms of the Business Conditions
Survey, we see that the business conditions DI trended
toward an increase in all regions since 2015, but thereafter
declined, with some exceptions (Fig. 1-2-8 (1)). By
industry, the business conditions DI remained unchanged
in 2015 in the wholesale trade, retail trade and service
industries, and either remained unchanged or showed adeclining trend in the manufacturing and constructionindustries (Fig. 1-2-8 (2)).

Part I Developments among SMEs in fiscal 2015

Business conditions DI by enterprise size
SMEs as a whole(Business Conditions Survey)

Micro enterprises(Business Conditions Survey)

SMEs(Tankan)Large enterprises
Forecast(Tankan)(DI, %p)
Largeenterprises(Tankan)Section 1

Fig. 1-2-7

Good
Favorable

SMEs(Tankan)
SMEs(Business
Conditions Survey)

Poor
Unfavorable

Micro enterprises(Business
Conditions Survey)(Quarter)(Year)

Sources: BOJ, Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan); SME Agency and SMRJ, Survey on SME
Business Conditions.
Notes:
1.	 The business conditions DI of the BOJ Tankan is calculated as the percentage (%) of companies that described recent
business conditions as “good,” minus the percentage (%) of companies that described them as “poor.”
2.	 The business conditions DI of Survey on SME Business Conditions is calculated as the percentage (%) of companies
that described business conditions as “favorable,” minus the percentage (%) of companies that described them as“unfavorable.”
3.	 In BOJ Tankan, large enterprises refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises
with a capital of ¥20 million or more and less than ¥100 million.

Fig. 1-2-8 (1) Business conditions DI by region(DI, %p)

Hokkaido

Tohoku

Kanto

Chubu

Kinki

Chugoku

Shikoku

Kyushu/Okinawa

All Japan-

Source:Notes:SME Agency and SMRJ, Survey on SME Business Conditions.
1.	 The period covered is from the first quarter of 2013 to the first quarter of 2016.
2.	 Regional categories are based on prefectures that are under the charge of each Regional Bureau of Economy, Tradeand Industry. Niigata, Yamanashi, Nagano and Shizuoka are included in Kanto; Mie is included in Chubu; and Fukui is
included in Kinki. Kyushu/Okinawa is the total of all prefectures in Kyushu and Okinawa.

33

Chapter 2 Developments among SMEs

Fig. 1-2-8 (2) Business conditions DI by industry(DI, %p)

Manufacturing

Construction

Wholesale trade

Retail trade

Services

All industries

Source:Note:

SME Agency and SMRJ, Survey on SME Business Conditions.
The business conditions DI is calculated as the percentage (%) of companies that described business conditions as“favorable,” minus the percentage (%) of companies that described them as “unfavorable.”

Next, when we look at the financial status of SMEs
according to the financial position DI of the BusinessConditions Survey, we see that it dropped from 2008
to the first quarter of 2009 due to the Lehman crisis,
but thereafter marked a steady increase, and surpassed
the level before the Lehman crisis in the first quarter34

of 2014 (Fig. 1-2-9). In the second quarter of 2014, thefinancial status of SMEs dropped due to the reactionary
fall in demand following the last-minute surge in demand
accompanying the consumption tax increase, but picked
up once again, although it marked a drop once again in thefirst quarter of 2016.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-9

Financial position DI for SMEs

(DI, %p)

Section 2(Quarter)(Year)

Source:Note:

SME Agency and SMRJ, Survey on SME Business Conditions.
The financial position DI is calculated by subtracting the percentage (%) of enterprises that said their financial position has“worsened” from the percentage (%) of enterprises that said it has “improved.”

Section 2
1.

Profit structure and issues among SMEs

Profits of SMEs

In the previous section, we saw the present state ofSMEs, where the rate of decline in the number of SMEs
has slowed, the numbers of bankruptcies, businesssuspensions, closures, and dissolutions have also
declined, and business conditions and financial statushave begun to improve. In this section, we will examine
the profit situation of SMEs.

A look at the profitability (ordinary profits) DI in theBusiness Conditions Survey shows a large drop from2008 to the first quarter of 2009 due in part to the Lehman
crisis, but a general increase thereafter (Fig. 1-2-10). It
fell from the second quarter of 2014 to the first quarter of2015, turned to an increase in the second quarter, before
falling once again.

35Chapter 2 Developments among SMEs

Fig. 1-2-10 Profitability (ordinary profits) DI for SMEs
(DI, %p)(Quarter)(Year)

Source:Note:

SME Agency and SMRJ, Survey on SME Business Conditions.
The profitability DI is calculated by subtracting the percentage (%) of enterprises that said their profit has “declined,” fromthe percentage (%) of enterprises that said it has “increased.”

Next, when we look at the actual amount of ordinary
profits according to the Financial Statements Statistics
of Corporations by Industry of the Ministry of Finance,
the ordinary profits of SMEs have generally shown an
increasing trend since 2013, and reached a record high inthe fourth quarter of 2015 (four-quarter backward moving
averages) (Fig. 1-2-11 (1)).

36

A look at long-term fiscal-year trends in ordinary profits
in terms of enterprise size also reveals particularly large
growth among large enterprises but steady growth among
SMEs as well since fiscal 2010. Both have surpassed thelevel before the Lehman crisis, and are at a record high(Fig. 1-2-11 (2)).

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-11 (1) Ordinary profits by enterprise size
SMEs

(Trillion yen/four-quarter backward moving averages)

Large enterprises

Section 2

g

Lar

s

rise

erp

nt
ee

SMEs

(Quarter)(Year)

Source:Note:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

Fig. 1-2-11 (2) Long-term trends in ordinary profits (by enterprise size)(Trillion yen)

SMEs

Large enterprises

ge

r
La

en

s

ise

pr

r
te

SMEs

(FY)

Source:Note:

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

37

Chapter 2 Developments among SMEs

2.

Decomposition of the profit structure
To assess which of these factors most influenced ordinary
profits between 2009, when ordinary profits declined
due to the Lehman crisis, and 2015, when they reached arecord high, a decomposition analysis was performed forthe amount of increase in ordinary profits at those twopoints in time (Fig. 1-2-12).
Among large enterprises, the decline in variable costs(+2.2 trillion yen) contributed largely to the increase inordinary profits, followed by an increase in sales (+2.0
trillion yen) and a decrease in depreciation expenses(+1.3 trillion yen). Among SMEs, the decline in variable
costs (+1.7 trillion yen) similarly contributed the mostto the increase in ordinary profits, but this was followed
by a decline in personnel costs (+1.4 trillion yen). Sales,
which contributed to the increase among large enterprises,
contrarily contributed to a decrease in ordinary profits
among SMEs (-0.9 trillion yen).

The actual amount of ordinary profits has increased
in recent years, as seen in Fig. 1-2-11. When comparing
the average of the first to fourth quarters of 2009, whenordinary profits dropped most in the wake of the Lehman
crisis, and the average of the first to fourth quarters of
2015, ordinary profits increased by roughly ¥2.5 trillion
among SMEs and by roughly ¥6.7 trillion among large
enterprises. Here we shall perform a decomposition
analysis of the profit structure to identify the determining
factor in SME profits and examine issues facing SMEs.
Ordinary profits can be broken down into five factors:
sales, variable costs (the costs of raw materials, stock
goods, etc. that are proportional to sales), personnel
costs, depreciation expenses (expenses incurred by fixed
assets such as buildings and facilities), and non-operating
profits and losses (profits and losses accrued from
corporate financial activities and investment activities).

Fig. 1-2-12 Decomposition analysis of ordinary profits(average amount of increase for the first to fourth quarters in 2009 and 2015)(Trillion yen)

Sales

Variable costs

Personnel costs

6.7 trillion yen
Depreciationcost+1.3 trillion yen
Variable costs+2.2 trillion yen

Depreciation cost

Non-operating profits and losses

Total ordinary profits

Non-operating
profits and losses+1.1 trillion yen
Personnel costs+0.02 trillion yen

2.5 trillion yen

Depreciation cost
+0.1 trillion yen

Sales+2.0 trillion yen

Variable costs+1.7 trillion yen

Non-operating
profits and losses+0.04 trillion yen
Personnel costs+1.6 trillion yen

Sales-0.9 trillion yen
Large enterprises

SMEs

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital of ¥10 million or more and less than ¥100 million.
2.	 The decomposition analysis of ordinary profits was conducted based on the following calculation.
		π: Ordinary profits, S: Sales,
F: Fixed costs (personnel costs (P) + non-operating profits and losses (N) + depreciation costs (D)), V: Variable costs		
π= S – V – F, so π = S – S × V/S – P – N – D⊿π= (1–V/S)×⊿S – ⊿(V/S)×S
– ⊿P
–⊿N
– ⊿D
Sales
Variable costs Personnel costs Non-operating profits and losses Depreciation costs

Source:Notes:

Common to both large enterprises and SMEs is that
operating profits, which largely dropped in the wake of
the Lehman crisis, has since reached a record high level.
When we look at specific items that have contributed
to the increase in operating profits, we see that in large

38

enterprises, ordinary profits increased by expanding
sales, while keeping variable costs down, thanks in partto the drop in the prices of crude oil and raw materials,
which would have normally increased along with anincrease in sales, and also by holding down domestic

Part I Developments among SMEs in fiscal 2015

capital investment. In contrast, ordinary profits among
SMEs increased owing to the decline in variable costs andpersonnel costs, even while sales were sluggish.

3.

Below, we will shed light on issues facing SMEs bytaking a look at the variable factors of ordinary profits byitem and examining indicators relevant to each item.

Analysis of sales (slowdown in sales)
eventually leveled off. Sales among SMEs increased
temporarily in the latter half of 2010, and once again
dropped after 2011. A gradual increase has been seen
thereafter, but as of the fourth quarter of 2015, sales havehovered at levels below the level after the Lehman crisis.
In sum, it can be said that sales among SMEs have been
weaker compared to large enterprises.

Section 2

Let us first examine changes in sales, which differedlargely between large enterprises and SMEs (Fig. 1-213). In both groups of enterprises, sales reached a peakfrom 2007 to the first half of 2008, but largely dropped
from 2008 to 2009 due to the impact of the Lehman
crisis. Thereafter, sales among large enterprises showed
an increasing trend after the fourth quarter of 2009, andFig. 1-2-13 Sales by enterprise size
(Trillion yen/four-quarter backward moving averages)

Large enterprises

SMEs

rises

Large enterp

SMEs(Quarter)(Year)

Source:Note:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

To specifically assess which industries have influenced
the changes in sales, average sales over the first to fourth
quarters of 2009 and 2015 were broken down according
to industry and enterprise size, as with the decomposition
analysis of ordinary profits discussed earlier (Fig. 1-2-14).
Among large enterprises, all six categories of industries
contributed to boosting sales, with the manufacturingindustries in particular as a driving force. Among SMEs,
only the construction industry contributed to boostingsales, while the manufacturing industries contributed toa slight decline and the wholesale trade, retail trade andservice industries contributed to a decline of around¥2 – 3 trillion.

39

Chapter 2 Developments among SMEs

Fig. 1-2-14 Decomposition of sales by industry(average amount of increase for the first to fourth quarters in 2009 and 2015)(Trillion yen)

Other industries+3.1 trillion yen

Services+0.7 trillion yen

Retail trade+0.4 trillion yen

Wholesale trade
1.2 trillion yen
Manufacturing+5.2 trillion yen

Construction+0.7 trillion yen
Construction+2.4 trillion yen
Wholesale trade-3.4 trillion yen

Manufacturing-0.3 trillion yen

Retail trade-1.9 trillion yen
Services-3.0 trillion yen

Large enterprises

Source:
Note:

SMEs

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

Next, as an indicator related to such sales, let us examine
production trends among SME manufacturing industries
by using the Manufacturing Production Indices by Size ofEnterprise, which is based on the 2005 production levelas a value of 100 (Fig. 1-2-15). Production among SMEs
largely dropped in June 2014, but began to show signsof picking up in December 2014. However, from May

40

Other industries-0.2 trillion yen

to November, it continued to mark a month-on-month
negative trend or level trend, and although there weresigns of picking up thereafter, it dropped once again in thelatest two months. As indicated by this seesaw trend, there
were hardly any strong movements in production among
SMEs.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-15 Manufacturing production indices for SMEs
(Index, 2005=100)

Section 2(Month)(Year)

Source:SME Agency, Manufacturing Production Indices by Size of Enterprise (SME manufacturing production indices).

When examining management issues facing SMEs
according to the Business Conditions Survey, “stagnationof demand” was the top issue in the wholesale trade,
retail trade, and service industries. Other high-ranking
issues included “drop in unit sales prices and difficultyin raising prices” in the wholesale trade industry, “intensecompetition due to the expansion of large and medium
stores” in the retail trade industry, and “responses tochanges in user needs” in the service industry. Manybusinesses thus see issues that are directly linked to a
slowdown in sales as their primary management issue(Fig. 1-2-16).

41

Chapter 2 Developments among SMEs

Fig. 1-2-16 Management issues facing SMEs (2015)
Intense competition due to the
expansion of manufacturers, 4.3%

Intense competition due to the
expansion of large enterprises, 8.4%
Rise in unit purchaseprices, 16.5%

Stagnation of demand,
32.7%

Wholesale trade0%

Intense competition due to the expansionof retail trade businesses, 5.1%

Drop in unit sales prices anddifficulty in raising prices, 9.0%

Intense competition due toStagnation ofdemand, 18.3% the expansion of large andmedium stores, 19.0%

Retail trade

Other, 18.9%

Outflow of purchasing power
to other regions, 15.8%
0%Difficulty in securing
employees, 9.4%

100%

Other, 31.2%

Rise in the unit purchaseprices of materials, etc., 10.2%
0%

Increase in the number of
new market entrants, 6.7%
100%

SME Agency and SMRJ, Survey on SME Business Conditions.

Among the items comprising sales, export value
was approximately ¥72 trillion for large enterprises andapproximately ¥5 trillion for SMEs in 2013 (Fig. 1-2-17).
The ratio of export amount to sales was 12.9% amonglarge enterprises and 3.0% among SMEs, indicating low
shares even with respect to sales/export ratio.
Over the past ten years, exports by large enterprises
continued on an increasing trend since the Lehman crisis,

42

Rise in unit purchaseprices, 8.5%

Intense competition due to the
expansion of large enterprises, 6.3%

Stagnation of Responses to changes
demand, 18.0% in user needs, 18.1%

Services

100%

Responses to changes in
consumer needs, 14.3%

Expansion of stores inthe same industry, 5.2%

Source:Other, 24.0%

and showed a +22.2% increase in 2013 compared to2009. Meanwhile, exports by SMEs remained roughly
unchanged, and marked a mere +4.0% increase over2009. With respect to large enterprises, a high sales/export
ratio and increase in exports have contributed to a growthin sales, but with respect to SMEs, the sales/export ratio
has been low, and exports had leveled off and did not leadto any growth in sales.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-17 Exports and sales/export ratios (by enterprise size)
Exports (SMEs)

Exports (large enterprises)

Sales/export ratio (SMEs, right axis)

Sales/export ratio (large enterprises, right axis)(Trillion yen)(%)

Section 2

12.9%
72 trillion yen
10.3%

49 trillion yen

3.0%

2.6%

5 trillion yen

3 trillion yen(Year)

Source:Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.

Sales among SMEs have been sluggish compared tolarge enterprises, with SME manufacturing industries
showing a level trend and SME non-manufacturingindustries showing a declining trend, with the exceptionof the construction industry. Production trends in the
manufacturing industries also failed to show any strength,
and non-manufacturing industries have also faced stagnant
demand and intense competition from large enterprises
and other industries newly entering the market. Exports

have also shown large differences in both export value
and sales/export ratio between large enterprises andSMEs, and a particularly sluggish trend among SMEs.
Given the depreciation of the yen in the latter half of2012, exports increased among both large enterprises and
SMEs in 2013, but the increase among SMEs was not aslarge as that in large enterprises due to their low sales/
export ratio, and was not sufficient to boost sales.

43Chapter 2 Developments among SMEs

4.

Analysis of personnel costs (labor shortage)

Next, we shall examine changes in personnel costs,
which contribute largely to increases in ordinary profits
among SMEs. In terms of enterprise size, personnel costs
declined among both large enterprises and SMEs fromthe latter half of 2008 to the first half of 2010, increasedin the following year, but turned to a decline once again in2012 (Fig. 1-2-18). Thereafter, the trend differed between
the two groups of enterprises, with large enterprises
showing a gradual increase from the third quarter of 2013
and SMEs showing a level trend beyond 2014.

Fig. 1-2-18 Personnel costs (by enterprise size)(Trillion yen)

Large enterprises (right axis)(Trillion yen)

SMEs

es

nterpris

Large eSM

Es

(Quarter)(Year)

Source:Note:

MOF, Financial Statements Statistics of Corporations by Industry.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

With respect to the actual numbers of workers, alook at changes in the numbers of non-agricultural andforestry workers by employee size according to MIC’s
Labor Force Survey, shows that the number of workers
in enterprises that employ 1 to 29 workers has been on
a decline, and decreased by approximately 2.12 million
people over the past twenty years (Fig. 1-2-19). On the44

other hand, the number of workers in large enterprises
has increased, with an increase of approximately 3.13
million people over the past twenty years in enterprisesthat employ more than 500 workers. This shows that evenwhile the number of workers as a whole has increased, thenumber of workers in smaller enterprises has decreased.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-19 Number of non-agricultural and forestry workers by employee size
1−29 workers(10,000 people)

30−99 workers

100−499 workers

500 workers or more

1 - 29 wor

kers

17,350,000 people

15,230,000 people
12,520,000 people

orkers

500 w

re

or mo

Section 2

15,650,000 people(Year)

Source: MIC, Labor Force Survey.

Next, let us look at the sense of employee insufficiency
among SMEs. Changes in the employee overcapacity andinsufficiency DI for SMEs show a change to insufficiency

in all industries from the fourth quarter of 2013, witha particularly strong sense of insufficiency in theconstruction and service industries (Fig. 1-2-20).

Fig. 1-2-20 Employee overcapacity and insufficiency DI for SMEs (by industry)(DI, %p)
All industries

Manufacturing

Construction

Wholesale trade

Retail trade

Services

Overcapacity

Insufficiency(Quarter)(Year)

Source:Note:

SME Agency and SMRJ, Survey on SME Business Conditions.
The Employee overcapacity/insufficiency DI is calculated by subtracting the percentage (%) of enterprises that said thathave an “insufficiency” of employees from the percentage (%) of enterprises that said they have an “overcapacity” of
employees.

45

Chapter 2 Developments among SMEs

Below, we shall examine the status of separated
workers and new workers in SMEs as a background to
the decline in the number of workers among SMEs.
First of all, let us look at the reasons why separated
workers have separated from an SME in 2014. Of all
workers who have separated from an SME, the reason
for separating is known for 2.48 million workers. Of
these workers, around 70% have separated for a personalreason, and only around 5% have separated due torestructuring or other management reasons (including
voluntary retirement in response to a request from thecompany) (Fig. 1-2-21).
Details of the largest reason for separation, “otherpersonal reasons,” are not examined in detail in thesurvey of separated workers, so let us examine thereasons why new workers have separated from theirprevious employment according to a survey conducted
on new workers (Fig. 1-2-22)7). Among the personalreasons given, 12.2% gave “poor working conditions,”
9.8% “human relationships in the workplace,” and 9.3%
“low income,” followed by “cannot take interest in thework content,” “insecurity about the company’s future,”and “cannot put abilities, individuality, qualifications tofull use.” This suggests that “other personal reasons,”
which was the reason for separating from an SME
among approximately 70% of separated workers, mainly
includes dissatisfaction with the treatment of workers,
such as working conditions and income, as well as
workplace environments and job content.

Fig. 1-2-21 Reasons why separated workers separated from an SME (SMEs, 2014)
Expiration of thecontract period
237,000 people
9.6%

Management
circumstances
124,000 people
5.0%

Compulsory
retirement age
75,000 people
3.0%

Personal blameor responsibility
41,000 people
1.6%
Marriage, childbirth,parenting, nursing care
77,000 people
3.1%

Other personal reasons
1,838,000 people
74.0%

Source:Note:

Death, injury,
or disease
93,000 people
3.7%

Prepared based on MHLW, Survey on Employment Trends.
SMEs here refer to enterprises with 5 to 99 workers, among those that have a business establishment with 5 or moreregular workers.

7) It should be noted that the survey was limited to separated workers who found re-employment, and did not categorize workers by the size of
their previous employment.

46

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-22 Reasons why new transferred workers separated from their previous
employment (all enterprise sizes, 2014)
Cannot take interestin the work content
253,000 people
6.0%

Other reason (incl.
temporary transfers, etc.)
1,099,000 people
26.2%

Company
circumstances
280,000 people
6.7%

Human relationships
in the workplace
410,000 people
9.8%

Section 2

Cannot put abilities, individuality,
qualifications to full use
205,000 people
4.9%

Insecurity about thecompany’s future
226,000 people
5.4%

Low income
389,000 people
9.3%
Compulsory
retirement age,
expiration ofcontract period
662,000 people
15.8%

Poor working
conditions
514,000 people
12.2%
Marriage, childbirth,parenting, nursing care
162,000 people
3.9%

Source:Note:

Prepared based on MHLW, Survey on Employment Trends.
The above is a result of asking new transferred workers who were newly employed in 2014 (those who had a previous
employment and gained new employment at the time of the survey) why they separated from their previous employment.

Next, we shall take a look at new workers
who gained new employment or transferred to an
SME. First, when we categorize new workers into
unemployed workers who had not worked within theyear prior to gaining new employment and employedworkers who have worked within the year prior to
gaining new employment, and examine their numbers
by enterprise size, we see that unemployed workers
account for 38.4% of all workers in enterprises with
300 workers or more and 35.9% of all workers inenterprises with 5 to 299 workers. This indicates thatthe ratio of unemployed workers is slightly lower insmaller enterprises (Fig. 1-2-23).

Even in terms of the number of job offers at the timeof recruitment of new graduates and the number of job
seekers, the number of SME job offers to prospective
university graduates has increased over the past two
years, and 402,000 job openings were offered in themost recent data, but the number of new graduates who
sought employment in an SME was 112,000. While thisrepresented an increase, a large gap nevertheless existed
between the number of job offers and number of actual
job seekers (Fig. 1-2-24 (1)). SMEs are increasing their
number of job offers and are endeavoring to recruit new
graduates, but the number of job seekers has hardly
increased, and the ratio of job openings to applications
continues to hover at a high level of around 3 to 4.

47

Chapter 2 Developments among SMEs

Fig. 1-2-23 Proportion of unemployed and employed workers among new workers,
by employee size (all enterprise sizes, 2014)
Employed workers

Unemployed workers(%)

5 – 299 workers

Source:300 workers or more

Prepared based on MHLW, Survey on Employment Trends.

Fig. 1-2-24 (1) Number of job openings offered to prospective university graduatesby SMEs and number of job seekers(10,000 people)

Number of job offers

Number of job seekers

Application ratio (right axis)(Application ratio)(Year)

Source:
Note:

Recruit Works Institute, Works University Graduate Job Offers to Job Seekers Ratio Survey.
SMEs here refer to enterprises with less than 300 employees.

Meanwhile, when we look at the new graduate
recruitment situation of large enterprises, we see that new
graduates who sought employment in a large enterprisesurpassed the number of job offers, except in 2016. The

48

ratio of job openings to applications stood at around 1,
which is extremely low compared to the ratio of between
3 and 4 for SMEs, and indicated a persistently strong
preference for large enterprises (Fig. 1-2-24 (2)).

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-24 (2) Number of job openings offered to prospective university graduatesby large enterprises and number of job seekers(10,000 people)

Number of job offers

Number of job seekers

Application ratio(Application ratio)

Section 2(Year)

Source:
Note:

Recruit Works Institute, Works University Graduate Job Offers to Job Seekers Ratio Survey.
Large enterprises here refer to enterprises with 300 employees or more.

Next, we shall take a look at wage disparities byenterprise size, which is a possible reason for separationfrom SMEs and preferences for large enterprises.
With respect to salary trends by enterprise size, regular
employee wages in SMEs and large enterprises hovered
between ¥270,000 and ¥300,000 and between ¥340,000
and ¥380,000, respectively, showing a wage disparity thathas not been resolved since the 1990s (Fig. 1-2-25).

Additionally, when looking at the wage increase rate,
an increasing trend was seen in enterprises with 100−299
workers, but this was nevertheless a lower level ofincrease than that seen among enterprises of other sizes(Fig. 1-2-26).
The decrease in the number workers in SMEs could
perhaps be attributed to the persistent disparity in wages
between large enterprises and SMEs.

49

Chapter 2 Developments among SMEs

Fig. 1-2-25 Salaries by enterprise size
(10,000 yen)

Large enterprises (regular employees)

SMEs (regular employees)¥380,000¥297,000(Year)

Source:Notes:

Recompiled from MHLW, Basic Survey on Wage Structure.
1.	 The figures for “regular employees” before 2004 include all general workers regardless of length of employment, andthose after 2005 include “regular employees and regular staff members” of business establishments, among general
workers.
2.	 “General workers” refer to regular workers other than short-term workers.
3.	 “Short-term workers” refer to workers who work shorter hours per day than general workers in the same businessestablishment, or who work the same hours per day but less days per week than general workers in the same
establishment.
4.	 “Regular workers” refer to either of the following: (a) those who are employed for an indefinite term or for a definite
term of more than a month; or (b) those who are employed on a daily basis or for a definite term of less than a monthand have worked for more than 18 days each in the two months prior to the survey month.
5.	 “Salary” refers to cash salary that is supplied regularly as the sum of the basic pay that is paid as the amount of pay
for June of each year and various allowances that have been specified in advance, including overtime pay.
6.	 Enterprises with no more than 299 regular workers as a whole (and enterprises in the wholesale trade, service, retailtrade, and restaurant industries with no more than 99 regular workers) are regarded as SMEs, and all other enterprises
are grouped as large enterprises.

Fig. 1-2-26 Wage increases (revised rate of average wage per person)
5,000 workers or more

1,000−4,999 workers

399−999 workers

100−299 workers(Percent change from previous year, %)(Year)

Source:Notes:

50

MHLW, Survey on Wage Increase.
1.	 Data has been collected from enterprises that have revised their wage or are planning a revision and have already
decided on specific amounts, and enterprises that are not planning a revision of wages.
2.	 Revision refers to that of regular bonuses, basic pay increases, and allowances for all or some regular workers, andincludes wage decreases through basic pay decreases and wage reductions.
3.	 Regular workers in this survey refer to workers who are employed without specifying a definite term of employment.
4.	 Revised rates of average wage per person are the weighted average of regular workers.

Part I Developments among SMEs in fiscal 2015

5.

Analysis of depreciation costs (capital investment) (stagnant capital investment)of roughly ¥3.5 trillion between large enterprises andSMEs, but the average difference has narrowed toapproximately ¥2.1 trillion in 2015.
Actual capital investment amounts were on a declining
trend among both large enterprises and SMEs between
2008 and early 2010, but have thereafter leveled off(Fig. 1-2-27 (2)). Although a slight increase has been
seen recently, capital investment amounts have not yet
reached the level before the Lehman crisis.

Section 2

Next, we shall look at depreciation costs, which
contribute to increasing ordinary profits among both
SMEs and large enterprises, in light of relevant trends
in capital investment. In terms of enterprise size,
depreciation costs among large enterprises show a
gradual declining trend after peaking in the first quarterof 2008, while depreciation costs among SMEs show a
gradual increasing trend from the first quarter of 2013
(Fig. 1-2-27 (1)). In 2006, there was an average difference

Fig. 1-2-27 (1) Depreciation costs (by enterprise size)(Trillion yen)

Large enterprises

SMEs
Large ente

rprises

SMEs(Quarter)(Year)

Source:Note:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

51

Chapter 2 Developments among SMEs

Fig. 1-2-27 (2) Capital investment (by enterprise size)
Large enterprises

SMEs(Trillion yen/four-quarter backward moving averages)
Lar

ge

ent

erp

rise

s

SME

s

(Quarter)(Year)

Source:Note:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

Now let us examine the state of excess/insufficiency
of facilities among SMEs in terms of the production andoperational facility DI according to the BOJ Tankan. In the
manufacturing industries, the DI has shown a declining
trend from 2013 to the March 2015 survey, and the senseof having excess facilities had eased, but it increased
thereafter for three consecutive quarters, and has once

52

again trended toward a sense of excess (Fig. 1-2-28). In the
non-manufacturing industries, “insufficiency” surpassed“excess” for ten consecutive quarters since the September
2013 survey, and the DI remained unchanged or otherwise
dropped for three consecutive quarters, indicating that thesense of insufficiency of facilities has yet to improve.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-28 Production and operational facility DI for SMEs
(DI, points)

Manufacturing industries

Non-manufacturing industries

Section 2

ExcessInsufficiency(Quarter)(Year)

Source:Notes:

BOJ, Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan).
1.	 The production and operational facility DI is the percentage of enterprises that said they have an “excess” of production
facilities, minus the percentage of enterprises that said they have an “insufficiency” of such facilities.
2.	 SMEs here refer to enterprises with a capital of more than ¥20 million and less than ¥100 million.

According to the Survey of SME Capital Investment
Trends by Shoko Chukin Bank, in 2015 the largest reason
why 68% of SMEs did not make capital investments was
because their existing facilities sufficed, followed byeconomic uncertainty and large debt burden (Fig. 1-2-29).
As the graph shows, “declining corporate earnings,”“decreasing industrial demands,” and “economic

uncertainty” have declined as reasons for not making
capital investments, while the percentage of “existing
facilities suffice” has slightly increased. Additionally, “thenecessary personnel cannot be secured” has continued toincrease as a reason for not making capital investment
over the past five years, although it accounts for a small
percentage.

53

Chapter 2 Developments among SMEs

Fig. 1-2-29 Reasons for not making capital investments
Existing facilities sufficeDecreasing industrial demands
Difficulty in procuring funds

Economic uncertainty
Facilities are in excess at present
Large debt burden
Declining corporate earnings
The necessary personnel cannot be secured(%)(Year)

Source:Shoko Chukin Bank, Survey of SME Capital Investment Trends.

With respect to facility conditions, facilities ages haveyearly increased since the 1990s, and have increased
1.4-fold in large enterprises and 1.8-fold in SMEs from1993, as an indication of the advanced aging of facilities
particularly in SMEs (Fig. 1-2-30).
According to a questionnaire survey on the status offacilities in Japan conducted by Shoko Chukin Bank,
responses to a question asking when was the last time acapital investment was made showed that approximately

54

40% of all respondents have not made a capital investment
for over five years, and a little under 20% have not made acapital investment for over ten years. (Fig. 1-2-31).
The sense of excess of facilities has declined in the
manufacturing industries as well, but capital investment
remains stagnant due in part to future uncertainties. As
a result, the aging of facilities has become an emerging
issue.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-30 Facility ages (by enterprise size)
SMEs

Large enterprises(Vintage (facility age), years)

Section 2

old

1.8-f

1.4-fold(FY)

Source:Prepared based on Shoko Research Institute, Competitive Strength and Capital Investment of SMEs, in MOF, Financial
Statements Statistics of Corporations by Industry, Annually.

Fig. 1-2-31 Last capital investment made by SMEs
2013

Nonmanufacturing

23.4

Manufacturing

24.2

Total

23.7

0%

Source:2012

2010−201116.2

2005−2009

19.9

22.1

18.2

2004 and before

19.4

20.8

20.2

21.1

18.5

19.1

14.4

18.9

100%

Shoko Chukin Bank, Survey on the Impacts of Supply Restrictions (insufficiency of labor and facilities) on SMEs
(Dec. 2014 survey).

55

Chapter 2 Developments among SMEs

6.

Analysis of variable costs (transaction environment)

Next, we shall look at variable costs, which contributelargely to the increase in ordinary profits among both
SMEs and large enterprises. A look at the ratio of
variable costs to sales by enterprise size shows thatthe level for SMEs is lower compared to that for large
enterprises. In 2010, the ratio of variable costs to sales for
SMEs increased temporarily, and the gap between large
enterprises and SMEs narrowed, but from 2011 to 2012,
the gap widened once again due to a drop in the ratio
among SMEs, and has remained unchanged thereafter(Fig. 1-2-32).

Variable costs fluctuate in response to fluctuations insales. In the manufacturing industries they are influenced
by material costs, and in the retail sales industry, they
are influenced by changes in purchase prices, forexample. When we look at trends in the prices of primarycommodities (energy, foods, metals, etc.), which are
deeply related to variable costs, we see that the prices ofprimary commodities dropped drastically in 2015, witha particularly large drop in energy prices (Fig. 1-2-33).
It is thought that this drop in the prices of primarycommodities has contributed to pushing down the ratioof variable costs to sales.

Fig. 1-2-32 Ratio of variable costs to sales (by enterprise size)
Large enterprises

SMEs

(%)

(Quarter)(Year)

Source:Note:

56

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with a capitalof ¥10 million or more and less than ¥100 million.

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-33 Prices of primary commodities(Index: 2005 = 100,
crude oil price: $US/barrel)

Primary commodity price index (all primary commodities)

Price of Dubai crude ($US/barrel)

Primary commodity price index (metals)
Primary commodity price index (energy)

Primary commodity price index (foods)

Section 2(Month)(Year)

Source:Notes:

IMF, Primary Commodity Prices.
1.	 The primary commodity cost index is the costs of foods, metals, energy (petroleum), etc. weighted by the averageexport amount from 2002 to 2004.
2.	 Foods include grains, vegetable oil, meat, sugar, fruits, etc.
3.	 Metals include copper, aluminum, steel, tin, nickel, zinc, etc.
4.	 Energy includes crude oil, natural gas, and coal.

Primary commodity prices largely fluctuate, so how
appropriately they can be passed through to sales prices
in response to such fluctuations has an effect on ordinary
profits. Therefore, to gain an overview of the cost passthrough situation of SMEs, we shall take a look at the BOJ
Tankan sales price DI minus the purchase price DI as aterms-of-trade index8) (Fig. 1-2-34). From the 1980s to
1990s, the terms of trade for large enterprises and SMEs
were closely linked to each other, and there was virtuallyno difference between the two. However, in the 2000s,
a difference began to gradually appear, and continues toexist today.

8) If the figure obtained by subtracting purchase price from sales price is largely negative, this indicates that increases in purchase prices are
not being properly passed through to sales prices.

57

Chapter 2 Developments among SMEs

Fig. 1-2-34 Terms-of-trade index (by enterprise size)
Difference between SMEs and large enterprises (SMEs – large enterprises) (right axis)
Large enterprises in all industries

SMEs in all industries(Terms-of-trade index, %p)(Year)

Source:Notes:

BOJ, Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan).
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital of ¥20 million or more and less than ¥100 million.
2.	 “Terms-of-trade index” equals the sales price DI minus purchase price DI.

According to the Survey of Subcontract Transaction
Prices conducted by the SME Agency in December
2015, 36.6% of enterprises were in a situation where it
was necessary for them to pass through the costs of raw
materials and energy costs after April 2015, but 30.2% of
those enterprises were not able to actually pass throughthose costs (Fig. 1-2-35 (1)).

58

Additionally, as a measure in response to not being
able to raise unit prices in the past ten years, 53.9% ofenterprises gave “compression of profit rate,” and morethan 30.0% gave “cutback of personnel costs,” “curbingof other raw material and purchase costs,” and “curbing of
capital investment” (Fig. 1-2-35 (2)).

Part I Developments among SMEs in fiscal 2015

Fig. 1-2-35 (1) Necessity and status of passing through raw material and energy costs totransaction prices
Whether cost pass-through was necessary

Cost pass-through situation

Cost pass-throughwas necessary
36.6%

Cost pass-though
was not necessary
50.2%

Source:Costs were notable to bepassed through30.2%

Section 2

Don’t know
13.2%

Costs wereable to bepassed through23.2%

Some costs
were able to bepassed through46.7%

SME Agency, Survey of Subcontract Transaction Prices (conducted December 2015).

Fig. 1-2-35 (2) Measures taken in response to not being able to sufficiently increasetransaction prices
Compression of profit rate
Cutback of personnel costs
Curbing of other raw material
and purchase costs
Curbing of capital investment
Request to business partners
to lower prices
Improvement of production
activities, etc.
Curbing of R&D expenses
Unit transaction prices havebeen sufficiently increased
Other

(%)

Source:SME Agency, Survey of Subcontract Transaction Prices (conducted December 2015).

59

Chapter 2 Developments among SMEs

7.

Summary

As seen above, while some weaknesses were seen in
the business conditions DI for SMEs, an improvement
trend also appeared, with ordinary profits reaching arecord high level and the number of bankruptcies marking
the lowest level in 25 years. However, ordinary profit
increases were largely owing to a decline in personnel
costs and the prices of crude oil and raw materials, anddid not accompany an increase in sales. For this reason,

60

capital investment failed to reach the level before theLehman crisis, the aging of facilities have advanced, andlabor shortage has become a serious issue.
With SMEs now achieving a record high level ofordinary profits, it is an opportune time to address thelabor shortage issue that has stemmed from a decline
in the working-age population and the issue of aging
facilities, and strengthen the “earning power” of SMEs.

Analyzing SME productivity
As we have seen in the previous chapter, Japan’s economy in 2015 continued on a gradual
recovery trend on the whole. Ordinary profits marked a record high, and an increase in corporate
profits led to an improvement of the employment environment and wage increases, thereby giving
momentum to a “positive growth cycle.” At the same time, however, SMEs have faced such issues
as stagnant sales, the aging of facilities, and labor shortage, and have growing concerns about how
the economic deceleration in newly emerging countries may impact their exports and production,
among various other issues. In order to continue maintaining the positive growth cycle and pursue
the path toward sustainable growth even while greater population decline is anticipated, it isimportant to increase productivity in each enterprise and strengthen the profitability of enterprises
in Japan. From the standpoint of SMEs as well, the record high level of ordinary profits today
poses a good opportunity to address the abovementioned issues.
Thus in this chapter, we shall focus on and analyze SME productivity from diverse perspectives.

Section 1

1.

Section 1

Chapter 3

Changes in circumstances surrounding SMEs and SME
productivity

Population decline, declining birthrates, and population aging

Fig. 1-3-1 shows population changes in Japan up to
now and future population projections. According to thefigure, the working population, from ages 15 to 64, hasbeen declining, and is estimated to continue declining at aconsiderable rate, while the population of people ages 65
and older will continue to increase.
What impacts will a change in the population

structure have on SMEs? Even in terms of the employee
insufficiency DI (percentage (%) of enterprises thatsaid they have an “overcapacity” of employees, minus
the percentage (%) of enterprises that said they have an“insufficiency” of employees for the quarter) for SMEs,
there is a growing sense of insufficiency in all industries(see Fig 1-2-20).

61

Chapter 3 Analyzing SME productivity

Fig. 1-3-1

Future population projections
Ages 0−14

Ages 15−64(Million people)

Ages 65 and older

Ratio of working population (right axis)

Projections(%)(Year)

Source:Notes:

National Institute of Population and Social Security Research, Population Projections for Japan (January 2012 projections).
1.	 Future population projections are based on medium fertility (medium mortality) estimates.
2.	 Working ages are defined as ages 15 to 64.

Given the declining population, there are concerns thatdomestic demand may weaken and sales among domestic
enterprises may decrease. With regard to supply, a decline
in the working population is expected to create supply
constraints and further strengthen the sense of employee
insufficiency.
In order for Japan’s economy to overcome decreased
domestic demand and labor supply constraints that are theresult of a declining population and pursue sustainablegrowth in the future, it is necessary to expand sales
channels, including overseas expansion, on the demandside. On the supply side, it is necessary to realize the planof “Promoting the Dynamic Engagement of All Citizens”
toward a society where all citizens are actively engaged,
and take initiatives to increase the production efficiencyof each employee.
Particularly among SMEs, which account forroughly 70% of total employment in Japan1), increased
productivity in each enterprise would contribute largely
to resolving such issues of Japan’s economy as a whole.
In the following sections, we shall thus analyze SME
productivity from various angles.

1) According to the 2014 Economic Census for Business Frame (recompiled), SMEs employ 70.1% of all employees in Japan (seeSupplementary statistical data Table 2 (3)).

62Part I Developments among SMEs in fiscal 2015

Section 2

Present status of SME productivity

Below, we shall analyze SME productivity using
two representative indicators of productivity: labor1.

productivity and total factor productivity.

Labor productivity in SMEs

In this chapter, labor productivity is defined by theequation, “labor productivity2) = value added3) / labor
force4).” It is a quantification of how efficiently workers
produce a result, and increases with workers’ efforts
to build capacity and improve efficiency and withimprovements in management efficiency.

█ Labor productivity in SMEs (overview)

Before analyzing labor productivity in SMEs, let
us take a brief look at labor productivity by industry
and enterprise size. Fig. 1-3-2 shows average laborproductivity levels among SMEs and large enterprises
by industry (vertical axis)5) and worker ratios by industry(horizontal axis)6). When we examine labor productivity
levels by industry and enterprise size, we see that the
average among SMEs falls below that of large enterprises,
even while SMEs account for roughly 70% of Japan’s
total labor force.
In light of this situation, it can be said that laborproductivity must be increased not only in large
enterprises, but also in SMEs, in order to raise Japan’s
total value added.

Section 2█ Definition of labor productivity in this chapter

2) This should be expressed as “real labor productivity” to be accurate, as cost fluctuations are eliminated using a GDP deflator (2005 basis).
However, for convenience sake, the term “labor productivity” shall be used in this chapter.
3) Here, value added = net operating profit + personnel costs + taxes and public impositions + rent of movable property and real estate.
4) Here, labor force = number of officers + number of employees.
5) Calculated using data from MOF, Financial Statements Statistics of Corporations by Industry, Annually. The Financial Statements Statistics
of Corporations is a sample survey of profit-making corporations, and the annual surveys the figures of definite settlements of accounts forthe fiscal year. The finance and insurance industries have been omitted from Fig. 1-3-2, as financial statements statistics do not include thenecessary items for the calculation of value added in those industries.
6) Recompiled from MIC, Economic Census for Business Frame. The MIC Economic Census for Business Frame is an exhaustive surveyof all business establishments in industries included among the Japan Standard Industrial Classification (JSIC), with the exception of thehousehold service industry and some other industries.

63

Chapter 3 Analyzing SME productivity

Fig. 1-3-2

Labor productivity and labor composition ratio (by enterprise size, by industry)(¥10,000/worker)
SMEs

Large enterprises
Information and communications
Manufacturing
Construction
Manufacturing industries
Transport and postal activities
Real estate andrentalScientific research, professional
Service industries in the narrow sense goods
and leasing
and technical services
Education, learning support
Other non-manufacturing industries
Living-related andpersonal services andEducation, learning support
Real estate and goods rental and leasing
amusement services
Living-related andOther services
personal services andInformation and communications
amusement services
Accommodations,eating andOther services
Scientific research,drinking services
professional and technical services
Medical, health care
Medical,and welfare
health care
Manufacturing
WholesaleTransport andand welfare
andpostal activities
Accommodations,retailtrade
eating anddrinking services
Construction
Wholesale andretail trade

Sources: Recompiled from MOF, FY2014 Financial Statements Statistics of Corporations by Industry, Annually, and MIC, 2014
Economic Census for Business Frame.
Notes:
1.	 Labor productivity = value added / total number of workers
2.	 Value added = net operating profit + officers’ pay + officers’ bonus + employees’ pay + employee benefits + rent of
movable and immovable properties + taxes and public impositions
3.	 Number of workers = number of officers + number of employees
4.	 Here, the definition of SMEs is pursuant to the Small and Medium-sized Enterprise Basic Act.

Fig. 1-3-2 shows that the service industries7) inparticular, including the accommodations, eating anddrinking services, account for a high share of total
employment, but display a relatively low average level oflabor productivity compared to other industries.
The low level of labor productivity in the service
industries can be attributed to the following characteristics
that are seen in many service industries.
(1) Simultaneousness: Services are provided andconsumed at the same time.
(2) Inseparability: Services are provided and utilized in
the same place.
(3) Disappearance: Services cannot be kept in stock.
In other words, in some service industries, such as therestaurant, hairdressing, medical care and nursing careindustries, services are provided and consumed at thesame time and in the same place, and cannot be kept instock in some cases. Unlike industrial products, for which

production activities could be leveled by adjusting stock,products (services) cannot be produced (provided) in theabsence of customers and stored as stock, and short-termchanges in demand affect production volume in the samemanner. However, such short-term changes in demandcannot be easily accommodated by adjusting labor input,
and thus act as a constraint in increasing productivity
through an increase in the efficiency of production
activities.
This means that increasing productivity tends to be
more difficult in industries that handle products (services)characterized by simultaneousness, inseparability, anddisappearance. For this reason, it is said to be difficult tomeasure productivity in the service industries and makecomparisons with other industries8).
While paying careful attention to these points, let us
proceed to an analysis of labor productivity by industry in
the following section.

7) In this paper, “service industries” refer to service industries in the narrow sense, which fall under industrial divisions L to R of the Japan
Standard Industrial Classification (JSIC) (rev. 13). Service industries in the broad sense, which refer to tertiary industries, shall be expressed
as “non-manufacturing industries” in this chapter.
8) References to the characteristics of service industries and the impacts of demand in this section are based on Konishi (2015). Konishi (2015)
emphasizes that in order to measure the technical capability and productivity of service industries, it is necessary to collect both demand andsupply data and perform an empirical analysis upon defining what types of added values are created in each industry.

64

Part I Developments among SMEs in fiscal 2015

█ Comparison of labor productivity by industry

Distribution of labor productivity (value added per worker) (SMEs, by industry)
Third quartilegFirst quartilenin

Average

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(¥10,000/worker)

Mi

Fig. 1-3-3

Fig. 1-3-3 shows SME labor productivity in 2014 interms of industrial averages, as well as productivity levels
at the first quartile point (top 25th percentile) and third
quartile point (bottom 25th percentile) for each industry,
to provide an overview of the distribution of productivity.
According to this figure, average labor productivity is
low in the eating and drinking services, medical, healthcare and welfare, and accommodations industries, withlittle difference in productivity levels among enterprises.
This is thought to be because the services provided by theseindustries tend to be characterized by (1) simultaneousness,(2) inseparability, and (3) disappearance, as mentioned
earlier, compared to services provided by the finance andinsurance industry, and these characteristics are keeping
labor productivity down. On the other hand, even among
SMEs, average labor productivity is high in the financeand insurance industry and the real estate and goods rental
and leasing industry, with large differences in productivity
levels among enterprises. This is thought to be due to theirhigh capital intensity ratio and capital productivity, as will
be discussed later.

Section 2

Above, we confirmed average labor productivity
by enterprise size and industry. Average values are
frequently used to make comparisons when analyzinglabor productivity. However, labor productivity may vary
widely even among enterprises of the same size and in thesame industry, depending on the initiatives implemented
by each enterprise, their circumstances, and other suchfactors.
Therefore, below we shall use responses to the Basic
Survey of Japanese Business Structure and Activities
to analyze in greater detail the distribution of corporate
productivity by industry. The survey is conducted every
year by the Ministry of Economy, Trade and Industry, andcovers enterprises with 50 or more employees and whose
paid-up capital or investment fund is over 30 million
yen. Although it does not include enterprises of sizes
and financial scales below this scope, it shall be used,
as it provides large-scale governmental statistics that are
useful for calculating the growth rate of productivity andvarious other indicators of individual companies throughthe creation of panel data9).

Source:Notes:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The definition of SMEs is pursuant to the Small and Medium-sized Enterprise Basic Act. However, enterprises withless than 50 employees and a paid-up capital or investment fund of less than ¥30 million are not included in the above
figure.
2.	 Labor productivity is calculated according to the equation, Labor productivity = value added (net operating profit +personnel costs + taxes and public impositions + rent of movable property and real estate) / total number of workers.
3.	 Value added is given substance using a GDP deflator (2005 basis).
4.	 The average for the mining industry was ¥52.6 million/worker (not included in the above graph). This figure was given
a tremendous boost by a single enterprise with exceptionally high productivity.

9) To create data that shows trends in individual companies over a period of multiple years.

65Chapter 3 Analyzing SME productivity

Next, let us examine labor productivity distribution
in greater detail and compare labor productivity levels
by industry and enterprise size. Fig. 1-3-4 shows the
cumulative distribution of the percentage of enterprises(vertical axis) at each level of labor productivity (horizontalaxis) that has been derived by tallying individual
responses to the 2014 Basic Survey of Japanese Business
Structure and Activities. Productivity levels were divided
into ¥100,000/worker units, and cumulative figures wereobtained by adding the percentage of enterprises at eachlevel. The more the graph is shifted to the right means thehigher the productivity of a larger number of enterprises in
the relevant industries. The points of the graph where the
X and Y axes merge also show the approximate percentage
of enterprises in the relevant industries that fall within thecorresponding labor productivity level. Furthermore, withrespect to the angle of the graph until it reaches the 50%
mark, the sharper the angle means the more enterprises
are concentratedly distributed at that level.
When the cumulative distribution of labor productivity
is compared by enterprise size and by manufacturing/non-manufacturing industries, the figure shows that in
the manufacturing industries, SME labor productivity isFig. 1-3-4(%)

mostly distributed at levels lower than large enterprises(Fig. 1-3-4 left side). In contrast, among the nonmanufacturing industries, an inversion is seen from the¥5.7 million/worker level, with more large enterprises
than SMEs distributed at labor productivity levels below¥5.7 million/worker (below the bottom 33%) (Fig. 1-3-4
right side). At look at cumulative distribution reveals thatin the manufacturing industries, the labor productivityof large enterprises is higher than that of SMEs at alllevels, but in the non-manufacturing industries, the laborproductivity of the bottom third of large enterprises is
distributed at lower levels than SMEs10). The figure also
shows points where the average of large enterprises lies,
and by looking at the distance between 100 and thesepoints, it also shows the percentage of SMEs that havehigher productivity than large enterprises. It thus indicatesthat in the manufacturing industries, approximately
10% of SMEs have a higher labor productivity than the
average labor productivity of large enterprises, and in
the non-manufacturing industries, some 30% of SMEs
have a higher labor productivity than the average laborproductivity of large enterprises.

Cumulative distribution of labor productivity
Large manufacturing industries
SME manufacturing industries(%)

Large non-manufacturing industries
SME non-manufacturing industries

Approx. 10%
Approx. 30%

Average of large enterprises
in manufacturing industries(¥11.71 million)

Average of large enterprises
in non-manufacturing industries(¥8.99 million)

33%¥5.7 million/worker(¥million/worker)

Source:Notes:(¥million/worker)

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The above does not include companies with less than 50 employees or less than ¥30 million in paid-up capital orinvestment fund.
2.	 Cumulative figures were obtained by calculating the distribution of labor productivities (value added per worker) for
each ¥100,000/worker.

10) However, it should again be noted that the Basic Survey of Japanese Business Structure and Activities is based on data that does not include
enterprises with less than 50 employees and less than ¥30 million in paid-up capital or investment fund.

66

Part I Developments among SMEs in fiscal 2015

Fig. 1-3-5

Fig. 1-3-6 shows a comparison of average laborproductivity in the non-manufacturing industries in
2014, by industry and enterprise size. Among SMEs,
average labor productivity is widely distributed, from¥2.99 million/worker in eating and drinking services, to¥14.2 million/worker in finance and insurance. Amonglarge enterprises as well, average labor productivity
ranged from ¥3.76 million/worker in eating and drinking
services to ¥19.86 million/worker in real estate and goods
rental and leasing, with larger differences in averagelabor productivity among industries compared to the
manufacturing industries. An examination of averages in
the non-manufacturing industries by industrial division
reveals that a roughly four to five-fold difference inlabor productivity exists among industries at the most,and when comparing the finance and insurance industry,
which has the highest average labor productivity among
SMEs, and the eating and drinking service industry, which
has the lowest average labor productivity among large
enterprises, SMEs in the finance and insurance industry
have a roughly 3.7 times higher labor productivity thanlarge enterprises in the eating and drinking service
industry.

Section 2

It could be said that in the manufacturing industries, thedifference in enterprise size is a major determining factorof labor productivity, while in the non-manufacturingindustries, other factors are. In particular, the diversityof industries included among “non-manufacturingindustries” is thought to have a strong influence on the
distribution of labor productivity in the non-manufacturingindustries as a whole.
Therefore, in Fig. 1-3-5, the manufacturing industries
were further broken down into major groups, and theiraverage labor productivity was shown divided into SMEs
and large enterprises. In the manufacturing industries,
labor productivity ranged from ¥5.48 million/worker
in manufacture of food to ¥11.11 million/worker in the
manufacture of petroleum and coal products, and in the
non-manufacturing industries, they ranged from ¥7.63
million/worker in the manufacture of food to ¥20.75
million/worker in the manufacture of petroleum and coalproducts. A comparison of average labor productivity inthe manufacturing industries by major group shows thatamong both SMEs and large enterprises, average laborproductivity falls within a range of roughly two or threetimes the lowest labor productivity level at the most.

Average labor productivity in the manufacturing industries(by middle industry category, by enterprise size)(¥10,000/worker)

Te

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ma
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Average of large enterprises

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Average of SMEs

Source:Notes:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The classification of enterprise sizes is based on the definition provided in the Small and Medium-sized Enterprise
Basic Act. However, enterprises with less than 50 employees and a paid-up capital or investment fund of less than ¥30
million are not included in the above figure.
2.	 Labor productivity = value added (net operating profit + personnel costs + taxes and public impositions + rent of
movable property and real estate) / total number of workers.
3.	 The leather, leather products and fur manufacturing industries are not included in the above, as sufficient sample dataof large enterprises could not be obtained.

67

Chapter 3 Analyzing SME productivity

Average labor productivity in the non-manufacturing industries(by industry, by enterprise size)
Average of SMEs

Source:Notes:

Average of large enterprises

Co
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(¥10,000/worker)

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Fig. 1-3-6

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The classification of enterprise sizes is based on the definition provided in the Small and Medium-sized Enterprise
Basic Act. However, enterprises with less than 50 employees and a paid-up capital or investment fund of less than ¥30
million are not included in the above figure.
2.	 Labor productivity = value added (net operating profit + personnel costs + taxes and public impositions + rent of
movable property and real estate) / total number of workers.
3.	 The mining and agricultural, forestry and fisheries industries are not included in the above, as sufficient sample dataof large enterprises could not be obtained.

Manufacturing and non-manufacturing industries are
frequently compared against each other, but the nonmanufacturing industries include a diverse range ofindustries of completely differing business categories,
and this impacts the labor productivity of manufacturing
and non-manufacturing industries as a whole. Such
differences in business type and category are thought
to have a greater impact on labor productivity thandifferences in enterprise size. Additionally, even within
the same industry, labor productivity differs according
to enterprise, and it should be noted that this distribution
situation lies in the background of Figs. 1-3-5 and 1-3-6.
In consideration of the above situation, it is thoughtthat the enterprise size-based approach11) is effective forthe manufacturing industries, as enterprises that make up
the category differ in size and situation regarding theirproductivity12), and that measures and corporate initiatives
should take enterprise size into consideration. On theother hand, it is thought that for the non-manufacturingindustries, it is more important to take into account thediffering situations of each industry and take measuresthrough a detailed classification of industries, rather thaninitiatives that are based on enterprise size.
Based on this awareness, next we shall examine the
distribution of labor productivity in the non-manufacturingindustries by industrial division.

11) In regard to this point, Fukao et al. (2014) notes that when analyzing the factors involved in the differences in labor productivity in Japanaccording to enterprise size, 65% can be explained by differences in capital equipment ratio, 25% by differences in total factor productivity(TFP), and 10% by differences in the quality of labor. He says that the disparity in capital equipment ratio according to enterprise size has
declined since 1990, possibly owing to the fact that the cost of capital has dropped as a result of a continuation of the ultra-low interest
rate policy and the governmental provision of credit guarantees to SMEs, and reduced the disparity in the cost of capital between large
enterprises and SMEs.
12) In this regard, the 2014 White Paper on Small and Medium Enterprises in Japan points out that SMMs are less able to pass through costs
compared to large manufacturers, and that this is a contributing factor in the differences in the rate of increase of nominal value added
per worker in SMMs and large manufacturers (see Fig. 1-1-48 in the 2014 White Paper on Small and Medium Enterprises in Japan). It
is thought that the difference in the ability to pass through costs between SMMs and large manufacturers leads to a difference in laborproductivity (value added per worker) between the two groups of enterprises.

68Part I Developments among SMEs in fiscal 2015

█ Distribution of labor productivity by industry

Fig. 1-3-7(%)

hand, the graphs for the wholesale trade and scientificresearch, professional and technical services industries
project more largely to the right than the average, andshow most enterprises distributed at high levels. For
example, only a little over 10% of all enterprises in thescientific research, professional and technical services,
real estate and goods rental and leasing, and informationand communications industries are distributed below the¥5 million/worker level. A comparison of SMEs also
show differences in distribution per industry, and suggeststhat the characteristic differences between industries
have an influence on the labor productivity of individualcompanies. Any attempt to increase productivity throughpolicies and corporate initiatives requires an accurate
assessment of each industry and detailed responses that
capture the characteristics of each industry.

Section 2

To accurately assess the present state of laborproductivity in SME non-manufacturing industries, weshall next examine the distribution of labor productivity in
SME non-manufacturing industries by industrial division.
Fig. 1-3-7 is a decomposition of the cumulative
distribution shown in Fig. 1-3-4 according to industry13).
It shows that the graphs for the eating and drinking
services, retail trade, living-related and personal services
and amusement services industries are distributed moreto the left than the average for all non-manufacturingindustries, and that most enterprises are distributed at low
levels. For example, approximately 90% of enterprises
are distributed below the ¥5 million/worker level in theeating and drinking services industry, and below the ¥7.5
million/worker level in the living-related and personal
services and amusement services industries. On the other

Cumulative distribution of labor productivity (SMEs, by industry)¥5 million/worker¥7.5 million/worker

Retail trade
Wholesale trade
Information and communications
Real estate and goods rental and leasing
Scientific research, professional
and technical services
Eating and drinking services
Living-related and personal services
and amusement services
Non-manufacturing industries as a whole(¥million/worker)

Source:Notes:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The above does not include companies with less than 50 employees or less than ¥30 million in paid-up capital orinvestment fund.
2.	 Cumulative figures were obtained by calculating the distribution of labor productivities (value added per worker) for
each ¥100,000/worker and obtaining the centralized moving average (for five divisions).

13) Obtaining a certain number of samples from METI’s Basic Survey of Japanese Business Structure and Activities was a prerequisite tocreating the graph, so results were not able to be obtained for some industries. Here, a comparison is made of industries for which a certain
number of samples were able to be obtained, namely the retail trade, wholesale trade, information and communications, real estate andgoods rental and leasing, scientific research, professional and technical services, eating and drinking services, living-related and personal
services and amusement services, and manufacturing industries.

69

Chapter 3 Analyzing SME productivity

2.

Total factor productivity (TFP) of SMEs

The analysis of labor productivity in the previous
section took into account only the relationship between
value added and labor input14), but total factor productivity(TFP) takes into account input factors besides labor. Below,
we shall analyze the present state of TFP among SMEs.

█ Definition of TFP in this chapter

In this chapter, the growth rate of value added overa certain period, excluding the amount of contributionof capital input15) and labor input, was calculated as
the growth rate of TFP based on the Cobb-Douglas
production function16). TFP growth refers to changes invalue added growth that cannot be explained by capital
input or labor input. Therefore, it is said to express thesum of the improvements in the quality of input factors,
technological progress, and the results of innovation17).

█ Comparison of TFP growth by industry

Using the concept of total factor productivity, let us
make comparisons by industry. Fig. 1-3-8 shows thevalue added growth rate of SMEs and comparisons of
the contributions of capital input, labor input and TFP
by industry and enterprise size. Fig. 1-3-9 shows acomparison of TFP growth only.
In Fig. 1-3-8, when we compare the value added
growth rate of SMEs by industry, we see that in the livingrelated and personal services and amusement services
industry, labor input and capital input both make anegative contribution to the industry’s value added, which
is a low -2.8% as a whole. In the education, learning
support industry18), as well, TFP makes a large negative
contribution, bringing down the value added growthrate to the same low level of -2.8%. In the eating anddrinking services and accommodations industries, labor
input makes a negative contribution, putting the value
added growth rates of these industries also in the negative
territory. In contrast, the medical, health care and welfare
industry marked the highest value added growth rate of
30.2%, and an exceptionally high TFP growth rate of allindustries19).

14) The labor force that is input to production activities.
15) Refers to the capital that is input to production activities.
16) For details, see Appended note 1-3-1.
17) It should be noted, however, that in this paper, economic booms, recessions, large accidents, abnormal weather, increase/decrease in demand,
etc. also affect the total factor productivity figure, as changes caused by economic and demand fluctuations are not eliminated. In regard tothis, Konishi (2013) has succeeded in breaking down the results regarding productivity in manufacturing industries obtained by production
function analysis into supply factors, demand factors and other factors by using METI’s Industrial Statistics and Dynamic Statistics ofProduction, and identifying changes in productivity brought about by supply factors.
18) It should be noted that the range of the “education, learning support industry” in the Basic Survey of Japanese Business Structure andActivities includes only industrial groups 8245 and 8249 listed in the Japan Standard Industrial Classification.
19) However, compared to other indicators such as labor productivity, the absolute level of value added growth rate in this industry remains low(see Fig. 1-3-3).

70Source:
Notes:

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Fig. 1-3-9
Contribution of TFP

MiSource:Notes:
Contribution of capital input

anContribution of labor input

ce

(%)

an

Fig. 1-3-8

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Section 2

pe Livr
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hc
sin
are
g
an
dw
elf
are

Part I Developments among SMEs in fiscal 2015

Contributions of capital, labor and TFP to value added growth rate
(SMEs, by industry)
Value added growth rate

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Growth rates are comparisons of 2010 and 2014.
2.	 The above does not include SMEs with less than 50 employees or less than ¥30 million in paid-up capital (orinvestment fund).

TFP growth rate by industry (SMEs)(%)

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Growth rates are comparisons of 2010 and 2014.
2.	 The above does not include SMEs with less than 50 employees or less than ¥30 million in paid-up capital (orinvestment fund).

71

Chapter 3 Analyzing SME productivity

3.

About capital equipment ratio and capital productivity

Next, let us examine productivity in reference toindicators that are deeply related to it.
Investing in machinery and equipment is an effectivemeans for SMEs to efficiently create new value added
and increase productivity. The extent of such investment
in machinery and equipment is expressed by “capital
equipment ratio.” Capital equipment ratio is an indicatorobtained by dividing total capital by labor force. The
larger the value, the stronger the capital intensity ratio.
Contrarily, the lower the value, the stronger the labor
intensity ratio.
To increase productivity, it is also important that theinvested machinery and equipment are utilized efficiently.
“Capital productivity” quantitatively measures how
efficiently investments in machinery, facilities, land, etc.
have produced results, and can be improved by increasing
facility utilization frequency and operating rates, efforts
for efficiency improvement, and other such initiatives.
Here, let us review the definition of labor productivity.
It can be expressed as follows.
Labor productivity = value added / labor force
This can be expanded as follows.
Labor productivity = (capital stock / labor force) ×(value added / capital stock)
Capital stock divided by labor force is called “capital
equipment ratio,” and value added divided by capital

72

stock is called “capital productivity.” In other words,
labor productivity can also be explained in terms of capital
equipment ratio and capital productivity, as follows.
Labor productivity = capital equipment ratio ×
capital productivity
Fig. 1-3-10 is a graph showing not only the average
capital equipment ratio in each industry in 2014, but also
the range of distribution at the first and third quartile
points. Similarly, Fig. 1-3-11 is a graph showing the rangeof distribution of capital productivity in each industry
in 2014. Both graphs show that the information andcommunications industry has the lowest capital intensity
ratio but the highest capital productivity, and the electricity,gas, heat supply and water industry has the highest capital
equipment ratio but the lowest capital productivity. In
terms of average labor productivity, the information andcommunications industry and the electricity, gas, heat
supply and water industry have high average levels,at ¥8.61 million/worker and ¥12.99 million/worker,
respectively, indicating that even industries with the samehigh labor productivity have their own way of increasing
productivity.
Meanwhile, the medical, health care and welfare
industry and eating and drinking services industry havehigh capital productivity but low capital equipment ratio.
This shows that while owned capital is utilized efficiently,
strong labor intensity acts as a factor in pushing downlabor productivity.

Part I Developments among SMEs in fiscal 2015

Fig. 1-3-10 Distribution of capital equipment ratio (SMEs, by industry)(¥million/worker(logarithmic conversion))Labor intensity
Average

Capital intensity
First quartile

Third quartile

tifi

ien

Sc

Inf

orm

ati

on

an
dc
om
cr
mu
es
nic
an earati
d t chon,esch proEa
nic fetin
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Av
elf re
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Ed
an
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ind turon, le
us ing
trie
arn
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ing
su
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tai
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ad
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Tra
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Ma
ing
n
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lat
Ac
ed
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an and com
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pe
Ag
a
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t
se na
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ult
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ure
nt erv, fo
se ice
res
rvi s
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nd
Re
al
f
ish
es
eri
ren tatees
tal anan d gd l oo
ea ds
sin
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Ele
ctr
M
i
i
n
c
su itying
pp , gly asan , hd w eaate trSection 2

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Capital intensity shows the average capital to labor force ratio (logarithmic value) in each industry and a comparisonof the first and third quartile values.
2.	 The above does not include SMEs with less than 50 employees or less than ¥30 million in paid-up capital (orinvestment fund).

Fig. 1-3-11 Distribution of capital productivity (SMEs, by industry)(¥million/worker(logarithmic conversion))

Source:Notes:godnin

Third quartile

Ag

Ac
co

mm

Mi

First quartile

ati
ric
on
ult
s
ure
,
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Re
nd forealfsi
sh tryeeri ,renstatees
tal anan d gd l oo
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ly as
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d w eamu ersate t
se onar
me l snt erv
se icervi scesAverage

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Capital productivity = value added / capital stock (logarithmic).
2.	 The above does not include SMEs with less than 50 employees or less than ¥30 million in paid-up capital (orinvestment fund).

73

Chapter 3 Analyzing SME productivity

Section 3

Comparison of SME productivity by industry

Up to here, we have examined various indicators of
productivity in SMEs. In this section, we will sum up these
indicators in reference to the living-related and personal

1.

services and amusement services industry and retail tradeindustry, as representative of all service industries.

SMEs in the living-related and personal services and amusement services industry

The labor productivity level of SMEs in the livingrelated and personal services and amusement services
industry was approximately ¥4.85 million/worker on
average, maintaining a low level largely below the averageof non-manufacturing industries as a whole (approx. ¥8.3
million/worker). The distribution was also contained
within a small range, projecting largely to the left of the
cumulative average of non-manufacturing industries as awhole and indicating a low level (see Fig. 1-3-7). Value
added growth rate was stagnant at -3 points from 2010
to 2014, with labor input making a negative contribution.
TFP growth was in positive territory, but displayed a low
rate of growth (see Fig. 1-3-9). Capital equipment rate
was confirmed at a high level, but capital productivity was
extremely low (see Fig. 1-3-10, 1-3-11). In these ways,
labor productivity and total factor productivity of SMEs inliving-related and personal services industries hovered at

low levels, probably influenced by the earlier-mentioned
characteristics of products in service industries ((1)
simultaneousness, (2) inseparability, (3) disappearance)).
Here, let us compare the distribution of the laborproductivity of SMEs in living-related and personal
services and amusement services industries and theaverage of large enterprises in the same industries (¥5.77
million/worker). Fig. 1-3-12 extracts from Fig. 1-3-7
the graph that shows the cumulative distribution of theindustry and adds a point that represents the averagelabor productivity of large enterprises in the industry.
The distance from 100% to the ratio represented by thispoint expresses the percentage of SMEs that surpass theaverage of large enterprises. This shows that as much as
21.9% of SMEs are above the ¥5.77 million/worker level,or the average of large enterprises20).

20) See Appended note 1-3-2 for a breakdown of SMEs that have a higher productivity than large enterprises, in terms of industrial group.

74Part I Developments among SMEs in fiscal 2015

Fig. 1-3-12 Distribution of labor productivity in SME living-related and personal services
and amusement services industries(%)

Non-manufacturing industries
as a whole

Average of large enterprises in living-related and personal services andamusement services industries (¥5.77 million/worker)

Section 3

Living-related and personal services
and amusement services industries(¥million/worker)

Source:Notes:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The above does not include companies with less than 50 employees or less than ¥30 million in paid-up capital orinvestment fund.
2.	 Cumulative figures were obtained by calculating the distribution of labor productivities (value added per worker) for
each ¥100,000/worker and obtaining the centralized moving average (for five divisions).

Let us take a look at the characteristics of SMEs whose
productivity level is above the average of large enterprisesin the living-related and personal services and amusement
services industries. Fig. 1-3-13 examines SMEs whose
productivity level is above the average of large enterprises
and other SMEs in terms of the average of various
relevant indicators ((1) capital, (2) number of employees,(3) corporate age, (4) net sales, (5) capital investment21),(6) information processing and communications fee22),(7) labor cost per employees, (8) capital equipment ratio,and (9) capital productivity). It shows that among SMEs
with a labor productivity level above the average of large
enterprises display a higher information communications
fee, capital investment, and capital equipment ratio thanSMEs with a labor productivity level below the averageof large enterprises. They also display extremely high net
sales, suggestive of their active attitude toward capital
investments and IT expenditures.

21) Capital investment here is calculated by including the acquisition amount of tangible fixed assets for the term as capital investment.
22) Information processing and communications fee includes lease payments based on lease agreements and computer rental fees, and has been
added here as an indicator of the degree of IT promotion.

75

Chapter 3 Analyzing SME productivity

Fig. 1-3-13 Characteristics of SMEs with high productivity in the living-related andpersonal services and amusement services industries (average)
Composition
ratio
(%)

SMEs withhigherproductivities
than theaverage of
large
enterprises(n=68)

Information
processing
Labor
Capitalandcost perinvestment communication
employee(¥million)fee(¥million)(¥million)

Capitalequipment
ratio(¥million/
worker)Capitalproductivity(¥million)

3.8

47.6

642.7

9.7

2.6

23.3

599.1

11.3

3.2

28.6

792.9

Capital(¥million)

No. ofemployees(people)Corporate
age(years)

Net sales(¥million)

21.9

110.7

229.9

42.5

8,054

160.8

16.9

SMEs withlower
productivities
than theaverage of
large
enterprises(n=243)

78.1

88.7

256.7

40.2

3,310

151.8

SME
living-related
and personal
services andamusement
services
industries
as a whole(n=311)

100

93.5

250.8

40.7

4,356

153.8

Source:Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.

The above findings indicate that SMEs in the livingrelated and personal services and amusement services
industries have low productivity among all otherindustries, but as a result of active capital investment2.

initiatives to increase capital equipment ratio and promoteIT23), more than 20% of SMEs have higher productivity
levels than large enterprises.

SMEs in the retail trade industry

Next, when we look at the labor productivity of SMEs
in the retail trade industry, we see that the average isapproximately ¥5.68 million/worker, and slightly lower
than the manufacturing industries (see Fig. 1-3-3). The top
and bottom productivity levels are distributed over a broad
range, from ¥7.38 million/workers in the first quartile to¥3.48 million/worker in the third quartile (see Fig. 1-3-3).
For this reason, it is thought that the characteristics
and initiatives of each company tend to be relatively
readily reflected on labor productivity. The distributionof labor productivity hovers at levels lower than nonmanufacturing industries, but compared to the eating anddrinking services industry and living-related and personal
services and amusement services industries, the graph ismore shifted toward the right, and many enterprises are
distributed at high productivity levels (see Fig. 1-3-7).

TFP in the retail trade industry marked positive growth
between 2010 and 2014, but it did not measure up to otherindustries such as the wholesale trade and manufacturingindustries, and labor input made a negative contribution(see Fig. 1-3-8), likely as an impact of recent declines indomestic demand and labor supply constraints.
Here, let us compare the distribution of the laborproductivity of SMEs in the retail trade industry with theaverage of large enterprises, as we did with the livingrelated and personal services and amusement services
industries. If we extract the retail trade industry from thecumulative distribution graph in Fig. 1-3-7 and add theaverage labor productivity of large enterprises (approx.
¥6.54 million/worker), we get Fig 1-3-14. The resultshows that as much as 34.5% of SMEs have a productivity
level that is higher than the average of large enterprises24).

23) See Column 1-3-1 for an example of an enterprise in the living-related and personal services and amusement services industries that is
expanding its business by promoting IT.
24) See Appended note 1-3-3 for a breakdown of SMEs that have a higher productivity than large enterprises, in terms of industrial group.

76Part I Developments among SMEs in fiscal 2015

Fig. 1-3-14 Distribution of labor productivity in the SME retail trade industry(%)

Non-manufacturing industries

Average of large enterprises in the retail trade industry(¥6.54 million)

Section 3

Retail trade industry(¥million/worker)

Source:Notes:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The above does not include companies with less than 50 employees or less than ¥30 million in paid-up capital orinvestment fund.
2.	 Cumulative figures were obtained by calculating the distribution of labor productivities (value added per worker) for
each ¥100,000/worker and obtaining the centralized moving average (for five divisions).

A comparison of SMEs with productivity levels
above the average of large enterprises and other SMEs
(Fig. 1-3-15) reveals that their capital investment, inparticular, surpasses the average of other SMEs. They also
display similarly high information and communications
fees, capital equipment ratios, and high net sales, and theirlabor cost per employee is more than double that of other

SMEs. At the same time, however, capital productivity
is higher in enterprises with low labor productivity thanthose with high labor productivity. Thus, while highcapital equipment ratio and capital investment werecharacteristic of SMEs with high labor productivity in theretail trade industry, the influence of capital productivity
is not evident in the retail trade industry.

77

Chapter 3 Analyzing SME productivity

Fig. 1-3-15 Characteristics of SMEs with high productivity in the retail trade industry(average)

Composition Capitalratio(¥million)(%)

No. ofemployees(people)Corporate
age(years)

Net sales(¥million)

Information
processing
Capitalandinvestment communication(¥million)fee(¥million)

Labor
cost peremployee(¥million)

Capitalequipment
ratio(¥million/
worker)Capitalproductivity(¥million)

SMEs withhigherproductivities
than theaverage of
large
enterprises(n=383)

25.9

43.0

224.3

45.0

11,638

338.6

34.6

5.1

26.7

575.7

SMEs withlower
productivities
than theaverage of
large
enterprises(n=1095)

74.1

42.2

350.0

44.1

8,112

97.8

17.4

2.4

15.2

1,451.4

SME retailtrade industry
as a whole(n=1478)

100

42.5

306.0

44.4

9,345

182.0

23.4

3.7

19.2

954.4

Source:Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.

The productivity of SMEs in the retail trade industry
cannot be said to be high compared to other industries,
but the retail trade industry has the highest ratio of SMEs
with labor productivity levels that surpass the average3.

of large enterprises25). This high productivity suggeststhat a virtuous cycle is in motion, whereby active capital
investment and IT promotion initiatives are made, andlabor cost per employee is increased.

Comparison with large enterprises

With regard to other industries, Fig. 1-3-16 shows acomparison of the cumulative distribution of the laborproductivity of SMEs by industry and the average laborproductivity of large enterprises also by industry. In allindustries, the productivity level of approximately 10% to
30% of SMEs surpasses the average of large enterprisesin the same industry, indicating their engagement incorporate activities that transcend any disparity inproductivity26) by enterprise size.
In a comparison of averages only, SMEs fall below
the level of large enterprises, but an examination of
distribution reveals that there is a certain group of SMEs
in all industries whose productivity is higher than that oflarge enterprises.

25) See Fig. 1-3-16 for a comparison with other industries.
26) For details on the disparity of real labor productivity by enterprise size, see Part I Chapter 3 Section 4 of the 2014 White Paper on Small andMedium Enterprises.

78

Part I Developments among SMEs in fiscal 2015

Fig. 1-3-16 Distribution of the SME labor productivity and comparisons with the averagelabor productivity of large enterprises(¥million/worker)

Retail trade industry
Non-manufacturing industries
as a whole
Average of large enterprisesin the retail trade industry(¥6.54 million)

Wholesale tradeindustryNon-manufacturingindustries as a whole
Average of large
enterprises in thewholesale tradeindustry(¥12.16 million)(¥million/worker)(¥million/worker)

Information andcommunicationsindustryNon-manufacturingindustries as a whole
Average of large
enterprises in theinformation andcommunicationsindustry (¥11.53 million)

Scientific research,
professional and technicalservices industry
Non-manufacturingindustries as a whole
Average of large enterprisesin the scientific research,
professional and technicalservices industry(¥10.94 million)(¥million/worker)(¥million/worker)

Real estate and goods
rental and leasing
industryNon-manufacturingindustries as a whole
Average of large enterprisesin the real estate and goods
rental and leasing industry(¥19.86 million)(¥million/worker)

Source:Notes:(¥million/worker)

Section 3

Eating and drinking services industry
Non-manufacturing industries
as a whole
Average of large enterprises in theeating and drinking services industry(¥3.76 million)

Living-related and personal services
and amusement services industries
Non-manufacturing industries
as a whole
Average of large enterprises in theliving-related and personal services
and amusement services industries(¥5.77 million)

Non-manufacturingindustries as a whole
Manufacturing industries
Average of large enterprises
in non-manufacturingindustries (¥8.99 million)
Average of large
enterprises inmanufacturing industries(¥11.71 million)(¥million/worker)

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The above graphs do not include companies with less than 50 employees or less than ¥30 million in paid-up capital orinvestment fund.
2.	 Data has been leveled for industries for which few samples were obtained.

79

Chapter 3 Analyzing SME productivity

Section 4

Summary

In this chapter, we examined SME productivity byindustry through various indicators.
As a result, it was found that differences in the propertiesof products and services handled and differences incapital equipment ratio affect indicators of productivity.
We thus renewed our awareness that any discussion
about productivity must be based on such characteristic
differences of each industry.
Furthermore, when SMEs and large enterprises
were compared against each other, the average laborproductivity of SMEs was lower than that of large
enterprises in all industries, but the distribution of laborproductivity by industry revealed that a certain ratio (10– 30%) of SMEs had an average labor productivity that
surpassed that of large enterprises in the same industry.
When the characteristics of such SMEs with high laborproductivity were analyzed, it was found that these SMEs
displayed higher levels of capital investment and capital
equipment ratio than SMEs in the same industry whose
productivity was lower than that of large enterprises. Even80

in industries with lower capital equipment ratio comparedto other industries, such as the living-related and personal
services and amusement services industries, there existed
SMEs that make active capital investments and have highlabor productivity.
Discussions of productivity frequently focus on the
consolidation of large enterprises, but when considering
the presence of SMEs with a higher productivity thanlarge enterprises and the fact that SMEs account forroughly 70% of total employment, focus should also beplaced on increasing the number of such SMEs, as wehave discussed in this chapter.
Even amid strong labor supply constraints, there
are many SMEs that maintain high profitability. It is
important to further build up this layer of SMEs with“earning power” and thereby increase the value added ofJapan as a whole.
Based on this awareness, Part II will analyze theactivities of SMEs with “earning power,” in reference tospecific corporate initiatives.

Part I Developments among SMEs in fiscal 2015

Case

1-3-1

Ohkushi Corporation (Hairdressing Salons)

A business that has been successful in boosting its rate of repeat businessand increasing its sales through the introduction of information technology

Section 4

This chapter has focused on the productivity of SMEs, and conducted separate analyses by industry. The
results of these analyses indicated that the service industry, in particular eating and drinking services andliving-related and personal services, displayed a lower level of labor productivity than other industries (SeeFigs. 1-3-3 and 7).
What can small and medium-sized service companies do in relation to this situation?
Ohkushi Corporation (employees: 111; capital: ¥40 million), based in Chiba City, Chiba Prefecture, a company
which operates 39 hairdressing salons (as of February 2016), has succeeded in realizing an 85% rate of repeat
business and in increasing its scale and its volume of sales on an annual basis, against the background of astagnation in sales at other businesses providing living-related and personal services resulting from Japan’s
population decline (see Fig. Case 1-3-1 (1)). The collection of data using IT is a key factor in this success.
Company President Tetsufumi Ohkushi took over his father’s business at the age of 29 in 1997. Making
use of the experience he had gained as a part-time worker in a convenience store during his student days,in 1994 Mr. Ohkushi introduced a POS system to the salons. In the world of hairdressing, salon proprietors
tend to manage their businesses based on intuition, and at that time employee evaluation was also basedon intuition. However, the collection of detailed data via the POS system showed that some employees werebeing incorrectly evaluated.
The POS system not only collected data on sales for each member of staff, but also compiled a variety ofother data, including the age, sex, and style of cut of each customer. In addition to basic data such as therate of repeat business for the salon as a whole and the rate of repeat business for each member of staff,
the system has made it possible to obtain a range of data, for example, the increase in the rate of repeat
business in relation to which specific type of cut was provided to which specific customer by which specificmember of staff. This data is reflected in the evaluation and training of employees. Employees receive an
objective assessment based on the collected data once a month, when they receive their pay statement,
which assists in improving their skills.
At the same time, Mr. Ohkushi takes care to ensure that these numbers do not hang over his employees’
heads. By sharing the company philosophy with all employees and engaging in detailed employee education,
he is creating a company in which data is not a means of finding fault, but is rather a resource that can beused effectively by everyone. In addition, the minutes of management meetings are made available to all
employees, the company offers a full range of social insurance (health insurance, pension, etc.), which is rarein the world of hairdressing, and workplaces are airy and pleasant to work in. As a result, the company’s
employee retention rate is very high, standing at 96.38% in 2014. In industries offering personal services
such as the hairdressing industry, the level of service offered by each individual employee is directly related
to sales, but training programs and other forms of employee education take time and money. Ohkushi
Corporation’s high employee retention rate can be seen as a factor making it possible for the company
to invest time and money in employee training andincrease its sales.
By combining information technology andinvestment in human resources, Ohkushi Corporation
has succeeded in realizing a high rate of growth inits sales. Even in the face-to-face world of the service
industry, the introduction of IT and the use of collected
data to establish objective targets and set evaluative
indicators makes it possible to comprehensively
reduce costs other than personnel expenses and at thesame time to gain a clear understanding of the issuesof every employee and every store, and ultimately
to realize focused employee education and ongoing
improvements.
Ohkushi Corporation provides an excellent
example of the realization of increased sales throughthe introduction of IT in a company offering face-toAn Ohkushi Corporation hairdressing salon
face services.

81

Chapter 3 Analyzing SME productivity

Fig. Case 1-3-1 (1)(million yen)

Trends in sales volume and rate of increase in sales volume (year-on-year)
Ohkushi Corporation sales volume (left axis)(%)
Average rate of increase in sales volume for companies providing living-related and personal services (right axis)
Rate of increase in sales volume for Ohkushi Corporation (right axis)(Year)

Source:Note:

82

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
Sales volume data for Ohkushi Corporation provided by Ohkushi Corporation.

Part I Developments among SMEs in fiscal 2015

Column 1-3-1 Employee retention rate
Here, let us analyze employee retention rate as an indicator that is deeply related to productivity.
In the previous case example, we saw that in industries where the skill of each employee is important,
the higher the retention rate of employees in a company, the higher the productivity. Granted, it
could be said that retention rate tends to be high in enterprises with high productivity because they
are able to pay high wages, but responses to a questionnaire survey revealed the result shown in
Fig. Column 1-3-1 (1).
Fig. Column 1-3-1 (1) shows a comparison of labor productivity levels by employee retention
rate27) using the results of a questionnaire conducted on SMEs in Japan28) and Teikoku Databank,Ltd.’s database of enterprises. When average labor productivity by industry is given a value of 100,enterprises that said they have an employee retention rate of over 90% had the highest laborproductivity level in the manufacturing, non-manufacturing and service29) industries alike. In the
non-manufacturing industries, the labor productivity of enterprises that said they have an employee
retention rate of less than 30% was approximately 20% lower than the industrial average.
Productivity levels by the five-year retention rate of new employees(by industry, SMEs)

ha

ve
an

%
90

st
les

da

n9

bo

0%

0%
n7
ha
to
%
70

to
%
50

%

to

les

les

st

st

ha

n5

n3
tha
ss
30

(n=443)

0%

0%

ve
bo
an

da

n9

%

ha
les

to
%
70

to
%
50

90

st

st
les

st
les

Service industries(Industry average= 100)

0%

0%
ha

n5
ha

tha

to

Le

ss

%
30

n7

0%

0%
n3

bo
an

da

n9

%

ha
st
les

to
%
70

90

ha
st
les

to
%
50

0%

0%
n7

n5
ha
st

ve

(n=1,063)

0%

0%
n3
tha

to

les

ss

%

Le

30

Non-manufacturing industries(Industry average (n=3,531)= 100)

Section 4

Manufacturing industries(Industry average= 100)

Le

Fig. Column 1-3-1 (1)Sources: Recompiled from Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment
Activities (December 2015), commissioned by the SME Agency; Teikoku Databank, Ltd., Corporate Financial
Database (COSMOS1) and Corporate Profile Database (COSMOS2).
Notes:
1.	 Service industries refer to industries that fall under large categories L to R of the Japan Standard Industrial
Classification (JSIC) (rev. 13).
2.	 Here, the definition of SMEs is pursuant to the Small and Medium-sized Enterprise Basic Act.
3.	 Labor productivity = value added (net operating profit + personnel costs + taxes and public impositions + rentof movable property and real estate) / total number of employees.

On the other hand, when examining the five-year retention rate of new employees in the
manufacturing, non-manufacturing and service industries, the ratio of enterprises that said they
have a retention rate of “less than 30%” was the largest in the service industries and surpassed the
manufacturing and non-manufacturing industries. At the same time, the ratio of enterprises thatsaid they have a retention rate of “90% and above” was the lowest. (Fig. Column 1-3-1 (2)).
Improving employee retention rate is important to increasing productivity in the manufacturing,non-manufacturing, and service industries alike, but employee retention rate was found to berelatively low in the service industries. Thus, efforts to improve employee retention rate is soughtparticularly in the service industries.
27) The figure represents the labor productivity of enterprises in 2015. As it shows a single-year comparison, nominal labor productivity levels
are calculated and compared without substantiation.
28) For details, see footnote 1 in Part II, Chapter 1.
29) Service industries are included within non-manufacturing industries.

83Chapter 3 Analyzing SME productivity

Fig. Column 1-3-1 (2)Five-year retention rate of new employees (by industry, SMEs)

Less than 30%

Manufacturingindustries 5.1(n=1,053)

Nonmanufacturingindustries(n=3,178)

6.5

Serviceindustries(n=471)

7.0

0%

Source:Notes:

84

5.4

30% to less than 50%

14.3

6.1

8.5

13.2

16.8

50% to less than 70%

70% to less than 90%

25.1

50.0

23.2

51.0

25.1

90% and above

42.7

100%

Recompiled from Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment
Activities (December 2015), commissioned by the SME Agency.
1.	 Service industries refer to industries that fall under large categories L to R of the Japan Standard Industrial
Classification (JSIC) (rev. 13).
2.	 Here, the definition of SMEs is pursuant to the Small and Medium-sized Enterprise Basic Act.

Part I Developments among SMEs in fiscal 2015

Column 1-3-2 International comparison of productivity
In this chapter, we compared the productivity of enterprises in Japan by industry and by enterprise size.
Now, let us see where the productivity level of Japanese enterprises lies in relation to other countries. Japan’s
productivity is said to be low compared to other countries, and ranked 22nd among 34 OECD member countries
in 2013 (Fig. Column 1-3-2 (1) left). However, with respect to the manufacturing industries, Japan ranked 10th
(Fig. Column 1-3-2 (1) right). This result thus highlights the need to increase productivity in the service industries.

Fig. Column 1-3-2 (1)Labor productivity of OECD member countries (2013)

Overall labor productivity

Section 4(PPP conversion, $US)

Source:Notes:

Nominal labor productivity in manufacturing industries
Switzerland
NorwayDenmark
U.S.
Belgium
Netherlands
Austria
FinlandFranceJapan
Germany
U.K.
South Korea
Luxembourg
Spain
Italy
GreeceSlovenia
Portugal
Slovakia
Czech RepublicHungary
Estonia
PolandOECD average

Luxembourg
NorwayU.S.
Ireland
Belgium
Switzerland
FranceItaly
Australia
Austria
Denmark
SwedenSpain
Netherlands
Germany
CanadaFinland
GreeceU.K.
Israel
IcelandJapanNew ZealandSouth Korea
Slovenia
Slovakia
Portugal
Czech RepublicHungary
PolandTurkeyEstonia
Chile
MexicoOECD average($US)

Japan Productivity Center, Productivity Trends in Japan 2014, 2015.
1.	 Overall labor productivity is calculated as GDP / number of employees and converted to US dollars usingpurchasing power parity (PPP).
2.	 Labor productivity in manufacturing industries has been converted using the moving average of exchange
rates two years before and after.
3.	 The necessary data for the above have been supplemented mainly by OECD statistical data and data from thestatistics bureau in each country.

International comparisons of productivity levels in the service industries have hardly been made, however,
because the cost level of services completely differ between the industrialized countries and developing
countries, and there have been no valid means for adjusting for the difference30). Therefore, we next narrowed
our focus to major industrialized countries (U.K., France, and Germany) that are close in rank to Japan in Fig.
Column 1-3-2 (1), and compared the changes in labor productivity levels by industry and by enterprise size31).
In the same figure, a look at changes in labor productivity per hour in SMEs shows a general increasing trend
in all countries, indicating that initiatives are being taken by enterprises in each country to efficiently increase value
added. However, the labor productivity per hour in SMEs in Japan is lower than other countries, with the exceptionof the eating and drinking services and accommodations industries. In fact, in the manufacturing, transport, andinformation and communications industries, there was a difference of more than $US5 per hour using PPP conversion.
Similarly, a comparison of changes in the labor productivity of large enterprises shows an overall increasing
trend in labor productivity per hour in all countries, as with SMEs, with the exclusion of the wholesale and retailtrade industries in the U.K. Additionally, the labor productivity level per hour of large enterprises in Japan trends at
a higher level compared to other countries in all industries. Levels in the wholesale and retail trade industries andthe transport, information and communications industries, in particular, largely surpass the level of other countries,
such that enterprises in these industries are thought to be increasing labor productivity in Japan as a whole.
While an analysis of changes in productivity level by enterprise size reveals the above characteristics andindicates that the productivity of large enterprises is maintaining a high level and driving productivity in Japanas a whole, the productivity level of SMEs is lower than other countries with the exception of the eating anddrinking services and accommodations industries, and poses an issue for the future.
30) Purchasing power parity (PPP) is used for making international comparisons of productivity in countries as a whole, and is a nationallevel (GDP) indicator. There are views that it is not appropriate for comparing productivity by industry, as there is the issue that even thesame products and services differ in their quality according to country (and that differences in quality between industrialized countries anddeveloping countries cannot be taken into consideration). For the manufacturing industries, international comparisons are made using themoving average of exchange rates, based on the idea that costs readily tend to be adjusted to a certain extent by exchange rate fluctuations.
31) Labor productivity = value added / total number of employees. However, value added is calculated as gross value added, including
depreciation cost (because data presented by EUROSTAT is restricted to gross value added, which includes depreciation cost, the calculation
method before the previous section shall be revised). Furthermore, only four comparable industries from among the industrial categories
presented in EUROSTAT (manufacturing, wholesale and retail trade, eating and drinking services and accommodations, transport andcommunications industries) have been analyzed.

85

Chapter 3 Analyzing SME productivity

Fig. Column 1-3-2 (2)U.K.

FranceInternational comparison of labor productivity per working hour(by enterprise size, by industry)
GermanyJapan

SMEs in manufacturing

Large enterprises in manufacturing(PPP converted $US/man-hour)(PPP converted $US/man-hour)(Year)

SMEs in wholesale/retail trade(Year)

Large enterprises in wholesale/retail trade(PPP converted $US/man-hour)(PPP converted $US/man-hour)(Year)

SMEs in accommodations,eating and drinking services(Year)

Large enterprises in accommodations,eating and drinking services(PPP converted $US/man-hour)(PPP converted $US/man-hour)(Year)

SMEs in transport andinformation/communications(Year)

Large enterprises in transport andinformation/communications(PPP converted $US/man-hour)(PPP converted $US/man-hour)(Year)(Year)

Sources: U.K., France, Germany: Compiled by the SME Agency using EUROSTAT.
Japan: Compiled by the SME Agency using MOF, Financial Statements Statistics of Corporations by Industry,
Annually, and MHLW, Monthly Labour Survey.
Notes:
1.	 For U.K., France, and Germany, SMEs are defined as enterprises with less than 250 employees. For Japan,
SMEs are defined as enterprises with less than ¥100 million in capital.
2.	 Changes in prices and differences in exchange rates were made comparable by leveling them using purchasing
power parities for GDP provided by OECD statistics.

86

Part II
The earning power of SMEs

Chapter 1
Factors that determine the earning power of SMEs
In Part I we saw that, while the Japanese economy is showing signs of a gradual recovery
and SMEs are enjoying increasing earnings, efforts need to focus on investing in growth andother areas because of issues that include stagnating sales, a lack of manpower, and increasingly
obsolete equipment. We also looked at how there are SMEs with the power to outearn large
companies, regardless of the industry.
Part II will look at the characteristics of efforts being made by SMEs with earning power
and identify issues SMEs will face going forward. This chapter will review the environment
surrounding SMEs and preview areas that will be analyzed in Chapter 2 and beyond.

Section 1

The environment for SMEs
The economic environment surrounding SMEs ischanging, a subject that will be covered in more detaillater. The most significant of these is the weakening of
the traditional transaction structure that has seen SMEs
mostly contracting for large enterprises, the contraction ofdomestic demand due to a growing number of elderly anda declining birthrate, and a lack of workers. SMEs willneed to confront these issues if they are going to strengthen
their earning power. On the basis of such understanding,this section will examine social and economic structures
surrounding SMEs and consider issues that need to beaddressed to expand sales and reduce costs.

What are the issues that SMEs face in strengthening
their earning power? This section will first explore
recurring profit margin as an indicator of companies’
earning power and, through the elements of the formulafor its calculation, examine issues on the road tostrengthening earning power.
Fig. 2-1-1 shows the necessity of either expanding sales
or cutting costs if a company is to improve its recurring
profit margin. Critical to expanding sales is cultivating new
demand and further enhancing added value for products
and services, while cutting costs requires reducing fixed
costs, pursuing economies of scale, improving terms oftrade, and boosting productivity1).

Fig. 2-1-1

Formula for calculating recurring profit margin

Earning power=(recurring profit margin)

Ordinary profit
Sales█ Transformation of the transaction structure
surrounding SMEs

Let us first examine the transaction structure
surrounding SMEs. Fig. 2-1-2 shows subcontractor
enterprises’ dependence on principal contractors in thesubcontracting relationship. Here we see that in 1991=

Sales − Costs (fixed costs, variable costs)
Sales

roughly 80% of businesses had an over 30% dependency
on principal contractors. This percentage has dropped over
the years, sinking to around 60% in 2014. Meanwhile,
there has been a rise in the number of businesses withdependencies between over 10% and 30% and those withdependencies 10% or below.

1) For more details, see pgs. 38–40 of the 2015 White Paper on Small and Medium Enterprises in Japan.

88Part II The earning power of SMEs

Dependency on principal contractors with the highest transaction volumes

Over 90%

Over 70% – 90%

Over 50% – 70%

Over 30% – 50%

Over 10% – 30%

10% or below(%)

Section 1

Fig. 2-1-2(Year)

Source:SME Agency, Survey on Improvement of Order System and Other Transaction Conditions.

Next, we examine dependency based on principal
contractor numbers. A look at Fig. 2-1-3 shows that,
as of 1995, around 70% of SMEs were doing regularbusiness with 5 or fewer principal contractors, and that
this percentage dropped to less than 60% in 2014. On theother hand, some 10% of SMEs were doing business with
20 or more principal contractors in 1995, a proportion
that increased to around 17% in 2015. From theseresults, we can see that subcontractor enterprises’ rates ofdependency on principal contractors are dropping and that
there is a decreasing dependency on principal contractors
with the highest transaction volume. As we can see, things
are changing with respect to the traditionally fixed natureof business relations that have seen SMEs primarily
subcontracting for large enterprises.

89Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-3
1 company

Numbers of principal contractors with which subcontractor enterprises are
doing regular business
2 – 3 companies

4 – 5 companies

6 – 9 companies

10 – 19 companies

20 – 49 companies

50 companies or more(%)(Year)

Source:SME Agency, Survey on Improvement of Order System and Other Transaction Conditions.

Lastly, we examine the dependency on principal
contractors based on industry (Fig. 2-1-4). Based on
the comparison among the manufacturing, services, andconstruction industries shown in Fig. 2-1-4, we can see
there is a high dependency on principal contractors withthe highest transaction volumes in the manufacturing

90

industry. In the services and construction industries,
however, more than 40% of SMEs have a dependency ofless than 30% on principle contractors with the highest
transaction volumes, which suggests these enterprises dobusiness with a greater variety of partners.

Part II The earning power of SMEs

Dependency on principal contractors with the highest transaction volumes

Over 90%

Over 70% – 90%

Over 50% – 70%

Over 30% – 50%

Over 10% – 30%

10% or below(%)

Manufacturing

Source:Services

Section 1

Fig. 2-1-4

Construction

SME Agency, Survey on Improvement of Order System and Other Transaction Conditions.

█ Population decline, declining birth rates, andpopulation aging

Next, let us examine trends concerning population aspart of the environment surrounding SMEs. Fig. 2-1-5
shows population data (figures and estimates) for majorcountries.
Here we see that population is projected to increasein the U.S.A., U.K., and France and to decrease in Japan
and Germany. The main factors behind the population
increases in the U.S.A., U.K., and France are theincreasing numbers of immigrants and the relatively hightotal fertility rate in these regions. In Germany and Japan,
low fertility rates are behind projections for population
decline.

91

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-5

Populations of major countries (figures and estimates)(10 million people)

France (left axis)

Germany (left axis)

U.K. (left axis)

U.S.A. (right axis)

Japan (left axis)(10 million people)(Year)

Source:Notes:

United Nations, World Population Prospects, the 2015 Revision.
1.	 Actual figures are given for 2015 and prior and projections (static estimates) are given for 2020 and beyond.
2.	 Static estimates: projections that assume the total fertility rate from 2010 to 2015 will continue at the same level

Fig. 2-1-6 shows proportions of elderly people (figuresand estimates) in major countries. According to the figure,Japan had the lowest proportion of elderly people prior
to 1990 but now has the highest such proportion, withthis trend is expected to continue. This suggests Japan’s
population is graying. A comparison with other countries

92

shows that (see Fig. 2-1-5), in terms of populations
projected to see further aging, Germany is behind Japan,
which is projected to see further population decline.
U.S.A., U.K., and France are projected to see less graying
relatively, which is projected to see further population
increase.

Part II The earning power of SMEs(%)

Proportions of elderly people (figures and estimates) in major countries
FranceGermany

Japan

U.K.

U.S.A.

Section 1

Fig. 2-1-6(Year)

Source:Notes:

United Nations, World Population Prospects, the 2015 Revision.
1.	 Actual figures are given for 2015 and prior and projections (static estimates) are given for 2020 and beyond.
2.	 Static estimates: projections that assume the total fertility rate from 2010 to 2015 will continue at the same level

Let us next look at total population and age distribution
for Japan. As shown in Fig. 1-3-1 (cited earlier), Japan’s
population continued to increase beginning in 1950, a
trend that reversed into a rapid decline starting in 2011.

Furthermore, while the youth population and working-age
population are on the decline, the elderly population isincreasing. These factors are contributing to an increasingrate of overall population aging.

93Chapter 1 Factors that determine the earning power of SMEs

Fig. 1-3-1(Cited earlier) Future population projections
Ages 0−14

Ages 15−64(Million people)

Ages 65 and older

Ratio of working population (right axis)

Projections(%)(Year)

Source:Notes:

National Institute of Population and Social Security Research, Population Projections for Japan (January 2012 projections).
1.	 Future population projections are based on medium fertility (medium mortality) estimates.
2.	 Working ages are defined as ages 15 to 64.

█ Trends in overseas demand

The above comparisons of other countries’ population
trends and proportions of elderly to Japan’s has shownthat populations are on an upward trend in some majorcountries but on a downward trend in Japan. We have also
seen that Japan has a high proportion of elderly people.
In addition, the data on Japan’s declining birth rate andworking-age population has shown the country to begraying and having increasingly fewer children. A lookat changes in business relationships involving SMEs andthe kinds of changes seen above regarding population
distribution shows a need for SMEs to directly engage

94

with the market and stir up new demand. As one potential
solution to expanding sales, the following examines trends
concerning overseas demand in the interest of capturing
overseas demand.
Fig. 2-1-7 shows future population estimates for the
middle and wealthy classes based on region. From this we
can see that while the growth of the middle and wealthyclass populations have mostly leveled out, populationsof these classes are expected to increase in Asia likeSouthwest Asia as well as China and ASEAN nations.
Capturing demand in these nations will be an importantelement to SMEs strengthening their earning power.

Part II The earning power of SMEs

Middle and wealthy class populations by region(100 million people)

Developed countries

China

ASEAN

Southwest Asia

Middle East

Russia, CIS

Central/South America

AfricaSection 1

Fig. 2-1-7

Asia(Year)

Source:Notes:

Prepared by the SME Agency based on METI, White Paper on International Economy and Trade 2013.
1.	 Prepared based on Euromonitor International 2013; UN, World Population Prospects, the 2010 Revision.
2.	 Household population categorized by household disposable income. Calculated as household ratio for each income
group multiplied by population.
3.	 Household ratios for each income group for 2015 and 2020 are estimates provided by Euromonitor.

Fig. 2-1-8 shows historical real GDP categorized byregion. This indicates that Japan’s real GDP increased
from 1990s to 2000s but growth slowed between 2000s
and 2010. Moreover, real GDP is projected to drop overall
between 2010 and 2020. The Asian market presents a
different picture: although Asia accounted for only asmall portion of real GDP globally in the 1990s, it has

since grown and is on track to see significant growth until
2020. Similarly, a look at real GDP for the Central andSouth American region shows growth to have accelerated
since 2000 and suggest strong growth until 2020. SMEs
will therefore need to capture demand in Asia and otherforeign markets.

95Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-8
Japan

Real GDP by region (U.S. dollar equivalent)
China

India, NIEs, ASEAN5

U.S.A.

Central/South America

EU

Other

(US$10,000)(Year)
Expansion of Asian markets

Source:Note:

IMF, World Economic Outlook, October 2015.
NIEs: South Korea, Hong Kong, Taiwan, Singapore; ASEAN5: Indonesia, Thailand, Philippines, Malaysia, Viet Nam

Let us also take a look at Japan’s trade balance(Fig. 2-1-9). Japan had a consistent trade surplus between
1996 and 2010, but began running a trade deficit in 2011.
While a major contributor to this was increased imports ofthings such as fossil fuels in the aftermath of the Great East

96

Japan Earthquake, decreased competitiveness of Japanesecompanies overseas also played a role. Companies needto capture overseas demand, and key to this will bedemonstrating the competitiveness in overseas markets.

Part II The earning power of SMEs

Japan’s trade balance over time
Trade balance

Exports (left axis)

Section 1

Fig. 2-1-9

Imports (left axis)(Trillion yen)

(Year)

Source:Note:

MOF, Balance of Payments Statistics.
Statistics presented are based on the 6th edition of the IMF’s Balance of Payments Manual.

Let us now look at the importance of capturing overseas
demand through tourism. Fig. 2-1-10 shows numbers ofoverseas visitors to Japan. Here we see that, although
there were drops in the number of overseas visitors toJapan in 2009, when the country’s economy was impacted
by the Lehman crisis, and in 2011, when the Great East

Japan Earthquake occurred, numbers have risen every
year since. Tourists from China and other Asian countries
have accounted for a relatively high proportion of all
tourists since 2006, reaching 80% in 2014. This suggests
an important goal will be capturing demand from thosevisiting Japan from China and other Asian countries.

97Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-10 Numbers of overseas visitors to Japan(10,000 people)

China (incl. Hong Kong)
Asia (excl. China)
EuropeNorth America
Other regions
Ratio of visitors to Japan from Asia and China
to the total number of visitors to Japan (right axis)(%)(Year)

Source:Note:

Japan National Tourist Organization (JNTO), Trend of Overseas Visitors to Japan.
“Overseas visitors to Japan” refers to the number overseas tourists entering Japan, as calculated by subtracting thenumber of non-Japanese long-term residents who nominate Japan as their primary country of residence from the numberof non-Japanese visitors formally admitted to Japan according to figures compiled by the Ministry of Justice (MOJ) basedon nationality .To this figure is then added the number of non-Japanese visitors who temporarily disembark in Japan.
Students and residents and their families who enter or re-enter the country are also included as overseas visitors to Japan.

Lastly, Fig. 2-1-11 shows consumption by overseas
visitors to Japan. Although consumption by foreign
visitors did see a dip as a result of the Great East Japan
Earthquake in 2011, we can see that not only have visitor
numbers increased (Fig. 2-1-10), consumption has also
risen.
This paper has so far looked at trends concerning
overseas demand because of the importance of capturing

98

this demand in expanding sales in Japan, whose population
continues to drop as its economy contracts. Although
myriad investments and resources will be required tocapture overseas demand, the single most important
thing will be acquiring human resources at this time of
population decline. To explore this further, the following
pages will focus on human resources and present an
overview of human resource trends involving SMEs.

Part II The earning power of SMEs

Section 1

Fig. 2-1-11 Consumption by overseas visitors to Japan(100 million yen)

(Year)

Source:Japan Tourism Agency, Consumption Trend Survey for Foreigners Visiting Japan.

█ Human resource trends involving SMEs

As Japan’s population declines, acquiring workers is
becoming a major challenge for SMEs. As shown in Fig.
1-2-20 (cited earlier), the feeling that human resources
are insufficient is becoming more intense among SMEs,

a trend that is especially conspicuous at companies in theservices and construction industries. The following pages
will take a closer look at the human resources situation inconnection with SMEs.

99

Chapter 1 Factors that determine the earning power of SMEs

Fig. 1-2-20 (Cited earlier)
Employee overcapacity and insufficiency DI for SMEs (by industry)(DI, %p)
All industries

Manufacturing

Construction

Wholesale trade

Retail trade

Services

Overcapacity

Insufficiency(Quarter)(Year)

Source:Note:

SME Agency and SMRJ, Survey on SME Business Conditions.
The Employee overcapacity/insufficiency DI is calculated by subtracting the percentage (%) of enterprises that said thathave an “insufficiency” of employees from the percentage (%) of enterprises that said they have an “overcapacity” of
employees.

Fig. 2-1-12 shows numbers of job offers to applicants
categorized by number of employees. While companies
with 100 or more employees have seen little fluctuation,
those with between 30 and 99 employees have seen
increases in job offers to applicants. Particularly notable

100

is the increase in job offers to applicants at microenterprises with 29 or fewer employees. We saw in Fig.
2-1-12 how feelings that there are not enough employees
is intensifying at SMEs. This feeling is strongest at microenterprises.

Part II The earning power of SMEs

(1,000 people)

2009

29 employees or less30 – 99

100 – 299

300 – 499

500 – 999

1,000 employees or more

2010

2011

2012

2013

Section 1

Fig. 2-1-12 Job offers to applicants by number of employees

2014(Year)

Source:MHLW, Employment Referrals for General Workers.

Next we examine working-age population as afactor behind medium- and long-term human resource
insufficiency. Looking at trends concerning working-age
population in Fig. 2-1-13, we see that until the mid-1990s
the working-age population continued to rise, trending
downward thereafter. Breaking down the working-age

population by age group shows that the 55–64 grouphas consistently risen while the 15–34 group has seen a
pronounced drop. Previous pages have provided evidenceof Japan’s graying population, and we can now see that adecline in the working-age population is occurring at thesame time.

101

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-13 Long-term trends concerning the working-age population(Million people)

Ages 15 – 34

Ages 35 – 54

Ages 55 – 64

(Year)

Sources: MIC, Population Census, Population Estimates.
Notes:
1.	 People of indeterminate age are proportionally distributed among each age category.
2.	 Figures of 2015 are final figures based on preliminary population figures.

The following pages will take an in-depth look at the
aging workforces of SMEs. Fig. 2-1-14 shows employee
age distribution categorized by the number of employees.
We can see here that the proportion of employees 55 orolder increases as the number of employees decreases.

102

This suggests that SMEs―and micro businesses inparticular―are serving as sources of employment for
the elderly and that employee restructuring at theseenterprises is not being done.

Part II The earning power of SMEs(%)

Ages 15 – 34

1 – 4 employees

Source:Note:

5 – 19 employees

Ages 35 – 54

Ages 55 – 64

20 – 49 employees

Ages 65 and above

50 – 299 employees

Section 1

Fig. 2-1-14 Employee age distribution by number of employees

300 employees or more

MIC, 2012 Basic Survey on Employment Structure.
Excludes persons employed at public offices or other legal entities.

Lastly, we look at age distribution among the working
population (Fig. 2-1-15). Here we see that, since the1980s, the proportion of workers aged 55 or over has

been on the rise. The figure also shows how the working
population is aging.

103

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-15 Age distribution among the working population
Ages 15 – 24

Ages 25 – 34

Ages 35 – 44

Ages 45 – 54

Ages 55 – 59

Ages 60 – 64

Ages 65 and above(%)(Year)

Source:MIC, Labor Force Survey.

We have so far looked at the increasingly serious stateof Japan’s labor force insufficiencies as a medium- to longterm aspect of the country’s economic development. One
method for strengthening earning power amid the supply
restrictions being imposed by this workforce insufficiency
is the use of information technologies. IT skills are rapidly
progressing and have become an indispensable corporate
resource, and how a company uses IT can potentiallyhave a dramatic effect on that companies earning power.
Accordingly, the following pages present an overview ofprogress concerning IT.

104█ Information technology progressFig. 2-1-16 shows Internet penetration rates bycompany size. We can see that nearly all large enterprises
and a large majority of SMEs use the Internet. Household
Internet penetration is also growing annually, from around
50% at the beginning of the 2000s to over 80% in 2014.
From this, it is clear that Internet penetration is seeing
solid growth.

Part II The earning power of SMEs

Large enterprises

SMEs

Section 1

Fig. 2-1-16 Internet penetration rates
Households(%)(Year)

Source:
Note:

MIC, Communications Usage Trend Survey.
Large enterprises here refer to enterprises with a capital of ¥100 million or more, and SMEs refer to enterprises with acapital of less than ¥100 million.

Fig. 2-1-17 shows that the electronic commerce market
is expanding in step with increasing Internet penetration.
We can also see here that the e-commerce market forbusiness-to-business transactions and the EC (electroniccommerce) ratio is increasing annually.

105

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-17 BtoB E-commerce market size and EC ratio
Size of BtoB e-commerce market (left axis)(100 million yen)

E-commerce ratio (right axis)(%)(Year)

Source:Notes:

METI, 2014 Survey of Basic Infrastructure for the Digitization and Creation of Services in the Japanese Economy(E-commerce Market Survey).
1.	 The EC ratio refers to the proportion of electronic commerce to total transaction amount.
2.	 Electronic commerce refers to business transactions (buying and selling) conducted through the use of computer
network systems and whose contract amounts are traceable.

Fig. 2-1-18 examines the size of the e-commerce market
for individual consumers. From this we can see that,106

as with the BtoB e-commerce market, the e-commercemarket for individuals is seeing annual growth.

Part II The earning power of SMEs

(100 million yen)

E-commerce market size (left axis)

E-commerce ratio (right axis)(%)

Section 1

Fig. 2-1-18 Size of E-commerce market for individual consumers(Year)

Source:Notes:

METI, 2014 Survey of Basic Infrastructure for the Digitization and Creation of Services in the Japanese Economy(E-commerce Market Survey).
1.	 The EC ratio refers to the proportion of electronic commerce to total transaction amount.
2.	 EC market size and EC ratio figures are for the retail trade and service industries.

Fig. 2-1-19 shows smartphone and tablet device
usage by company size for the last three years. For
large enterprises, while over 60% were using neither
smartphones nor tablets in 2012, some 70% were using
either one or both in 2014. This indicates the steadygrowing usage of smartphone and tablet devices incorporate activities. SMEs had a lower rate of smartphone
and tablet device usage than large enterprises, with justunder 70% saying they used neither in 2014. Smartphones
and tablets are superior to traditional mobile phones ina number of ways, including the ease with which users
can view e-mail and documents and their ability toaccess internal systems from off-site. Making effective
use of smartphones and tablets is one means to improve
productivity.

107Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-19 Smartphone and tablet device usage by company size
Used both a smartphone and tablet

Used a smartphone only

Used a tablet only

Used neither

2012
Large
enterprises

2013
2014

2012

SMEs

2013
2014

Source:Recompiled from METI, Survey of Conditions in Information Processing.

Cloud services are one way of using IT to improve
productivity. Cloud services allow companies to store
data without deploying servers or other equipment andimprove operational efficiency by making data accessible
from off-site. For these reasons, cloud services have seen
a rapid increase in adoption in recent years. Fig. 2-1-20

108

shows companies’ usage of cloud services. From this we
can see that companies’ usage of cloud services is risingyear after year and that the proportion of companies
saying they use cloud services company-wide is on therise.

Part II The earning power of SMEs

(%)

Users

Section 1

Fig. 2-1-20 Companies’ usage of cloud services
Use company-wide(Year)

Source:MIC, Communications Usage Trend Survey 2014.

Fig. 2-1-21 shows the extent to which different
categories of companies are embracing telework2). It
indicates that around 20% of large enterprises and lessthan 10% of SMEs allow telework. In addition to enabling
more efficient operations and improving productivity,

telework allows employees to work more flexibly. Thiscan allow companies to make up for a lack of humanresources. Teleworking employees are also able to workfrom anywhere, potentially allowing companies to reduce
fixed costs such as office building costs.

2) Teleworking refers to a flexible work arrangement that makes use of ICT free workers from specific places and times of work. The
neologism comes from “tel”, meaning a remote place, and “work”. According to the Japan Telework Association, there are three types ofwork arrangements based on where the person works: (1) home-based telework, (2) mobile-based telework, and (3) facility-based telework.

109

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-21 Telework adoption by company size
Large enterprises

SMEs

(%)

(Year)

Source:
Note:

MIC, Communications Usage Trend Survey.
Large enterprises here refer to enterprises with a capital of ¥100 million or more, and SMEs refer to enterprises with acapital of less than ¥100 million.

█ The importance of risk management

The discussion so far has focused on supply restrictions
and provided an overview of the environment involving
SMEs. We have seen how the domestic market in Japanis contracting due to population decline and how the
problem of Japan’s aging and shrinking workforce isworsening, as well as how companies are respondingby capturing more overseas demand and leveraging
information and communications technologies. Against
this backdrop, it will be essential that companies looking
to improve their earning power capture overseas demand
and make investments aimed at utilizing information andcommunications technologies.
There are, however, a number of risks that will need tobe considered by companies engaging in such investment.
This includes the need to perceive as risks businesspractices, legal systems, and other matters not previously
perceived as such in Japan when endeavoring to capture
overseas demand and establish subsidiaries overseas.
When deploying new IT systems, companies will alsoneed to conduct advance planning for measures to address

110

system problems and cyber attacks. There are many
more risks in addition to these, including risks arisingfrom business activities such as accidents caused by
defective products, risks associated with natural disasters
such as typhoons, floods, and earthquakes, and risks thatinvolve compliance violations. To address risks that growincreasingly variegated and complex, companies need topractice proper risk management.
For an example of this, let us look at Fig. 2-1-22 andthe cumulative cost of damage done by natural disasters
from 1985 to 2015. The graph shows that the cumulative
damage cost is highest in the U.S., followed by Asia.
Japan ranks after the Asian region due to its high level ofdamage caused by natural disasters. Fig. 2-1-22 provides
a reminder of the importance of Japan having strategies toaddress natural disasters. There are many salient examples
from recent years, including unexpected disasters suchas major floods like the levee destruction that occurredon the Kinugawa River in 2015. Preparing for risks as amatter of normal practice is critical to ensuring continued
corporate activity during disasters.

Part II The earning power of SMEs

(Top figure: $100 million,
Bottom figure: ratio (%))

Japan
Other countries in Asia

Section 1

Fig. 2-1-22 Global proportions of damage costs and natural disaster damage costs

U.S.A.
Other countries in America
Germany
FranceU.K.
Other countries in Europe
Oceania
AfricaSource:Notes:

Prepared by the SME Agency based on CRED/OFDA International Disaster Database (EM-DAT) of the Université
Catholique de Louvain.
1.	 Figures represent total cost of damage done by natural disasters between 1985 and 2015.
2.	 At least one of the following criteria must be fulfilled to be considered an EM-DAT disaster: 1. Ten (10) or more people
reported killed, 2. Hundred (100) or more people reported affected, 3. Declaration of a state of emergency, and 4. Callfor international assistance.

Fig. 2-1-23 shows the margins between insurance
losses and total economic losses between 1970 and 2014.3)
Getting insurance coverage is one important part of goodrisk management. We can see from Fig. 2-1-23 that, while
total economic losses are growing rapidly, insurance
losses are seeing only mild growth, indicating that non-insurance losses are on the rise. In years with significant
total economic losses, it is often the case that disasters
that occurred in Japan played a role. These facts suggestthat it is important to consider measures for dealing withnatural disasters.

3) Total loss here refers to all financial damages directly attributable to major accidents and includes damage done to buildings, infrastructure,and modes of transport. This also includes damages attributable to cessation of business as a direct result of property damage. Total loss here
does not include indirect financial damage such as earnings decreases suffered by suppliers due to an inability to conduct business. Insurance
loss refers to the total amount paid as insurance proceeds, whether as part of a private or a government program, and represents the total
amount prior to reinsurance claim recovery. However, it does not include insurance loss arising from damage liability or life insurance
proceeds. Lastly, non-insurance loss is calculated as total economic loss minus insurance loss.

111

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-23 Insurance loss, non-insurance loss, and total economic loss

(US$1 billion)

Insurance loss

Non-insurance loss

Average amount of insurance loss

Average amount of total economic loss

Great
Hanshin-Awaji
Earthquake

Great East Japan
Earthquake
Canterbury Earthquake
Flood (Thailand)

HurricanedamageHurricane(Ike, Gustav)
damage(Katrina, Rita, Earthquake(China)Wilma)
Niigata-Chuetsu
Earthquake
9/11 terrorist Hurricane
attacks in the damage (Ivan,
U.S.A.
Charley)

Earthquake (Haiti,
Chile, New Zealand)
Hurricanedamage (Sandy)(Year)

Source:Note:

Prepared by the SME Agency based on Swiss Re, Swiss Re Sigma No. 2, 2015.
Average amounts of insurance loss and average amounts of total economic loss are calculated based on 10 years moving
averages.

Let us examine SMEs’ awareness of and preparedness
towards risks such as natural disasters and information
security risks. Fig. 2-1-24 and Fig. 2-1-25 present four
categories of SMEs based on ordinary profit rate andequity ratio levels4 and examines these companies’
awareness of and preparedness towards different risks.
Fig. 2-1-24 shows that companies tend to be aware ofconsequences when risks present themselves, while Fig.
2-1-25 suggests that few companies are taking measures

to address these risks. Of particular note is that, despitecompanies having a high awareness of natural disasters
as one category of risk (Fig. 2-1-24), they are doing
little to prepare for them. This chapter has discussed theimportance of leveraging IT, and it is now clear that there
is still much work to be done not only in taking measures
to improve information security but also in improving
awareness of such risks. Thus, risk preparation stands as amajor issue SMEs need to address.

4) See Part II Chapter 6 for more information about SME categories based on ordinary profit rate and equity ratio.

112Part II The earning power of SMEs

(1) Impacts are expected
Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Low-revenue enterprises (4)Section 1

Fig. 2-1-24 Attitude towards risk preparation, by company category

Risks
lab relat
or ed
iss touesRiskb s resin ankr late
es up d tos p tcy
art
ne of
rs
bu

ks
ris
qu
ali
ty
Pr
od
uc
t

C
vio omp
lat lia
ion ncris e
ksI
se nformcurity atio
ris n
ks

Ris
k
ac s relcid atemfacailiti lfun ents d toes/eq ction anduip s ome fntRna isks
tur relala
dis ted
as to
ter
s

(%)

(2) No impacts are expected(%)

Risks related tonatural disasters

Source:Notes:

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.
1.	 “Impact are expected” represents the sum of “Has a large impact“ and “Has an impact” responses.
2.	 “No impact are expected” represents the sum of “Has a slight impact” and “Has almost no impact” responses.
3.	 “Other” responses are not presented here.
4.	 Enterprise categories conform to those in Fig. 2-6-5.

113

Chapter 1 Factors that determine the earning power of SMEs

Fig. 2-1-25 Measures against risks, by company category(1) Countermeasures have been taken
Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Low-revenue enterprises (4)(%)

Risks related tonatural disasters

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues(2) Countermeasures are being considered(%)

Risks related tonatural disasters

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues(3) No countermeasures have been taken(%)

Risks related tonatural disasters

Source:Notes:

114

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.
1.	 “Other” responses are not presented here.
2.	 Enterprise categories conform to those in Fig. 2-6-5.

Part II The earning power of SMEs

important efforts to improving SMEs’ earning power.
However, as discussed above, proper risk management
will also be essential as enterprises engage in businessactivities. This risk management is discussed in Part II
Chapter 4, where we present an overview of the present
state of risk management at SMEs as well as related
issues, and examine the importance of risk management
going forward.

Section 1

This chapter has discussed the necessity of capturing
overseas demand if demand for products and services is
to be expanded, as well as the importance of increasing
productivity through the use of information andcommunication technologies. The present state of these
efforts and related issues are discussed in more detail inPart II Chapter 2 and Chapter 3. These initiatives will
have a major impact on expanding sales and will be

115

Chapter 2
IT utilization among SMEs
Section 1

Necessity of IT investment for improving productivity

As we saw in Part I and Part II, Chapter 1, SMEs inJapan are facing worker shortages as a result of structural
factors, namely a decreasing overall population andworking-age population arising from declining birth rates
and a growing number of elderly. As structural problems
are difficult to resolve in the short term, economizing
on manpower and promoting rationalization on theassumption that labor shortages will continue would seemthe best course of action.
Part II Chapter 1 examined the gradually changing
nature of the relationship between the principal contractor
and subcontractor and how, as relationships with principal
contractors weaken, subcontractors are finding it necessary
to promote themselves and find their own customers. Yet,with nationwide labor shortages, it has never been moredifficult to find people to spare for sales efforts. It is also

Section 2

Extent and effects of IT utilization at SMEs

This section will look at the current situation involving
Japanese SMEs making IT investments and the potential

1.

not easy — even with active sales staff — to generate new
demand and find new customers.
IT has made rapid advances and achieved widespread
penetration in recent years. As we saw in Part II, Chapter
1, it will be important to make use of these technologies
in order to overcome challenges such as labor shortages
and changing trading dynamics and to expand sales while
cutting costs and allowing SMEs to increase their earning
power. Subsequent sections therefore analyze the specificeffects of IT deployment as well as the state of andchallenges surrounding IT deployment at SMEs basedon the Questionnaire on Small and Medium Enterprises’
Growth and Investment Activities1) in order to examine
the kind of IT investment that will enable SMEs to growgoing forward.

effects to enterprises that such investment can bring.

Effects of IT investment and the impact on enterprises█ Relationship between business performance andIT

Fig. 2-2-1 breaks down enterprises by industry andcompares average annual sales and recurring profit

margin for the last three years at enterprises that did anddid not invest in IT. From this we can see that both sales
and recurring profit margin are higher at enterprises thatinvested in IT than at enterprises that did not.

1) Survey of 30,000 SMEs conducted by Teikoku Databank, Ltd. in December 2015, commissioned by the SME Agency. The response rate
was 15.3%.

116

Part II The earning power of SMEs

Fig. 2-2-1

Relationship between business performance and presence/absence of IT
investment, by industry(1) Sales of enterprises that have/have not made an IT investment(Million yen)Enterprises that have made an IT investment

Enterprises that have made no IT investment

Section 2

All industries

Manufacturing

Wholesale trade

Retail trade

ServicesOther(2) Recurring profit margin of enterprises that have/have not made an IT investment(%)

Enterprises that have made an IT investment

All industries

Source:Notes:

Manufacturing

Wholesale tradeEnterprises that have made no IT investment

Retail trade

Services

Other

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December,2015), commissioned by the SME Agency.
1.	 Figures were categorized based on whether or not enterprises invested in IT.
2.	 Figures shown are averages of sales and recurring profit margin for the three years from 2012 to 2014.

█ Recurring profit margin resulting from IT
investment

As it is now clear, enterprises investing in IT tend
to have better performance with respect to sales andrecurring profit margin than enterprises not investing in
IT. However, these results merely indicate a correlation;
this graph cannot tell us if sales and recurring profit margin
improved due to IT investment or if enterprises withgood sales and recurring profit ratios are investing in IT.
Consequently, referencing data compiled by the Ministryof Economy, Trade and Industry in their Basic Surveyof Japanese Business Structure and Activities and focus
on recurring profit margin, let us look at recurring profit
margin changes before and after IT investment (Fig. 2-2-2).

The graph looks at SMEs that from fiscal 2007 through2013 responded every year regarding their IT investment.
It compares the recurring profit margins of enterprises that
did not invest in IT from fiscal 2007 through 2009, began
investing in fiscal 2010, and continued to invest throughfiscal 2013 (“IT investment enterprises”) with those thatmade no IT investment between fiscal 2007 and 2013(“non-IT investment enterprises”). Here, IT investment
enterprises had lower recurring profit margins than non-IT
investment enterprises in fiscal 2007, before investment
was started. For fiscal 2010 and beyond, however, whereas
recurring profit margin at non-IT investment enterprises
increased only slightly between fiscal 2007 and 2013, IT
investment enterprises achieved major gains in recurring

117Chapter 2 IT utilization among SMEs

profit margin compared to fiscal 2007, before they began
investing. Thus it would seem that one factor behind IT
investment enterprises’ ability to improve recurring profit
margin was their beginning IT investment in fiscal 2010,

Fig. 2-2-2

which allowed them to make operations more efficientand expand sales while improving their profit ratio, theresult of which was improved recurring profit margins.

Recurring profit margin among IT investment enterprises and non-IT
investment enterprises
Enterprises that have made an IT investment in FY2010 and have continued the investment until FY2013(IT investment enterprises)(%)

Enterprises that have made no IT investment from FY2007 to FY2013(non-IT investment enterprises)(Year)

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Recurring profit margin = ordinary profit / sales.
2.	 Based on data from SMEs responding to surveys every year from fiscal 2007 to 2013.

█ Effects of utilizing one’s own website and social
media services

The following discussion will look at the effects ofdeploying specific types of IT. First let us examine thepotential effects of “developing and utilizing one’s own
company website” and “utilizing social media services”.
Social media services refer to relatively new information
services whereby a multitude of people and organizations
can do such things as talk and exchange video and text
over a computer network, some of the best known of which
are Facebook and Twitter. Recent years have begun to see
companies using these services to promote themselves as

118

they would with a company website. Fig. 2-2-3 shows
the potential effects of using a company website andsocial media services. We can see here that the most citedeffect of developing and utilizing one’s own company
website is “Strengthening of marketing and sales power”,
followed by “Sales expansion” and “Increase in customer
satisfaction, cultivation of new customers and markets”.
As for the effects of using social media services, thetop response was “Greater utilization of in-house
information”, followed by “Strengthening of marketingand sales power” and “Increase in customer satisfaction,cultivation of new customers and markets”. Enterprises

Part II The earning power of SMEs

also said social media services effected them morethan their own website in the areas of “Rationalizationof business processes, expediting of decision-making
processes”, “Cost reduction” and “Increase in profit rate
and productivity”. This tells us that using social media
services can bring the same effects brought by company

Development/utilization of an own company website(n=2,066)

Utilization of social media service(n=338)

Str

en

gth

en
ing
an of mds
ale arkes p ting
ow
er
Sa
les
ex
pa
ns
ne sat Increioniwcu sfact ase
sto ion inme ,cu cus
rst
an ltivat omeEnd m ion rhaark ofnc
em
ets
mo ent oftiv
ati empon/ab loyeGriliti eees
in- ateho r uus tiliDee i zalive
nfo tiory
rm n oo
ati f
pro f higon
du h-v
cts alu
an e-aPrd s ddom
erv ed
oti
ice
on
s
am of
on coog e pente ratCla
rpr ion
rifi
ise
ca
tio
s
of n akn ndow sh-ho arInc
w, ingreaetc
se.
an in pd p rorod fit r
uc ate
tiv
ity
Co
st
Ra
red
tio
uc
n
tio
de proc alizancis es tio
ion se n os-m , e f b
ak xp usi
ing ed ne
pro iting ss
sece
cu Resss ofrity poes
co nseunter s tome risas ks,
urema Invenstertoial rys c redonucse
rva tion,
tio
No
n
be
be nefien ts
ob hav
tai
ne e
d

(%)

Effects of using company websites and social media services

Section 2

Fig. 2-2-3

websites, namely “Strengthening of marketing and sales
power”, “Increase in customer satisfaction, cultivation of
new customers and markets”, and “Sales expansion”, andthat enterprises may benefit from more active information
utilization in-house, process rationalization, and cost
reduction, while potentially improving profitability.

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Effects of electronic commerce

Now let us take a look at the effects of conducting
e-commerce. In Part II, Chapter 1 we learned that both
e-commerce market size and utilization frequency in Japan
is growing for the advancement of computerization, bothfor BtoB2) (business to business) and BtoC3) (businessto customer) transactions. Amid this time of change inthe external environment, what sort of effects are SMEs
seeing in conducting e-commerce? Fig. 2-2-4 examines
the effects of EDI4) and other BtoB services as well as

e-commerce5) and other BtoC services. The top response
for BtoB services was “Cost reduction”, followed by“Rationalization of business processes, expeditingof decision-making processes” and “Promotion ofcooperation among enterprises”. The top responses for
BtoC, meanwhile, were “Sales expansion”, followed
by “Strengthening of marketing and sales power” and“Increase in customer satisfaction, cultivation of new
customers and markets”. From this we can infer that,for BtoB services, businesses’ usage of e-mail and the2) “BtoB” here refers to the buying and selling of products and services between enterprises.
3) “BtoC” here refers to the buying and selling of products and services between an enterprise and a general consumer.
4) “EDI” here refers to a method of standardizing commerce-related data and exchanging it electronically between enterprises, and is used formaking and taking orders, issuing quotations, and making payments.
5) “E-commerce” here refers to the buying, selling, and distribution of goods and services through electronic data transmission over a computer
network.

119

Chapter 2 IT utilization among SMEs

Internet to buy and sell things between themselves andtheir leveraging of EDI data transactions to make andreceive orders is enabling them to cut down on thetime and costs involved in creating conventional paper
forms while strengthening cooperative relationships

Fig. 2-2-4

Effects of e-commerce
EDI and other BtoB services(n=638)

E-commerce and other BtoC services(n=267)

Ra

Co
st
tio
red
n
uc
de proc aliza
tio
cis es tionion se n os-m , e f b
ak xp usi
ing ed nePr
pro iting ss
om
ce
oti
ss of
on
es
am of
on coog e peStr
nte ratength
rpr ion
en
ise
ing
s
an of mds
ale arkes p ting
ow
er
Sa
les
ex
pa
ns
ne satis Increionwcu facti ase
sto on inme , cu cus
rst
an ltivat ome
d m ion r
Inc
a
r
rea
ke of
ts
se
an in pd p rorod fit r
uc atesetiv
cu Resityrity poco nseuns
ter tome risas ks,Grure
in- eatesho r uus tiliDeez
live
inf atioorm nryo
ati of
pro f higon
du h-v
cts alu
an e-ad s dderv edice
ma Inves
ter ntoial rys c redEnonha
se uctio
rva n,ncem
tionmo ent o
tiv f eati mpoClan/a loyrifi
bil ee
ca
itie
tio
s
of n akn ndow sh-ho arw, ing
etc
No
.
be
n
be efien ts
ob hav
tai
ne e
d

(%)

with business partners through quicker transactions. For
BtoC services, new sales channels are being formed asenterprises sell their products over the Internet; this iseffectively expanding sales as they gain new customers
and boost sales volume.

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Based on data from companies conducting e-commerce.
2.	 Total does not always equal 100% as multiple responses were possible.

█ Relationship between IT investment and numberof workers

At a time when Japan’s overall population and workingage population are declining due to higher numbers ofelderly and lower birth rates, SMEs need to improve
profitability by improving operational effectiveness,cutting costs, and economizing on manpower through IT
investment if they are to strengthen their earning powerwith the limited workforces available to them. The goalof most IT investment seems to be rationalization orlaborsaving, but what is the relationship between IT
utilization and the number of workers at SMEs?
Fig. 2-2-5 looks at how worker numbers changed as aresult of IT investment, based on the type of investment.
We can see that worker numbers decreased at 13.3%,
10.1%, and 8.0% of companies that, respectively,

120

deployed “Enterprise systems for operational efficiency”,“Hardware/software for task automation and assistance”
and “Business support systems for higher added
value”. This suggests that, as it was done primarily forrationalization and laborsaving, this IT investment allowed
these enterprises to review their business processes andultimately reduce worker numbers. However, it was only
for these types of IT investment that a high percentage
of enterprises said their numbers of workers decreased.
80% to 90% of enterprises said there was no change intheir numbers of workers, regardless of the type of IT
investment. We can also see that, for almost all types of IT
investment, the proportion of enterprises that said worker
numbers increased was higher than that which said
worker numbers decreased. Among companies who said
their worker numbers increased, “Usage of e-commercePart II The earning power of SMEs

Fig. 2-2-5

hiring new workers to handle these operations. We noted
earlier that worker numbers decreased in association withcertain types of IT investment. Some companies have
deployed both IT for improving added value and IT formaking operations more efficient. It is possible that thesecompanies are improving business performance without achange in worker numbers companywide by using IT inback office operations to save on labor and by assigningsurplus staff to areas of business—namely sales andmarketing—that are seeing IT investment for the sake of
improving added value.

Section 2(for BtoC)” (14.8%), “Development/utilization of an
own company website” (13.4%), “Hardware/software fortask automation and assistance” (10.7%), and “Businesssupport systems for higher added value” (9.9%) werecited more often than other types of IT investment.
This would suggest that enterprises are engaging in
IT investment apt to bring greater added value to theenterprise in the form of strengthened marketing and sales
capabilities, expanded sales, and the cultivation of new
customers and markets. This is leading to greater sales
by developing new business partners, and enterprises are

Changes in worker numbers based on types of IT investment
Increased

No change

Decreased

Enterprise systems for operational efficiency(n=1,388)
Business support systems for higher added value(n=749)
Utilization of e-commerce (BtoB)(n=453)
Utilization of e-commerce (BtoC)(n=236)
Utilization of social media services(n=299)Development/utilization of an own company website(n=1,349)
Development/utilization of an own company website
for overseas markets(n=222)
Utilization of cloud computing(n=688)Hardware/software for task automation and assistance(n=476)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Based on companies engaged in each type of IT investment.

121

Chapter 2 IT utilization among SMEs

Column 2-2-1 E-commerce and EDI Initiatives
EDI is a method of standardizing commerce-related data and exchanging it electronicallybetween enterprises, and is used for making and taking orders, issuing quotations, and making
payments. This column looks at EDI and presents an overview of EDI initiatives at SMEs and theeffects of these initiatives.

▌EDI utilization

Let us first take a broad look at the extent to which SMEs are using e-commerce. Fig. Column
2-2-1 (1) shows the back office situation concerning accounting and taxation business at
SMEs in 2012 based on the 2012 Survey of Conditions in Accounting at SMEs conducted by
Teikoku Databank, Ltd. and commissioned by the SME Agency. Here we can see that 26.5% of
all SMEs surveyed outsource even bookkeeping to accounting professionals, suggesting thatthese enterprises find it difficult to keep track of business conditions by themselves. In recent
years, enterprises able to effectively utilize IT can easily keep track of the company’s businesssituation without needing specialized knowledge of finance or accounting which leads to abusiness improvement. It might also be inferred that, judging from the potential effects of theaforementioned e-commerce for BtoB transactions, using EDI and other e-commerce technologies
is likely to help cut costs and achieve business process rationalization.

Fig. Column 2-2-1 (1)Management of finance and accounting affairs at surveyed enterprises
Financial accounting is internally performed up to the preparation and storageof packing lists, invoices, receipts, etc., and the rest is outsourced to an
accounting specialist.
Financial accounting is internally performed up to the issuance of journal slips,
and the rest is outsourced to an accounting specialist.
Financial accounting is internally performed up to bookkeeping, and theprocessing of settlement-specific journal entries is outsourced to an accounting
specialist.
Financial accounting is internally performed up to the preparation of the generalledger, and the processing of financial and tax statements is outsourced to an
accounting specialist.
Financial accounting is internally performed up to the preparation of financial
statements, and the processing of tax statements is outsourced to an
accounting specialist.
Financial accounting is internally performed up to the preparation of financial
and tax statements.
(%)

Source:
Note:

Other

Teikoku Databank, Ltd., 2012 Survey of Conditions in Accounting at SMEs, commissioned by the SME Agency.
Based on data from SMEs.

▌Proportions of enterprises using EDI, based on enterprise size

Next, Fig. Column 2-2-1 (2) looks at enterprise size and the proportions of enterprises using
EDI, based on the Ministry of Economy, Trade and Industry’s Survey of Conditions in Information
Processing. It should be noted that, as the Survey of Conditions in Information Processing surveyed
enterprises that had capital or investment of ¥30 million and 50 or more employees, the enterprises
surveyed are relatively large organizations. The data shows that SMEs lag behind large enterprises
when it comes to EDI initiatives and that even now 44.9% of SMEs use no EDI. However, increasing
computerization is seeing a gradually rising trend in the number of SMEs deploying this technology.

122

Part II The earning power of SMEs

Fig. Column 2-2-1 (2)(Year)

EDI usage by enterprise size
Users of EDI

Non-users of EDI

Section 2

Large enterprises

SMEs

Source:Note:

Recompiled from METI, Survey of Conditions in Information Processing.
Based on enterprises that said they used either Internet-based EDI or other type of EDI.

▌Effects of using EDI

The following discussion will look at the effects of EDI for BtoB applications based on the
Ministry of Economy, Trade and Industry’s Survey of Conditions in Information Processing. In Fig.
Column 2-2-1 (3), which examines EDI effect by industry, the combined rate of response for the“Extremely effective” and “Somewhat effective” responses was around 70% to 80% for every
industry with respect to operational reform and efficiency in (1). In the retail trade industry, halfof enterprises chose “Extremely effective”. With respect to sales expansion as per (2), while nodirect effect was seen here because EDI is used for making and taking orders and making payments
between enterprises, it is worth noting that roughly 30% to 50% of enterprises said EDI had anindirect effect on boosting sales.

123Chapter 2 IT utilization among SMEs

Fig. Column 2-2-1 (3)Effects of EDI by industry(1) Effects on operational reform and efficiency
Extremely effective
Not very effective

Somewhat effective
Not effective at all

Can’t say either way
Don’t know

All industries
Manufacturing
Wholesale
trade
Retail trade
ServicesOther(2) Effects on sales expansion
All industries
Manufacturing
Wholesale
trade
Retail trade
Services
Other

Source:Note:

124

Recompiled from METI, 2014 Survey of Conditions in Information Processing.
Based strictly on data from SMEs.

Part II The earning power of SMEs

Case

2-2-1

NAKAGAWA Corporation

NAKAGAWA Corporation (employees: 30; capital: ¥30 million), based in Taito City in Tokyo, is a longestablished company (founded in 1910) that plans, manufactures, and markets products for use in festivals,
under the brand name “Asakusa Nakaya.” In addition to direct sales from its two stores in Asakusa, thecompany also exhibits at special events held by department stores throughout the country, operates stalls
during festivals (for example the three major festivals of the Tohoku region), and conducts e-commerce via
the Internet.
Since its establishment in 1910, the company has based its operations on three corporate principles: To
always maintain an eagerness for business, to operate on a face-to-face basis with its customers, and to
perpetuate traditional Japanese culture. In addition to this side of the company, its characteristics as a longestablished business, it also possesses another side as an up-to-date organization that has read the trend of
the times and maintained investment in information technology.
The company’s IT investment began in 1991, when it introduced office computers in order to commence
catalogue sales, seeking to sell its products throughout the country on a year-round basis, rather thanas seasonal products for festival use. In 2000, NAKAGAWA Corporation created a Web sales system andcommenced Internet marketing, expanding its business throughout Japan. Around 2001, however, thecompany’s business took a turn for the worse, in part as the result of the entry of new competitors to its
market. In response, it began to rebuild its in-house systems using information technology.
The fact that the company’s Web sales system and basic business system, which relied on office computers,
were not linked had been inefficient. In 2004, it therefore installed servers for functions including theInternet, email, and databases, and linked its basic business system and its sales system. The newly-organized
Systems Office and staff members from the company’s workplaces began to hold twice-monthly e-commerce
meetings, at which they examined IT strategy and considered opinions and requests for improvementsfrom workplaces. They modified the systems to make it easier to use at the worksite, thus increasing theefficiency of work procedures.
In 2015, the company developed a simulator system6) called “Nakaya Factory,” which made it possible
to take orders for order-made products7), something that had previously required hand-written entries,
entirely over the Web. At the same time, it created a WEB-EDI system, enabling it to make a complete
transition from the use of paper dockets, estimate sheets, etc. to electronic data. By enabling automatic
calculation of the rate of defective products against total products and realizing total consistency fromprocurement to ordering, the company was successful in further increasing the efficiency of its operations.
Based on the company’s experience, company President Masao Nakagawa is emphatic that “The key to IT
investment is making processes visible and ensuring that the systems penetrate to the workplace level. It ismeaningless to just indiscriminately introduce IT. It’s important to consider which aspects of your procedures
you want to make more efficient, to make investments after establishing an investment plan, and to assess
the outcomes following the investment.”

Tegaki fuda
(Small wooden plaques withnames hand-painted on them)

Kubisage kifuda(Tegaki fuda that can beworn as pendants)

Shinchu fuda
(Brass fuda)

Zippo

Section 2

A long-established company that has used bottom-up improvement andvisualization of processes to focus IT investment

Chochin(Paper lanterns)

Products that can be ordered from NAKAGAWA Corporation’s simulator Nakaya Factory6) The company’s “simulator system” is a system that enables users to select the materials, size, characters, font, etc. that they desire on the
Web via simple operations, and to then order the product directly on the Web.
7) “Order-made products” here refers to tegaki fuda, hori fuda (engraved fuda), chochin, etc. that are made to order.

125Chapter 2 IT utilization among SMEs

Column 2-2-2 A New Trend: Cloud Computing
The high costs of hardware and software have traditionally made IT investment prohibitive.
However, the emergence of social media services, cloud computing8), and other such new information
services has now made it possible to deploy IT at relatively low cost. This column focuses on “cloudcomputing” as a comparatively new information service, examining the extent of and benefits fromcloud computing initiatives at SMEs in Japan, as well as issues standing in the way of further cloudcomputing utilization.

▌Extent of cloud computing usage

With the advent of cloud computing, IT has become an information service that enterprises
can use to run their businesses without the need to possess their own hardware or software. Cloudcomputing is garnering attention as an information technology for its low cost of deployment anduse compared to conventional local hardware and software based IT systems.
Fig. Column 2-2-2 (1) looks at cloud computing usage by enterprise size, specifically whether or
not enterprises are incurring costs to deploy cloud computing, based on the Survey of Conditions inInformation Processing published by the Ministry of Economy, Trade and Industry. The graph showsthat while the proportion of SMEs using cloud computing is lower than that for large enterprises,
this proportion is rising every year.
Fig. Column 2-2-2 (1)(Year)

Cloud computing usage by enterprise size
Cloud computing costs were incurred
No cloud computing costs were incurred

Largeenterprises

SMEs(Year)
Source:Recompiled from METI, Survey of Conditions in Information Processing.

8) Cloud computing is an on-demand information processing service provided by Internet networks and is a means for using software and data
traditionally managed and used on local computers.

126

Part II The earning power of SMEs

Fig. Column 2-2-2 (2)(%)

Comparison of cloud computing usage by business domain
2015

2012

(%)

Section 2

Let us look at the means by which cloud computing services are deployed. Fig. Column 2-2-2 (2)shows the results of the Questionnaire Survey on IT Use9) conducted in November 2012 by Mitsubishi
UFJ Research and Consulting Co., Ltd. and commissioned by the SME Agency, as well as cloud computing
usage categorized by business domain using data from another survey conducted in December 2015. The
top reason cited for using cloud computing was “Internal information sharing”, followed by “Customer
support”. Comparing the 2012 and 2015 survey results, we can see that the proportion of enterprises
using cloud computing increased across all business domains.

Internal information
sharing
Customer support
Physical
distribution
Sales
Procurement
and purchasing
Finance andaccounting
Personnel affairs
and salaries
Development
and design
Production

Sources: For 2012 data: Mitsubishi UFJ Research & Consulting, Co., Ltd., Questionnaire Survey on IT Use (November2012), commissioned by the SME Agency.
For 2015 data: Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment
Activities (December 2015), commissioned by the SME Agency.
Notes:
1.	 Based on data from SMEs.
		 SMEs here refer to enterprises with 300 or fewer employees (100 or fewer employees for the wholesale tradeand services industries, and 50 or fewer employees for the retail trade industry).
2.	 Cloud computing usage rates for each business domain are presented for enterprises that said they use IT inevery business domain.
3.	 Total does not always equal 100% as multiple responses were possible.
4.	 2012 cloud computing usage is blank for Customer support as it was not a category on the 2012 survey.

▌Advantages of cloud computing

Fig. Column 2-2-2 (3) shows cloud computing advantages by enterprise size based on the Surveyof Conditions in Information Processing published by the Ministry of Economy, Trade and Industry.
For both large enterprises and SMEs, “Short introduction period” and “Low initial costs” had thefirst and second highest response rates, a result that puts the unique advantages of cloud computing
at the top. Areas where SMEs scored higher than large enterprises were “Low operating costs”,“No specialized technical knowledge is needed for introduction”, and “High reliability and safety
in terms of security”. These results suggest that both large enterprises and SMEs are becoming
broadly aware of the fact that cloud computing can be used at low cost and without the need toovercome significant technological hurdles.

9) Survey of 15,000 enterprises conducted in November 2012 by Mitsubishi UFJ Research and Consulting Co., Ltd. and commissioned by the
SME Agency. The response rate was 16.7%.

127Chapter 2 IT utilization among SMEs

Advantages of cloud computing by enterprise size

Source:Notes:

gu
up lar f
se grad uncti
rvi
ce es o onal
pla f th
tfo e
rm

op
w
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SMEs

tec
hn No sica pel k ciis n now alizedlee
int ede dge
rod d f
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uc
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se ms
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era
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ts
os
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ini
w
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int

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Re

(%)

Sim
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a u s like nsionser a addi of
cc ng
ou
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Sim
ple
ca term
so nce inat
ftw llaiare tion on/
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ag
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Fig. Column 2-2-2 (3)Recompiled from METI, 2014 Survey of Conditions in Information Processing.
1.	 No “Other” category is presented here.
2.	 Total does not always equal 100% as multiple responses were possible.

▌Effects of cloud computing

Fig. Column 2-2-2 (4) shows the potential effects of using cloud computing based on survey results.
The top effect cited was “Greater utilization of in-house information”, followed by “Responses torisks, security countermeasures”, “Rationalization of business processes, expediting of decisionmaking processes”, “Cost reduction”, “Strengthening of marketing and sales power”, and “Increasein profit rate and productivity”. In Fig. Column 2-2-2 (2) we saw how cloud computing is being
used not only for “Internal information sharing” but also “Customer support”, “Sales”, and manyother areas of business. Although cloud computing is being used for information sharing, financeand accounting, personnel affairs and salaries, and other such back-office functions, survey results
imply that SMEs are boosting selling power and improving profit ratios through better profitability
achieved through the use of cloud computing in business domains such as sales, customer support,
and other areas that lead to greater added value.

128

Part II The earning power of SMEs

Fig. Column 2-2-2 (4)(%)

Effects of cloud computing(n=619)

se

in-

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ob havtai
ne edSection 2

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.
1.	 Based on data from enterprises using cloud computing.
2.	 Total does not always equal 100% as multiple responses were possible.

This column has presented an overview of the extent of and effects from deploying cloudcomputing at SMEs. Different from the traditional method of IT deployment, i.e. enterprises
possessing their own hardware, software, and information systems, cloud computing is a new lowcost information service that is likely to take on increasingly greater importance, despite inherent
security and other issues. Moreover, Japanese SMEs’ earning power is likely to get a boost as theseenterprises also begin using cloud computing in many areas outside of back office operations.

129

Chapter 2 IT utilization among SMEs

Case

2-2-2

Shibazono Kaihatsu Corporation

A company that boosted its earnings by making processes visible throughthe introduction of cloud computing
Shibazono Kaihatsu Corporation (employees: 19; capital: ¥50 million), based in Adachi City in Tokyo (founded in1986), is a company mainly involved in the operation of a chain of pay-by-the-hour parking lots called “ST-Park” andpay-by-the-hour bicycle parking lots called “cycle24h,” and the provision of commissioned services such as clearing awayabandoned bicycles, chiefly in the Tokyo metropolitan area.
Originally a construction company, Shibazono Kaihatsu recognized that the need for car and bicycle parking lots wasincreasing as a result of social trends and revisions in the law, and transformed its business towards the construction
and sale of multi-story car park facilities and the operation of pay-by-the-hour car parks and bicycle parks. The company
took its first steps in the pay-by-the-hour parking lot business as a franchisee of a major parking lot company in 1995.
Following this, recognizing that illegally parked bicycles were becoming a social issue, it commenced a pay-by-the-hourbicycle parking lot business. In 1998, the company developed Japan’s first unmanned mechanical pay-by-the-hour bicycle
parking system, and its profits steadily increased. However, a revision of the Road Traffic Act in 2006 that enhanced theenforcement of penalties for parking violations saw other companies enter the parking lot management business, setting
off competition to undercut prices. The company’s profit rate declined rapidly, and its business results worsened.
Shibazono Kaihatsu introduced an office computer system on a top-down basis in 2006 in an attempt to get thecompany back in the black, but employees found it difficult to input data, and the system was not linked with contract
and other in-house data. The system was not used by employees, and the investment was a failure. In addition, the failed
computer system introduction worsened relations with employees, leading several to quit the company. The company’s
internal system was breaking down, and it faced a difficult situation.
After reflecting on its situation, in 2007 Shibazono Kaihatsu introduced a management accounting system with easier data
input functions. It took opinions from employees following the introduction of the system, and unified its approach to the
management of worksites and accounting. This system linked sales for each of the company’s facilities and a range of in-house
contract data such as rental fees on land with the accounting system, making it possible to instantly understand income andexpenditure at the level of individual facilities. The company got back into the black, and its business results steadily recovered.
The introduction of the management accounting system had enabled Shibazono Kaihatsu to achieve a recovery in its
results, and its number of car and parking lots also showed a steady increase. However, this increase in facilities madeit difficult for the company to check the status of operations and the balance of income and expenditure at all of its
facilities with its existing staff. In addition to this, it was difficult for the management accounting system itself to monitor
the operating status of all the company’s facilities in real time. This necessitated a further IT initiative.
Seeking to make the operating and income and expenditure status of each of its facilities, in addition to the operating statusof each space in each of its car and bicycle parking facilities, visible, and to boost profitability by rationalizing work procedures,in 2012 the company developed a unique integrated facility management system called SHIP, using cloud computing. Thissystem made it possible to grasp the operating status of any of 270 car or bicycle parking lots from a map in real time via atablet or smartphone. Linking to Google Maps, Google’s map service, enabled a range of data, including the management
history of the facility, real-time images from surveillance cameras, and sales information linked to ticket machine data, to beobtained by clicking on car or bicycle icons displayed on a map. In addition, linking to the company’s management accounting
system made it possible to instantaneously view the status of income and expenditure at each facility. A six-member project
team including representatives of the system development company was formed, and held fortnightly meetings at whichit considered opinions from employees concerning the functions that were needed at worksites and functions that would
increase convenience. The addition of new functions on this basis increased the sophistication of the system.
The introduction of this system enabled Shibazono Kaihatsu to reduce costs by increasing the efficiency of work procedures,and it succeeded in boosting sales by 10% and its operating profit by 90% against fiscal 2006 in fiscal 2012. It also became possible
for the company to make important management decisions, such as the negotiation of leasing fees with the owners of car park
facilities and the closure of unprofitable facilities, backed up by data.
In addition to its benefits from the perspective of management
and operating procedures for the company’s car and bicycle
parking facilities, the system has also enabled the company towork to increase customer satisfaction by responding closely
to the needs of its users via the linkage of its services to public
transport electronic payment systems and point card systems, andthe introduction of a system for free short-term bicycle parking.
In the future, in addition to obtaining and analyzing publicly
accessible data (population density and road data in the vicinity ofstations published by the government and municipalities) in orderto make long-term sales projections and enhance its profitability,
the company will continue to act as a responsible member of society
and contribute to the realization of more livable towns and cities by
Receiving the Grand Prize and the Special Prize forproviding support for the upgrading of deteriorated public bicycle
the introduction of the cloud computing system SHIP
parking facilities and cooperating with regional and municipal
in the Ministry of Economy, Trade and Industry’s 2014
administrations to assist in responding to the problem of illegally
IT Management Awards for Small and Medium Enterprises
parked bicycles, says Koji Ebinuma, Shibazono Kaihatsu’s President.
(Company President Koji Ebinuma second from right)

130

Part II The earning power of SMEs

Case

2-2-3

ID’s Co., Ltd.

ID’s Co., Ltd. (employees: 43; capital: ¥191.035 million), based in Tomigusuku City, Okinawa Prefecture, isa business providing database and marketing services for chain grocery stores and other retail chains.
Of the foodstuffs sold by chain grocery stores and similar retailers in Japan, only processed foods have aJapanese Article Number (JAN) code (a system of article codes that is unified throughout the country). Up tothe present, there has been no standard for unified JAN codes for pre-prepared food items and fresh foods.
It has therefore been impossible to establish databases of trends in consumption of these staple goods. Few
grocery store chains have made effective use of information obtained from POS data in their marketing,
and without possessing a full understanding of the demand among consumers in their area, they have
faced a range of problems, including losses on food items due to the ordering of excess stock. Choken
Yamakawa, President of ID’s Co. Ltd., saw this as a business opportunity, and set about creating a businessin this area. In 2014, he developed “i-code”10), a unified code making it possible to survey informationon the market distribution of all food items, including fresh foods. In order to obtain a volume of datafrom throughout Japan that would overwhelm his competitors, Mr. Yamakawa provided i-code withoutcharge to grocery store chains. Collecting the data at his company’s data center in Okinawa, he commenced
marketing activities.
By introducing the ID-POS data analysis cloud computing system Power-GAP and analyzing the POS data
they compiled, grocery store chains became able to aggregate data including the unit prices of products
and the number of products sold on a store-by-store basis, and compare market trends in their regions anddemand at their own stores. The analysis of factors such as purchasing trends among consumers in addition
to trends in demand in the areas in which their stores were located made it possible to control losses
on products, in addition to controlling opportunity loss resulting from failing to offer the products that
consumers wanted to purchase. Because this analysis tool is a cloud-based Web system, client companies
were able to introduce it at a low cost. It is also able to be operated by on-site employees with no systems
knowledge, and is capable of immediately outputting a range of accumulated data, contributing toincreased productivity among the retailers using it.
Apart from data analysis, the system is also able to inform point card holders of sales and bargains
by direct mail or email, and issue coupons based on customers’ attributes and purchase history, offering
retailers a high level of added value as an effective marketing tool.
As a result of the development of the system, ID’s Co., Ltd. now deals with approximately 50 grocery
store chains, representing more than 2,000 stores,
A company offering Big Data and cloud computing services with Okinawa as its basethroughout the country, and is contributing toincreased productivity and the realization of highadded value for chain grocery stores across Japan.
For the future, the company is looking towards theoverseas market. By compiling POS data for Japanesegrocery store chains advancing into China and Taiwan,
it intends to create a system enabling Japanese
agricultural producers to obtain information about
what items are selling, and by this means to promote
exports of Japanese agricultural products. Seeking
also to tap into demand from overseas tourists who
are today visiting Japan in increasing numbers (theinbound market), the company is also working on thedevelopment of a system for labeling products withinformation concerning ingredients, characteristics,
Conceptual diagram of
etc. in multiple languages.
the company’s business model

Section 2

A company that boosts the added value and productivity of retailers
using Big Data and cloud computing

e

Imag

10) “i-code” is Japan’s first marketing code for foodstuffs that integrates classification systems and code systems from processed foods to fresh
produce and pre-prepared food items (Granted Japanese patent: Patent No. 5753217).

131

Chapter 2 IT utilization among SMEs

Case

2-2-4

WEIC Corporation

A company that promotes the aggressive use of IT systems by SMEs throughthe provision of business support services using AI and cloud computing
WEIC Corporation (employees: 100; capital: ¥335.2 million), based in Chuo City in Tokyo, is a company mainly
specializing in the provision of business support services such as the acquisition of potential customers for corporate
sales and the securing of appointments for business negotiations, through the fusion of IT and inside sales11).
The company was founded in 2004, and its first area of business was the development and sale of e-learning
systems for learning Chinese. In 2008, the company established a business office in Shanghai, and its business in
China steadily expanded. With a request from one of its business partners for business support services as thestarting point, the company began to cultivate the area of business support systems that bring together customer
relationship management (CRM)12) and data analysis, which is now its main business area.
The traditional sales method in Japan has generally involved the handling of the entire process from the creationof customer lists, to the organization of appointments, visiting the customer, and closing the sale13), by a single
sales representative. However, because sales representatives each have differing areas of specialization within thesales process, considerable time and cost is involved before reaching the contract stage. In addition, the process isinefficient, because sales representatives do not share information, and expertise is therefore not accumulated. By
contrast, US companies divide the process into three segments — 1) Marketing; 2) Inside sales; and 3) Visiting thecustomer/Closing the sale — and share information while implementing an efficient sales process.
WEIC Corporation set about developing a system that would enable Japanese companies to conduct efficient sales bysubdividing the process like US companies. In 2015, it began to supply customers with its cloud-based sales support system
SALES BASE. Based on a unique database containing information on approximately four million companies, this system uses
artificial intelligence (AI)14) to identify potential customers with a high degree of accuracy, collects information regarding
the needs of these potential customers from the company’s call center, organizes appointments, and automatically inputs
the appointment schedule to the schedules of the client company’s sales representatives. Of the three divisions of the sales
process discussed above, the system therefore conducts 1) Marketing and 2) Inside sales. By allowing the client company
to focus exclusively on 3) Visiting the customer/Closing the sale based on customer information offering a high potential
for closure of the sale, the system enables the realization of an efficient sales process and an increased closure rate.
At the same time, because the introduction of the system significantly changes the traditional individual-based
sales method and eliminates any difference in outcomes based on the skills of the individual sales representative,
the company had to consider methods of ensuring that the introduction of the system would not result in a
decline in the motivation and the productivity of sales representatives who were confident of their sales skills.
Management therefore needs to explain the features and characteristics of the system to its employees prior to its
introduction, and takes their opinions. Depending on the situation, it may also be necessary to revise the client’s
methods of assessing personnel or its company rules in order to ensure that sales representatives accept the system.
“In the case of a conventional IT investment involving the introduction of software, if the company is unable touse the software effectively following its introduction, it will not obtain the outcomes it desires. By contrast, when
we introduce our system, we ask the client company what type of output it desires, and we act as the client’s proxy in
conducting all of the necessary processes to make that happen, including
searching our database, having our data analysts conduct analyses inorder to identify targets, and arranging appointments by telephone.
This means that as long as the client company’s sales representatives
maintain their motivation and use our system, the company will realize
the outcomes it seeks,” says WEIC’s President Yuki Uchiyama.
If one of WEIC’s client companies were to conduct the entire seriesof processes described above in-house, from creating a database todeveloping a system and engaging data analysts and other IT specialists,
it could expect to invest a considerable amount of time and money.
Given this, rather than an attempting to conduct their own sales, theintroduction of this system offers SMEs with little sales experience andlimited staff a means of increasing efficiency using IT, making it possible
for them to expand their sales channels and realize increased efficiency
by delegating aspects of the sales process in order to enable an efficientsales process and the acquisition of new customers.
Yuki Uchiyama, President of WEIC Corporation
11) “Inside sales” refers to sales methods such as telephone and email sales and DM, which differ from the traditional method of visiting thepotential customer (field sales).
12) By means of customer relationship management, or CRM, companies attempt to increase customer satisfaction by basing initiatives oncustomer attributes, the history of contact with the customer, etc., chiefly using IT.
13) “Closing the sale” refers to the conclusion of a contract with the customer.
14) Artificial intelligence, or AI, refers to computer programs that are able to understand natural languages used by humans, make logicaldeductions, and learn from experience.

132

Part II The earning power of SMEs

2.

IT usage among SMEs

█ IT deployment by industry

Fig. 2-2-6

IT deployment by industry
Introduction of hardware(PC, smartphone, etc.)(%)

All industries(n=4,046)

Source:Note:

Manufacturing(n=947)

Section 2

The following discussion will focus on the current
state of IT investment among SMEs. Fig. 2-2-6 looks at
IT deployment by industry. Here we see that 75.6% of
SMEs use hardware15) in managing their business, andthat 63.7%—more than half—of these enterprises use
both hardware and software16) (including information

systems17) and cloud computing). Categorized by industry,
the manufacturing and wholesale trade industries showedslightly higher hardware and software deployment rates
than other industries. Meanwhile, for all industries, some
20% to 30% of enterprises were not using hardware androughly 30% to 40% were not using software, indicatingthat IT usage among SMEs is lagging.

Introduction of software, etc.
(incl. information system, cloud computing)

Wholesale trade(n=1,118)

Retail trade(n=128)Services(n=384)Other(n=1,464)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ IT usage for bookkeeping at SMEs

Next, Fig. 2-2-7 shows IT usage for bookkeeping
among SMEs based on the 2012 Survey of Conditions inAccounting at SMEs published by Teikoku Databank, Ltd.
and commissioned by the SME Agency. We can see fromthis that around 20% of SMEs are not using computersfor bookkeeping and that, even among SMEs using
computers, roughly 30% are doing their bookkeeping
without the use of accounting software.

15) “Hardware” here refers in a general sense to physical equipment that includes personal computers, smartphones, and other computing
devices, as well as the circuits, apparatuses, and other components from which these devices are made.
16) “Software” here refers to non-physical computing programs, data, etc. that is loaded onto hardware.
17) “Information system” here refers to any system that properly stores and manages data via computer-aided information processing.

133

Chapter 2 IT utilization among SMEs

These results imply that SMEs which have yet to
deploy IT are doing their bookkeeping by hand andare consequently seeing productivity and profitability

Fig. 2-2-7

IT usage for bookkeeping at SMEs

(1) Usage of a PC for bookkeeping(2) Usage of an accounting software for bookkeeping

Bookkeeping is performed using a PC
Bookkeeping is performed without using a PC
Other

(%)

Source:Note:

An accounting software is used
No accounting software is used
Other

(%)

Teikoku Databank, Ltd., 2012 Survey of Conditions in Accounting at SMEs, commissioned by the SME Agency.
Based on data from SMEs.

█ IT usage in different business domains

The following will examine the extent of IT
deployment in different business domains. Figs. 2-2-8
and 2-2-9 look at the extent of and methods used for IT
deployment in different business domains. We see here
that, as the back-office business areas of “Finance andaccounting” and “Personnel affairs and salaries” arecritical to enterprises in every industry, a high proportionof enterprises are using IT in these areas and that most IT
consists of packaged software and systems. On the other
hand, IT deployment is low in the business domains of“Development and design”, “Physical distribution”, and134

being driven down by the mistakes, lost time, and costscommitted and incurred when making book entries.

“Customer support” as these domains are not necessary
for certain industries. We can also see that, with respect
to the method of deployment, many enterprises areeschewing packaged software and systems in favor of“Self-developed software systems” and “Order-madesystems” that allow for the deployment of IT technologies
tailored to their specific enterprises.
Clearly, IT is increasingly being used in business areasthat can make use of packaged software and systems. It isalso clear that a substantial number of enterprises are notusing IT in finance and accounting or personnel affairs andsalaries — business domains necessary in every industry.

Part II The earning power of SMEs

Fig. 2-2-8

IT deployment by business domain(%)

Section 2

Financeandaccounting

Source:Note:

Personnel
affairs andsalaries

Sales

Procurement
andpurchasing

Internal
information
sharing

Production

Development
and design

Physical
distribution

Customer
supportTeikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-2-9

IT deployment method by business domain
Self-developed software system

Order-made system

Packaged software system

Cloud computing

Physical distribution(n=1,128)
Production(n=1,772)
Sales(n=3,130)
Procurement andpurchasing(n=2,681)
Customer support(n=1,017)
Internal information
sharing(n=2,298)
Development and design(n=1,143)
Finance and accounting(n=3,354)
Personnel affairs
and salaries(n=3,138)

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.

135

Chapter 2 IT utilization among SMEs

█ Importance of IT investment at SMEs

Lastly, we look at Fig. 2-2-10 and examine the extent
to which IT investment is seen as important at JapaneseSMEs. This indicates that some 40% of enterprises still
believe that usage of IT is not important.

Fig. 2-2-10 Importance of IT investment at SMEs
(n=4,271)

Not important
37.6
Important
62.4(%)
Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The “Most important” and “Important” responses were tabulated as “Important”, while “Not so important” and “Notimportant” were tabulated as “Not important”.

This section has looked at the extent and potential
effects of IT usage by SMEs in Japan. Here we haveseen that, although SMEs are making progress ineffectively utilizing IT as society becomes increasingly
computerized, there are still a number of enterprises doing

Section 3

Issues involving effective IT usage and initiatives at highrevenue enterprises

In this section, we will shed light on the reasons why
IT investment is making little progress among SMEs andthe success factors behind enterprises that are enjoying
the expected effects of IT investment.
This section will focus on recurring profit margin
as a key indicator of earning power and will examine
differences in the effects from and initiatives being taken
towards IT investment by enterprises that have achieved

136

business without the use of IT. As previously discussed,
IT investment helps rationalize business processes, reduce
costs, expand sales, among many other effects, and using
IT allows Japanese SMEs to boost their earning power
even as they struggle with a shortage of workers.

a strong profit structure through investment and those thathave not by comparing these enterprises’ earning power(recurring profit margins). To do this, we have created
two groups of enterprises of the same size: those withrecurring profit margins in the top 25% (“high-revenue
enterprises”) and those in the bottom 25% (“low-revenue
enterprises”).

Part II The earning power of SMEs

1.

Reasons for not investing in IT and issues faced when investing█ Reasons for not investing in IT among companies
that have yet to invest

be borne”. From this we can see that companies thatview IT investment as important are looking to invest
in IT in order to solve management issues but do nothave IT people capable of deploying IT. We can also
see that many enterprises have not taken steps towards
investment as they do not understand the potential effectsof IT deployment and cannot bear the costs.

Fig. 2-2-11 shows the result of asking companies
who viewed IT investment as important but who had notinvested in IT their reasons for not investing. The top
reason given was “There is a lack of personnel who canintroduce IT”, followed by “The effects of introducing
IT are unclear or are not sufficient” and “Costs cannot(%)

Source:Notes:Tpe hererso
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for isk
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nt(n=171)

Section 3

Fig. 2-2-11 Reasons for not investing in IT among companies that have yet to invest

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises that stated IT investment is important but that they are not currently investing in IT.
3.	 No “Other” category is presented here.

█ Issues faced by enterprises when investing in IT

Next we look at Fig. 2-2-12, which shows future
investment issues to be faced by enterprises currently
investing in IT, categorized by high- and low-revenue
enterprises. Overall, the issue of “Measures against
information security risks, etc. are necessary” was the
top response, followed by “Employees lack the capacity

to use IT” and “There is a lack of IT human resources”.
Furthermore, although there are strong trends among
high- and low-revenue enterprises to cite a lack of humanresources and costs, respectively, as issues, there are no
particularly conspicuous differences between the issues
faced by the two types of enterprises.

137

Chapter 2 IT utilization among SMEs

Fig. 2-2-12 Future investment issues to be faced by enterprises currently investing in IT,
categorized by high- and low-revenue enterprises
Low-revenue enterprises(n=648)inform

All enterprises(n=2,657)

pa Thertic reula arer is no
su
Th
es
ere
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or, riate
etc
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who s
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inv
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ss ks,
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se e
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(%)

Source:Notes:

2.

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises currently investing in IT.
3.	 No “Other” category is presented here.

IT investment initiatives among high- and low-revenue enterprises█ Effects of IT investment for high- and lowrevenue enterprises

Let us now look at the different potential effects ofinvesting in IT for high- and low-revenue enterprises.
Fig. 2-2-13 compares high- and low-revenue enterprises
in terms of two types of IT investment made: “Enterprisesystems for operational efficiency” and “Business support
systems for higher added value”. We can see that highrevenue enterprises saw “Rationalization of businessprocesses, expediting of decision-making processes”
as the top effect of enterprise systems for operational
efficiency, indicating that such enterprises have a greater
sense of this effect than low-revenue enterprises. A
similar pattern was also seen for business support systems
for higher added value: high-revenue enterprises made138

“Rationalization of business processes, expediting ofdecision-making processes” their top response, and we
can see that these enterprises have a greater sense of “Sales
expansion”, “Increase in profit rate and productivity”, and“Strengthening of marketing and sales power” as effects
than do low-revenue enterprises.
These results indicate that the potential effects of IT
investment are felt more keenly among high-revenue
enterprises. If all enterprises could get the same sense ofeffect by investing in the same type of IT, there should
not be any conspicuous difference between high- and lowrevenue enterprises. This is further evidence that highrevenue enterprises realize the effects of IT investment andare taking steps to further improve business performance.

Part II The earning power of SMEs

Fig. 2-2-13 Effects of IT investment as viewed by high-revenue and low-revenue enterprises(1) Effects on enterprise systems for operational efficiency
High-revenue enterprises

Low-revenue enterprises

All enterprises

Section 3

Ra
tion
a
de proce lizati
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an of mds
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secu Restiority pon
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Sa
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es
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ob hav
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(%)

(2) Effects on business support systems for higher added value
High-revenue enterprises

Low-revenue enterprises

All enterprises

Str

en
gth
en
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an of mds
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Inc
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of on akn ndow sh-ho arse
w, ingcu Resetc
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co nseuns
ter toPrme risom
as ks,
oti
ure
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s
am of
on coog e pente rat
rpr ioniseNosbebe nefien ts
ob hav
tai
ne e
d

(%)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Actions taken before and after IT investment
among high- and low-revenue enterprises —the success factors behind IT investment

The following discussion focuses on actions taken
before and after IT investment by high- and lowrevenue enterprises, presenting a detailed analysis of thedifferences among these actions at enterprises effectingfrom IT investment and at those not effecting, as well as
the success factors behind IT investment.
Fig. 2-2-14 compares high- and low-revenue

enterprises in terms of which actions taken before andafter IT investment were meaningful in achieving effects.
Big differences were seen between the two types ofenterprises for responses such as “Review of operational
processes and internal rules”, “Collection of the voices of
relevant business departments and employees regarding
the introduction of IT”, “Formulation of a plan toward theintroduction of IT”, “Employee education and training on
the improvement of operations based on IT”, and “Phased
introduction of IT and post-introduction monitoring”.

139

Chapter 2 IT utilization among SMEs

Fig. 2-2-14 Actions taken that were meaningful to achieving IT investment effects, asviewed by high- and low-revenue enterprises
High-revenue enterprises

Low-revenue enterprises

All enterprises

pro

ce Rev
ss
es iew o
an f odinte peraCla
rna tionl ru alr
an ific
les
d v atiisio onn o of t
f in hetro purdu porel
cin seev Colle
an
gI
t cti
T
an bus on od e ine f th
mp ss e v
the loy dep oic
int ees artm es o
Fo
rod refrm
uc gar entsula
tio din
tio
no g
n
f IT
the of
int a plrod anuc tow
tio
tra Empn o ardinilof ITof ng o yee
op n t ed
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nsnba rove andse mePrd o nt
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T
of
the
Em
int effplo
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uc ts oing fof entpe anITrso d rnn e-aels
wh sign
Ut
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e
ati
r
on
to e ab nt
an of
us le
eI
d s exT
up ternport o al sp
rga eciPh
niz alisa
ati tspo sedon
st- ints
int rodrod ucuc tiotio n onm fI
on T aito nd
rin
Se
g
cu
rin
go
Ex
int f fuam
rod ndina
uc s fo
t
ing r
i
o
int
n
IT
o
co rod f a
nju ucpp
nc tiorontpof ion w me riatetbu
sin ith a hods IT
ess m revie inE
od w
de stabels
pa lishrtm men entta
nd of an
an
I
CI T
O

(%)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Based on data from enterprises currently investing in IT.
2.	 Total does not always equal 100% as multiple responses were possible.

The above results suggest that, along with reviewing
business processes and internal rules while gathering
feedback and information from departments andemployees, enterprises deploying IT would do well140

to provide employees with IT training in a staged andsystematic manner and to conduct ex-post investment
evaluations following IT investment.

Part II The earning power of SMEs

Case

2-2-5

Yoshihana Co., Ltd.

A company that has improved its efficiency and increased its profit rateby attracting customers through its website and introducing a cloudcomputing system

Section 3

Yoshihana Co., Ltd. (employees: 44; capital: ¥3 million), based in Kaga City, Ishikawa Prefecture, operates the 50room hot spring ryokan Ohanami Kyubei, located in the Yamanaka Onsen region. From the time of its establishment
in 1958, the company focused on taking group bookings for company trips organized through travel agents. In
addition to providing ryokan accommodation, the company also organized banquets for its corporate guests andengaged in product sales, and its business status was solid. However, the effects of a sluggish economy combinedwith a contraction in the scale of the hotel accommodation industry overall, in addition to a change in the company’s
customer makeup from groups to individuals, saw its revenue per customer decline and its business status worsen,
and its traditional operational system could not function effectively with increasing complexity in procedures.
Feeling a sense of crisis in relation to the problems being faced by the company’s traditional business approach,company President Ryuhei Yoshimoto joined Yoshihana in 2004 in order to reform operations. At the time, Mr.
Yoshimoto had no knowledge or experience of business management, and he was hard pressed to determine how
to reform the company. He decided to introduce an IT system in order to render processes previously conducted
on an individual basis visible, making it possible to identify where the company’s problems lay.
First, Mr. Yoshimoto judged that the company’s traditional system of relying on travel agents made it difficult to
attract individual customers with diverse needs, and he commenced the creation of a company webpage in 2005 inorder to make it possible to attract customers directly. In addition to formulating product plans that responded todiverse needs, he analyzed the webpage access log to investigate which pages received the most access and how
the reservation rate changed when he changed the photographs on the starting page. Repeating the PDCA cyclein this way enabled Mr. Yoshimoto to optimize the company homepage.
Next, in order to increase the efficiency of complex work procedures, in 2010 Mr. Yoshimoto introduced asystem that used cloud computing. Until then, all office procedures had used paper − for example, reservations
made by telephone or FAX were copied into a reservation book. This cost time and money, and procedures werealso inefficient, for example as a result of the frequent occurrence of mistakes in copying. The introduction of
the cloud computing system enabled data to be managed entirely on computer rather than paper. Linking thesystems used for different sections (reservations, reception, accounts) rationalized operations and saved labor,
and analysis of the data concerning customer attributes and sales aggregated by the system made it possible toconduct effective advertising and develop products with consideration of customer attributes.
By means of repeatedly implementing measures and checking the results in this way, the company was able
to continue to improve its website in stages, leading to an increased reservation rate via Web reservations, andincreased revenue. In addition to this, the introduction of the cloud-based system increased operational efficiency
and reduced costs, resulting in an increase in the company’s profit rate.
However, this process of company reform via the introduction of IT had been based on Mr. Yoshimoto’s own
judgment, and had been put into effect from the top down, without consideration of the opinions of employees.
Because of this, while the introduction of IT initially improved business results, as time passed, the antipathy of
employees to the changes increased. Job motivation declined, the level of customer service declined, and as aconsequence customer satisfaction also declined, resulting in a steady reduction in sales.
Realizing that top-down IT introduction had been a mistake, Mr. Yoshimoto revised the company’s internal
system to ensure that future business plans would only be formulated after he had communicated his thinking to all
employees and taken their opinions into consideration and reflected them in the plan, and in addition that efforts
would be made to provide every individual employee with guidance and training in customer service and IT use.
This produced a steady recovery in employee motivation, improved
the quality of customer service, and resulted in increased customer
satisfaction. In addition, while only a section of employees had used theIT systems up to that point, IT-related training for the entire company
resulted in greater use of the systems at the workplace level. This once
again increased operational efficiency, and the company’s results,
which had previously slumped, steadily recovered their previous level.
Mr. Yoshimoto says “The introduction of IT and the fostering of
human resources have resulted in a steady improvement in Yoshihana’sbusiness results, but there is still room for development. People tend
to think that introducing IT costs a lot of money, but there are alsoquite a few low-cost options such as cloud computing systems, andalso options that can be used for free, like webpage analysis. Because
the ryokan business is a traditional industry, a lot of inefficient waysof going about things still linger from the past, and this makes theCompany President Ryuhei Yoshimoto
well-planned introduction of IT all the more effective.”141

Chapter 2 IT utilization among SMEs

Case

2-2-6

Kobayashi Manufacture Co., Ltd.

A company that has increased its productivity by listening to employee
opinions and reforming its systems to ensure employee satisfaction
Kobayashi Manufacture Co., Ltd. (employees: 99; capital: ¥10 million), based in Hakusan City, Ishikawa
Prefecture, is a manufacturer of precision-machined sheet metal products for semiconductor manufacturing
equipment and machine tools. Equipped with a full range of production equipment and boasting considerable
technological expertise, the company uses these strengths to respond to its customers’ needs via high-mix/lowvolume manufacturing in short time periods.
Established in 1919, Kobayashi Manufacture’s main business was initially the production of bolts for use in ships andtextile machinery. As times changed, the demand for bolts declined, and the company shifted its area of business tosheet metals and coatings. The company’s approach those days was low-mix/high-volume. In the 1980s, when the useof personal computers began to become more widespread, company President Yasunori Kobayashi, then a student,
perceived their potential. He quickly developed an original order management software, and, with the agreementof the then-President, his father, introduced it to the company. However, employees rebelled against this unilateral
introduction of IT by management. Feeling that being managed by computers was demeaning to employees, notonly did they not make use of the new technology, but some even left the company. After joining the company,
Yasunori Kobayashi was appointed President in 1991, and came to question the company’s low-mix/high-volume
approach to manufacturing, which treated workers like machines. In 1999, Kobayashi Manufacture changed its
management orientation, transforming itself from a company that prioritized speed to one that sought to ensure
the happiness of each of its employees. Efforts were commenced to create a working environment in which thecompany’s employees could perform their jobs energetically and with a sense of the value of the work.
As times changed, the company found that its clients were demanding the same low prices as were available fromoverseas products, and it became difficult to ensure its previous level of profit. In 2008, the Lehman crisis occurred,
resulting in a significant decline in sales across the industry. Each time that the company faced these changes in its
circumstances and new challenging trials, it upgraded its IT system in an attempt to reduce costs through IT use.
First, the company upgraded its order management software, which had focused exclusively on the managementof dockets from the acceptance of orders to shipping, developing a production status management system that madeit possible for users to check materials, the status of the work, work history, solid diagrams, and estimates at a glance,
and that handled the acceptance and issuing of orders via electronic data interchange (EDI). The company also madeefforts to establish relationships of greater trust with its business partners via the speedy acceptance and issuingof orders using EDI, in order to help secure new orders from existing and new customers. Next, it installed 90 Web
cameras in its factory and recorded all of its work procedures and the operations of the employees in charge of them.
In order to make it possible to instantaneously grasp the work procedures involved in manufacturing a product, thecompany linked the images recorded by its cameras to the data in its production status management system.
In making these improvements to the company’s system, Mr. Kobayashi sought opinions from employees, and made thesystem upgrades in stages in order to resolve any problems
that arose along the way. For example, Mr. Kobayashi
predicted that company employees might feel that they werebeing put under surveillance, and object to the installation of
the Web cameras. He therefore explained to all employees inadvance that the purpose of the installation of the cameras
was to record manufacturing activities in order to increase
quality, boost productivity, and fairly assess each employee’s
way of working, and only went ahead with their installation
after receiving the agreement of the employees.
By upgrading its systems in steady stages andrendering its manufacturing procedures visible as
described above, Kobayashi Manufacture has succeeded
in increasing the efficiency of its work processes. In
Company President Yasunori Kobayashi (R)addition, the realization of an atmosphere of greaterand Department Manager Masae Kurokawa (L)openness and communication has resulted in increased
employee motivation and productivity, and has seen thecompany’s results display a V-shaped recovery, returning
to their pre-crisis level the year after the Lehman crisis.
Mr. Kobayashi says “No matter how magnificent thesystem, if a company’s employees are not satisfied with it,
the company will not obtain the results it desired. To ensurethat your investment is successful, dialogue with employees
is essential. The most important thing is to understandwhat kind of company each employee wants the company
to be in the future, and to share these visions.”
Kobayashi Manufacture Co., Ltd.’s head office and factory

142Part II The earning power of SMEs

Case

2-2-7

Eagle Bus Co., Ltd.

A bus company that improved its unprofitable routes through a fusion ofdigital and analogue: The introduction of an original system to reform its
work processes and the conducting of customer surveys

Section 3

Eagle Bus Co., Ltd. (employees: 200; capital ¥50 million), based in Kawagoe City, Saitama Prefecture, is atransportation company that operates route buses, high-speed buses, and sightseeing buses.
From its establishment in 1972, the company’s business focus was the operation of high-speed and sightseeing
buses. However, a request to the company from Hidaka City in Saitama Prefecture in 2006 to take over theoperation of bus routes when a major bus company pulled out of the area saw it newly add route bus operation
to its other business areas.
The route bus business that Eagle Bus. Co., Ltd. took over had been inefficiently managed, with no change tothe timetables in almost 40 years, and was chronically in the red. Believing that it would be necessary to optimize
timetables in order to bring unprofitable routes into the black, Masaru Yajima, the company’s President, brought
together the marketing methods for the identification of user needs that he had developed in the sightseeing
bus business and scientific methods for the understanding and analysis of transport data using IT, and created
and introduced a unique timetable optimization system. First, global positioning system (GPS) units and infrared
sensors were installed at the entrances of the buses on the routes in order to gather basic information. This enabledconstant monitoring of the status of operations, and the collection of data including data on the average numberof passengers and the length of delays by route, data on stops with a low rate of use, and data for different time
periods throughout the day. In addition, the company conducted a questionnaire survey of customers at thesame time as introducing the new system, in order to assess the needs of customers using the buses every day.
Bringing together the objective data obtained using IT and the results of the questionnaire survey, the company
reorganized its timetables in order to increase customer satisfaction
and boost profits with the optimum cost-benefit ratio.
The introduction of the IT system not only made the operation of
the bus routes visible, but also enabled the Eagle Bus to commence
management based on specific consumption (the quantity of various
factors of production required to produce a specific level of output)
in order to reduce costs. Efforts were made to increase profitability by
projecting the costs that could be reduced by shortening operatingtimes, and conducting thorough post facto assessments of the
reduction in costs following implementation.
The combination of the introduction of an IT system and the
conducting of a questionnaire survey enabled the company, four
years after taking over the operation of the routes, to achieve
increased customer satisfaction and a resultant increase in thenumber of passengers, and to realize a return to profitability. In
An Eagle Bus Co., Ltd. route bus
order to maintain a high level of customer satisfaction, in addition
to day-by-day surveys, Eagle Bus also conducts questionnaire surveys
regarding passenger attitudes towards once-yearly changes in its
timetables, and, because the lifestyles of the residents of the areas
through which its routes run are changing, a questionnaire survey of
local residents once every three years.
Eagle Bus has succeeded in improving its unprofitable routes
through the introduction of IT, but still faces a severe businessenvironment, with the Ministry of Land, Infrastructure, Transport andTourism estimating that more than 70% of bus companies throughout
the country are operating at a loss. The company has succeeded insignificantly improving its balance of revenue and expenditure on
unprofitable routes, but its route bus business as a whole is still in thered, necessitating further increases in productivity and profitability
into the future. Company President Masaru Yajima says “We have toincrease the profitability of our route bus business in the future, but
we can’t make increasing the profit rate our number one priority asa management indicator. We also can’t just judge the data based on
appearances. Although the introduction of IT has made it possible for
us to understand which routes were normally underused, we have toensure that we understand the needs of the customers who use thoseroutes before deciding on their continuation. Increased satisfaction
The company’s retro “CO-EDO Loop Bus”
with our services is linked to increased profitability.”143

Chapter 2 IT utilization among SMEs

Case

2-2-8

Happy Co., Ltd.

A company that optimized its business and increased profitability through theintroduction of an electronic records system that centrally manages its services
Happy Co., Ltd. (employees: 25; capital: ¥53.5 million), based in Uji City, Kyoto Prefecture, offers a “Careand Maintenance Service®” for clothes to customers throughout the country, based on a concept of enablingits customers to enjoy their garments for as long as possible. The company operates without physical stores oragencies, accepting orders by telephone or the Internet and making use of delivery services.
37 years ago, in 1979, company President Hideo Hashimoto established a dry cleaning business using equipmentthat he had developed himself. By the latter half of the 1990s, he had expanded his business to almost 50 agencies.
However, the dry cleaning market in Japan began to shrink annually, for reasons including the limited cleaning abilityof dry cleaning procedures, and, as times changed, reduced prices due to increased competition and the trend towards“fast fashion.” Recognizing the urgency of the situation, Mr. Hashimoto closed all his stores and established Happy Co.,
Ltd. in 2002. Mr. Hashimoto moved away from the dry cleaning business and developed a new area of business, a service
for revivifying clothes that involved a process of laundering that would not damage even high-quality fabrics (in 2006
he invented a world-first technique for laundering in water, which he called “Weightless Balance Laundering®”18)).
Happy Co., Ltd. makes skillful use of IT in its care and maintenance process. Employees first check the level ofsoiling and the state of clothing received from customers, and create individual records for the items in the system.
Based on these records, company sales representatives advise customers as to the optimum care and maintenanceschemes and the potential risks. Procedures are commenced when the customer’s agreement is obtained. The
development and introduction of this core electronic records system enabled centralized management that
establishes a solid connection between front office processes (consultation and sales, settlement of accounts, etc.)
and back office processes (laundering, finishing, shipment, etc.), making it possible to optimize the business asa whole. In addition, the recording of all work procedures by video cameras has enabled the transformation ofexperience-based knowledge such as employees’ specific skills from implicit knowledge to explicit technique. This“visualization” has further transformed human resources into assets, enabling the realization of high quality andhigh added value, with a resulting increase in the level of customer satisfaction.
The use of a database that compiles data from the electronic records
system also enables the company to target customers and conduct efficientsales. In addition to this, by linking its order Webpage to the electronic
records system, the company has created a cyber-physical system19) thatallows customers to make orders from PCs and also smartphones andother mobile terminals. By means of efficient sales procedures based ondata mining20) using this Big Data, the company is working to reduce costs,
increase repeat business, and increase its sales by acquiring new customers.
The original electronic records system that was introduced following
the company’s establishment did not possess the diverse functions of
the system today. Based on Mr. Hashimoto’s belief in not incorporating
functions that would not be used in the workplace, the system was
improved in stages by a repeated process of trial and error that reflected theopinions of company employees. By incorporating an increasing number
Customer consultation at Happy Co., Ltd.
of functions that enhanced convenience, Mr. Hashimoto succeeded increating a system that is able to be put to use in the workplace.
Following the completion of the electronic records system, which
provides a total management system, the company’s advertising expenses
were reduced to one-eighth, its sales were increased by 113%, and its
operating profit was approximately five times what it had been prior tothe completion of the system. The company’s prices are higher than thoseof a normal laundering business, but its sales have steadily increased.
Since the completion of its management system, Happy Co., Ltd. has also
worked to make constant improvements to the system while reflecting
opinions from the workplace as to how to further optimize work
procedures and increase the added value of services.
Mr. Hashimoto says “We will continue to offer our customers a richer
lifestyle through our unique service for the revivification of their valued
One of the company’s procedures
garments, based on a concept of care and maintenance that goes beyond(Silhouette press)
conventional laundering services.”18) “Weightless Balance Laundering” is an original laundering method developed by Happy Co., Ltd. that realizes the cleaning ability that is thestrong point of washing in water with the ability to maintain the shape of clothes that is the strong point of dry cleaning, applying a water
washing process that does not use physical, mechanical force and is gentler than hand washing (patent granted for Japan and overseas).
19) “Cyber-physical systems” are services/systems that contribute to the realization of a more efficient and advanced society by bringing together the
information obtained from sensor networks, etc. making up embedded systems in the real world (physical) with the computing power of IT (cyber).
20) “Data mining” refers to automated search technologies and methods enabling patterns, trends, correlations, etc. that would not be discoveredby simple analyses to be determined in large volumes of data.

144

Part II The earning power of SMEs

Column 2-2-3 IT usage and labor productivity
The discussion so far has looked at how, even though SMEs as a whole are increasingly engaging
in IT deployment, there is still a good number not using things like computers or accounting
software. This column will examine the relationship between IT investment and labor productivity
at SMEs.

▌IT usage and labor productivity

Fig. Column 2-2-3 (1)(Million yen/people)

IT usage and labor productivity at enterprises, by size (2013)

Different functions of IT are used by different business departments
The purpose of using IT is unclear, so IT is not adequately used

Large enterprises

Source:Notes:

Section 3

Fig. Column 2-2-3 (1) shows labor productivity levels by enterprise size based on differences in
IT usage at enterprises using data from 2014 Survey of Conditions in Information Processing and2014 Basic Survey of Japanese Business Structure and Activities, both published by METI. We can see
that, regardless of enterprise size, enterprises with unclear IT goals and inadequate IT usage havelower levels of labor productivity than do enterprises using IT for different business departments
and functions.
As shown earlier in Figs. 2-2-8 and 2-2-9, a strong percentage of SMEs are utilizing IT in the formof packaged software and systems in the “finance and accounting” and “personnel affairs andsalaries” business domains, which are critical to every type of industry. These results provide further
grounds for the idea that enterprises that are deploying packaged accounting software and other
IT to improve operational efficiency are effectively improving productivity, while enterprises not
deploying accounting software, etc. are not achieving improved efficiency through IT, indicating
the latter is not improving productivity like the former is.

SMEs

Recompiled from METI, 2014 Survey of Conditions in Information Processing and 2014 Basic Survey of JapaneseBusiness Structure and Activities.
1.	 Based on fiscal 2013 labor productivity resulting from 2013 IT usage.
2.	 Labor productivity = amount of added value / number of employees.

▌IT investment evaluation and labor productivity

Next let us look at Fig. Column 2-2-3 (2), which shows enterprises’ labor productivity based on
size and actions taken before and after IT investment. We can see that, regardless of enterprisesize, enterprises that made effect estimates prior to and after investing in IT had higher laborproductivity than those that made no estimates at all. Moreover, enterprises that conducted ex-post
evaluations in addition to preliminary evaluations and that carry out a PDCA cycle had even higher
levels of labor productivity.
This would suggest that SMEs can improve labor productivity to the level of large enterprises byconducting much more thorough preliminary and ex-post evaluations when investing in IT.

145

Chapter 2 IT utilization among SMEs

Fig. Column 2-2-3 (2)IT investment evaluations and labor productivity, by enterprise size (2013)

By applying the PDCA cycle, an investment evaluation is made before and after making an IT investment,
and the results are used to make improvements or to decide on whether to continue the system
The effects of making an IT investment are predicted before the investment, but ex-post evaluation is not carried out
The effects of making an IT investment are predicted neither before nor after the investment(Million yen/people)

Large enterprises

Source:Notes:

146

SMEs

Recompiled from METI, 2014 Survey of Conditions in Information Processing and 2014 Basic Survey of JapaneseBusiness Structure and Activities.
1.	 Based on fiscal 2013 labor productivity resulting from 2013 IT usage.
2.	 Labor productivity = amount of added value / number of employees

Part II The earning power of SMEs

Column 2-2-4 Measures to support deployment and effective utilizationof IT▌Lending for investment in IT (IT funds)

The Japan Finance Corporation provides funding for equipment capital for the acquisition ofequipment, etc. that composes information networks SMEs need to computerize their business, aswell as working capital for the acquisition of software and for the production, screening, etc. of
digital content (see Fig. Column 2-2-4).
Fig. Column 2-2-4

Overview of IT fund programs

Loan Usage

1.	 Enterprises for which any of 1 through 5 under “Loan Eligibility” apply
Equipment funds and leasing capital, etc. needed to acquire computers (including software)
2.	 Enterprises for which 6 under “Loan Eligibility” apply
Equipment funds needed to equip taxis with wireless technologies
3.	 Enterprises for which 7 under “Loan Eligibility” apply
Equipment funds needed to provide 4K broadcasting
4.	 Enterprises for which 8 under “Loan Eligibility” applies
Equipment funds needed to acquire computers (including software) and other equipment for ataxable business targeted for a reduced tax rate

Loan Limits

SME Unit: ¥720 million (of which working capital is limited to ¥250 million)
Micro Business and Individual Unit: ¥72 million (of which working capital is limited to ¥48 million)

Loan Interest Rates
Loan Periods

Section 3

Loan Eligibility

Enterprises for which any of the following apply:
1.	 Enterprises undertaking internal business improvement, information exchange, or other effective
measures aimed at upgrading the enterprise’s business through the use of information technologies
2.	 Enterprises conducting transactions or sending or receiving information over a network withother enterprises, consumers, etc.
3.	 Enterprises endeavoring to bring the level of the information technologies used in its business to
the level of those used by a business partner or other outside entity
4.	 Enterprises endeavoring to innovate with respect to business methods, content, etc. through theuse of information technologies
5.	Enterprises upgrading their information technology base, including efforts involving any
combination of 1 through 4 above
6.	 Enterprises that are or are attempting to operate a taxi business and are investing in digitalization
to equip their fleets with wireless technology (ended May, 2016)
7.	 Cable television service providers
8.	 Enterprises transferring, etc. taxable assets targeted for tax reduction as provided for by theConsumption Tax Act

SME Unit: Standard interest rates, special interest rates
Micro Business and Individual Unit: Standard interest rates, special interest rates
Equipment funds: Not exceeding 20 years (including a period of deferment not exceeding 2 years)
Working capital: Not exceeding 7 years (including a period of deferment not exceeding 2 years)

Managing Financial Japan Finance Corporation (SME Unit as well as Micro Business and Individual Unit)
Institutions
Okinawa Development Finance Corporation

147

Chapter 2 IT utilization among SMEs

Column 2-2-5 Competitive IT Strategy SME Selection 100
A program jointly conducted by METI and related agencies, the Competitive IT Strategy SME
Selection 100 selects SMEs that are proactively endeavoring to effectively utilize IT in competitive
fields and presents their efforts as best practices.
In contrast to the kind of IT investment practiced by Japanese enterprises, that is “conservative”
investment focused mainly on improving business efficiency and cutting costs, American enterprises
are using IT to strengthen product and service development capabilities while creating newvalue and honing their competitive edge through business model reform supported by IT. Amid
the changing environment surrounding SMEs, which includes a declining and aging population
alongside a changing employment structure, Japanese SMEs — which form the economic foundationof the country — will need to focus further energies on “competitive IT investment” if they are tostrengthen their earning power.
Those selected are SMEs that effectively utilize IT to expand profits by strengthening current
business and to create new value by venturing into new areas of business.
The acceptance of applications began in fiscal 2014, and the program plans to select about 100
companies over a three-year period21).

21) 33 SMEs were selected on October 27, 2015 during the first phase. Information about the selected companies can be found on METI’s
website at http://www.meti.go.jp/policy/it_policy/investment/it_keiei/100sen.html.

148

Part II The earning power of SMEs

3.

Utilization of IT personnel

We have so far looked at issues faced by enterprises
investing in IT and at “IT personnel22)” as one reason forenterprises’ not investing in IT. This section will look at
the present state of and issues concerning IT personnel
needed to succeed with IT investment.

█ Present state of IT personnel utilization

Fig. 2-2-15 looks at IT personnel sufficiency based
categorized by industry. In every industry, roughly
30% of enterprises said that IT personnel were either“Sufficient” or “Generally sufficient”. Meanwhile, some
50% to 60% of respondents in every industry chose either“Somewhat lacking” or “Greatly lacking”, indicating an
overall lack of IT personnel.

Sufficient

Generally sufficient

Somewhat lacking

Greatly lacking

Not needed, IT human resources are outsourced

No IT human resources are not needed in the first place

All industries

Section 3

Fig. 2-2-15 IT personnel sufficiency by industry

Manufacturing

Wholesale trade

Retail trade

Services

Other

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Based on data from enterprises currently investing in IT.

22) “IT personnel” here refers to personnel that use IT or plan, implement, and manage the deployment of information systems.

149

Chapter 2 IT utilization among SMEs

Next, Fig. 2-2-16 shows IT personnel utilization bybusiness domain and Fig. 2-2-17 shows IT personnel
working in each business domain. Keeping in mind that
IT personnel are not needed in certain business domains
in certain industries, the business domain found to havethe most IT personnel working in it was “Finance andaccounting”, followed by “Sales and planning”, “Internal
information sharing”, and “Procurement and purchasing”.
We can also see that, compared to other business domains,the “Finance and accounting” and “Personnel affairs
and general affairs” domains had higher percentagesof enterprises utilizing highly-specialized IT personnel
recruited via external outsourcing as freelancers23) or as
personnel from information systems firms, as opposed
to IT personnel employed in-house to perform jobs assystems engineers24), project managers25), and other IT

engineers in charge of developing and operating systems,
as well as IT engineers that analyze data, such as data
scientists26).
These results also suggest there is a high percentage
of enterprises employing highly-specialized IT
personnel in-house in order to differentiate themselvesfrom competitors. These are the development anddesign, production, and other business domains in
the manufacturing industry and the procurement andpurchasing, physical distribution, and other domains in
the wholesale and retail trade industries, among others.
On the other hand, an increasing number of companies
is utilizing IT personnel recruited via outsourcing forbusiness domains such as finance and accounting, which
are critical to every industry, as there is no need todifferentiate oneself from competitors in such domains.

Fig. 2-2-16 Methods for utilizing IT personnel, by business domain(%)

Financeandaccounting

Source:Notes:

Sales
andplanning

Internal
information
sharing

Procurement Personnel
andaffairs andpurchasing general affairs

Production

Customer
supportDevelopment
and design

Physical
distribution

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises currently investing in IT.

23) “Freelancers” here refer to those that do not work exclusively for any enterprise or organization and that provide their skills as
occupationally independent sole proprietors or private enterprises.
24) “Systems engineers” here refer to engineers whose primary duties are the planning, design, and operation of systems to ensure their smooth
operation.
25) “Project managers” here refer to project managers whose primary duties are coordinating schedules, ascertaining workloads, conducting
external negotiations, and managing operations.
26) “Data scientists” here refer to engineers and researchers who utilize statistics, data analysis, and other disciplines to perform duties thatinvolve leveraging large amounts of data for use in business strategy.

150

Part II The earning power of SMEs

Fig. 2-2-17 Composition of IT personnel being utilized by enterprises, by business domain
IT engineers who engage in the development and operation of systems (system engineers, project managers, etc.)
IT engineer who engage in data analysis (data scientists, etc.)
External IT engineers (information systems companies, freelance engineers, etc.)

Development anddesignInternal information
sharing
Production
Procurement andpurchasing

Section 3

Physical distribution
Sales and planning
Personnel affairs
and general affairs
Finance andaccounting
Customer support

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Based on data from enterprises currently investing in IT.

█ Initiatives to recruit and train IT personnel

Figs. 2-2-18 and 2-2-19 look at enterprises with IT
personnel and show, respectively, these enterprises’
efforts to recruit and train IT personnel. With respect to
IT personnel recruiting, the largest group of enterprises
was those engaged in the “Assignment of employees who
are literate in IT”. Those engaged in the “Recruitment of
mid-career IT human resources” and “Strengthening of IT
education to employees who are literate in own company
operations” ranked second and third. This would suggest
that, among enterprises investing in IT, many are recruiting
IT personnel by first reorganizing existing employees in
preparation for the investment and then hiring mid-career
IT personnel.

Regarding the training of IT personnel, the largest
group at 31.3% was that who said that “IT human resource
development is important, but no particular initiatives aretaken”, and this was among enterprises that currently have
IT personnel. It seems that enterprises with IT personnel arefacing a number of problems that are preventing them fromconducting sufficient training to improve these people’s
skills. In order to boost profit ratios and productivity
through IT investment, these enterprises will need to takefull advantage of the IT measures they implement. Doing
this will require having high-level IT personnel with therelevant skills. Enhancing profitability through the use of
IT will perhaps require leveraging high-level IT personnel
through outsourcing in a flexible manner, in addition tohiring such people as full-time employees.

151Source:

Notes:

152

ng
t
s im
es upp ewis
’ v ort e
IT olun forlea tarrni yngou Pertsi sodn
co e th nel
op e c ex
era om cha
tio pa ng
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lific iti l
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ills
an entad a tionbil
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IT- me O
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d d pe rou
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tak esenyeploNotes:

ov
idi

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Disres patchou ingrc
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tra edu o ex ma
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pro n a al
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se on, int
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tio ini nal
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rog an
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Re
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ym el
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Em
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nn es raryef
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are IT hu
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ex utso ry, b urce
ter urc utsna
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ies
I
are T humnapa eces n rertic sa sou
ula ry,rr in bu cestiare tiativ notak esenAem ssig
are ploy nme
lite ees nt of
rat wheinI oT

Chapter 2 IT utilization among SMEs

Fig. 2-2-18 Efforts to recruit IT personnel among enterprises with IT personnel(%)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises who were investing in IT and responded that their IT personnel was either “Sufficient”
or “Generally sufficient”.

Fig. 2-2-19 Efforts to train IT personnel among enterprises with IT personnel(%)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises who were investing in IT and responded that their IT personnel was either “Sufficient”
or “Generally sufficient”.

Part II The earning power of SMEs

█ Issues concerning IT personnel recruiting andtraining

Fig. 2-2-20 Problems with recruiting IT personnel among enterprises with insufficient IT
personnel

Section 3

Continuing on, let us examine issues enterprises arefacing in recruiting and training IT personnel. Figs.
2-2-20 and 2-2-21 look at enterprises who said they
had insufficient IT personnel and show, respectively,
problems concerning IT personnel recruitment andtraining. Regarding problems involving IT personnel
recruiting, “The vision of necessary human resources
is unclear” was the top response, followed by “There
are no human resources with the necessary qualities”
and “There is only a small number of desired humanresources”. This suggests that, while enterprises may
want to recruit IT personnel, both personal qualities andpersonnel quantities are lacking, preventing them fromrecruiting the IT people they need.
As for problems involving IT personnel training,“There is a lack of employees who are capable of providing
guidance to or developing IT human resources” was the
top response, followed by “Employees cannot secure
the necessary time to receive education due to being
busy with work” and “There is little means or knowhow for providing guidance to or developing IT humanresources”. It would appear that enterprises lacking
sufficient IT personnel are not training these personnel
because they have no employees able to teach IT skills,
nobody has expertise in personnel training, and there isno time to spend on personnel training as employees arebusy with other work.

Source:Notes:

pa Thertic reula arer is no
su
es

ete
n
aft tionerr
em ate iplo s lo
ym w
en
t

er
Th

T
em hereplo isy n noew mope neyrso tonnelThkn ereow is-h litt
the ow f le mede or a ans
sir cqed uir or
res hum ing
ou an
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s

ere
nu is omhu ber nly ama ofs
n r de mal
es sire l
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s

Th

Th
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ary s wit man
qu h th
ali e
tie
s

res nece The
ou ssa vis
rce ry ion
s i hus u ma of
nc
lea n
r

(%)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises who were investing in IT and responded that their IT personnel was either “Somewhat
lacking” or “Greatly lacking”.

153

Chapter 2 IT utilization among SMEs

Fig. 2-2-21 Problems with training IT personnel among enterprises with insufficient IT
personnelNetwex orkspe
rts of e
are xtelac rnal
kin
g
Th
ere
a
iss re nohu ues i par
ma n s ticu
n r ecles urin ar
ou
rce g
s

res Theou cosrce tsca dev of hu
nn elo maot
be pme n
bo nt
rne
Fa
cili
tie
sf
res deve or tra
ou lop ini
rce in ng
s a g h anre um dlac ankinggu

em There
ida cap ploye is anc able t e o es w lackITohohu or d f pro o ar f
ma ev vid e
n r elo ing
esEm
ou ping
rce
plo
s
ye
the esrec ne cancntoebe ive essa ot se
ing ed rycbu uca time ure
sy tiontowit
h w due
ork
Th
ere
is
pro or kn little
vid ow me
IT to o ing g -how ans
huma r dev uida forn r elo ncees
ou ping
rce
s
Em
plo
ye
em
ot
is ivati
lac onking(%)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Based on data from enterprises who were investing in IT and responded that their IT personnel was either “Somewhat
lacking” or “Greatly lacking”.

█ Utilization of external IT personnel

The discussion that follows will examine the utilizationof external IT personnel at SMEs. Fig. 2-2-22 looks at
different business domains and compares high-revenue
and low-revenue enterprises in terms of the extent to154

which they utilize external IT personnel in addition to
full-time IT employees. From this we can see that morehigh-revenue enterprises are using external IT personnel
than are low-revenue enterprises.

Part II The earning power of SMEs

Fig. 2-2-22 Proportions of external IT personnel being utilized by high-revenue and lowrevenue enterprises(%)

High-revenue enterprises

Low-revenue enterprises

All enterprises

Section 3

Sales
and planning

Source:Note:

Procurement
andpurchasing

Development
and design

Production

Physical
distribution

Financeandaccounting

Personnel
affairs andgeneral affairs

Internal
information
sharing

Customer
supportTeikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Based on data from enterprises currently investing in IT.

In this section we have looked at IT personnel
utilization and seen that SMEs lack the IT personnel theyneed to invest in IT. Through Figs. 2-2-20 and 2-2-21
we have also seen that, due to the many problems SMEs
face, they are not able to sufficiently recruit or train IT
personnel. On the other hand, high-revenue enterprises
are overcoming IT personnel shortages by utilizing
external personnel. We can likely be certain that, due toa declining overall population resulting from a declining

birth rate and population aging, labor shortages willcontinue to worsen at SMEs in Japan. These shortages,
however, can be mitigated by using IT to rationalize
business processes. As the external business environment
continues to change, one effective method going forward
may be the enterprising utilization of IT in ways suited tothat enterprise by leveraging outside resources as needed,rather than investing in IT using the enterprise’s internal
resources alone.

155

Chapter 2 IT utilization among SMEs

Column 2-2-6 Support measures for IT personnel shortages▌Strategic CIO Development Support ProgramThis program is run by the Organization for Small & Medium Enterprises and Regional Innovationand targets SMEs making systematic efforts to use IT in order to execute medium- to long-term
management strategies. It provides — for relatively extended periods — to these enterprises
specialists with ample knowledge of and experience with IT management and providing support indrafting and executing IT implementation plans based on management strategies, and also trains
IT personnel for these enterprises.
Program Overview
Eligible Enterprises

SMEs systematically engaged in resolving management problems and achieving management
reform by deploying relatively advanced IT systems that allow for things such as coordination
between departments and companies

Support Provided

Dispatching of specialists to SMEs, providing support listed below, and allowing SMEs to playa proactive role in the support process in order to train IT personnel within their enterprises.
1.	 Comprehensive support covering everything from management and IT strategy creation todeveloping, migrating, operating, and expanding systems
2.	 Support for efforts ranging from management and IT strategy creation to IT planning
3.	 Support for efforts ranging from business practice improvement to achieving the ideal IT plans
4.	 Support for efforts ranging from companywide information management strategy creation toachieving the ideal IT plans

Dispatch Fees

¥17,200 per person/day (including tax)

Dispatch Period

6 months to 1 year

Specialists Dispatched

Individuals with CIO experience, SME consultants, IT coordinators27), and other advisers withpractical experience resolving and helping to resolve management problems using IT27) “IT coordinators” here refer to experts that have knowledge of both IT and enterprise management and that provide IT implementation
support services aimed at achieving executives’ management strategies.

156

Part II The earning power of SMEs

4.

Conclusion

Chapter 2 has looked at the present state of IT
investment, the effects of this investment, and the key
points and problems on the path to achieving investment
success at SMEs.
While there are enterprises that have not implemented
IT due to a range of issues and enterprises that haveinvested in IT but are not enjoying the expected
benefits, both can improve their business performanceby following the examples of efforts by high-revenue

enterprises analyzed in this chapter, understanding the
key points of IT investment success, and investing in IT
while utilizing a variety of IT personnel.
Although labor shortages are likely to intensify as adecreasing birth rate and aging population contributeto an overall population decline in Japan, SMEs can
expect that IT implementation will allow them to not
only rationalize business processes and economize on
manpower but also boost their earning power.

Section 3
157

Chapter 3
Initiatives among SMEs to tap into overseas demand
As discussed in Part I and Chapter 1 of Part II, there is a possibility that domestic demand inJapan will shrink as a result of the structural problems of declining total population and declining
productive-age population due to the nation’s declining birthrate and aging population. However,as also discussed in Chapter 1 of Part II, overseas demand is expanding, and the number of foreign
tourists visiting Japan is also increasing. Furthermore, we can project a further deepening ofJapan’s relations with the rest of the world against the background of the Trans-Pacific Partnership(TPP), and this will include links in the area of trade. Given this, accessing overseas demand will
be a vital factor in enabling Japan’s SMEs to expand their sales figures.
Following a discussion of changing trends in overseas expansion among Japan’s SMEs, thischapter follows on from Chapter 2 of Part II in analyzing the effect, the status, and the issues ofinvestment in overseas expansion based on the results of the Questionnaire on Small and Medium
Enterprises’ Growth and Investment Activities. This chapter will also specifically focus on three
types of investment ― investment in export (direct1) and indirect2)), direct investment3), andresponses to inbound tourism4) ― and will consider future directions for investment in overseas
expansion5).

Section 1

Changing trends in overseas expansion —The importanceof overseas expansion against the background of the TPP—

In considering the status of overseas expansion among
Japan’s SMEs, we will first offer an overview of the TPP,
concluded in 2015.
The Trans-Pacific Partnership Agreement, involving
12 countries (Japan, the US, Canada, Mexico, Chile,Peru, Malaysia, Singapore, Viet Nam, Brunei, Australia,
and New Zealand), was concluded on October 5, 2015.
Establishing new rules in a broad range of areas, including
the abolition of tariffs, the liberalization of investment
and services, the protection of intellectual property,
e-commerce, and temporary entry for businesspersons,the TPP will result in the formation of an enormous, highlevel free trade area in an economic zone that represents
approximately 40% of global GDP and approximately
30% of Japan’s total export value. This agreement is
expected to offer large numbers of SMEs and midsizedcompanies not only in the manufacturing industry but
also in the service industry with an opportunity for
expansion.

1)
2)
3)
4)
5)

158

The TPP eliminates 99.9% of tariffs on the industrial
products exported by Japan, considered from theperspective of ultimate export value. Taking automotive
parts as an example, the US (current tariff rate: 2.5%)
has agreed to immediately eliminate tariffs on auto parts
representing more than 80% of export value; Canada(current tariff rate: 6.0%) has agreed to immediately
eliminate tariffs on products representing just under 90%
of export value in this area. This reduction of tariffs will
not only boost exports for SMEs and midsize companies
themselves, but also offers these companies significant
benefits via the expansion of exports by large enterprises.
The TPP will also eliminate tariffs on items produced byregional SMEs, such as textiles and ceramics. For example,
the US will immediately eliminate tariffs on products
accounting for 75% of the value of Japanese ceramic
exports to the country; the US will phase out its current
tariff rate of 9.1% on towels over five years, while Canada
will immediately eliminate its current tariff of 17%.

Direct exports are exports for which customs procedures are conducted by a company itself or in the name of the company.
Indirect exports are exports conducted by domestic trading companies or wholesalers, export agents, etc.
Direct investment refers to investment to establish an overseas subsidiary or capital participation in an overseas company.
Responses to inbound tourism refers to the sale and provision of a company’s goods and services to tourists visiting Japan from overseas.
Overseas expansion also includes importing, the establishment of business tie-ups with overseas companies, etc., but these will generally not
be considered in this chapter.

Part II The earning power of SMEs

Fig. 2-3-1

Section 1

in a single country, but also on the cumulation of added
value, etc. within the TPP region. This makes it possible
to utilize the TPP through a more diverse range of
production networks, a fact that benefits companies which
export parts and other products manufactured in Japan.

With regard to rules of origin, the TPP employs asystem of full cumulation of origin, in which origin is
judged on the basis of the cumulation of added value andprocessing procedures in multiple signatory countries(Fig. 2-3-1). This means that goods are able to satisfy
rules of origin requirements based not only on production

Image of full cumulation system(Ex.) Scenario in which rules of origin specify 45% added value(Figures and images are for the purpose of illustration only)

Within TPPJapan
TPP nation A

Core part

Added value: 25%
Non-TPP nation

TPP
preferential
tariff rate

TPP nation B

ExportRefrigerator
Assembly

Added value: 20%

Refrigerator

General-purpose partIn the absence of a cumulation rule, because the value added by nation A is 20%, the rule of origin requirement for added value of
45% is not satisfied. The cumulation system means that Japan’s 25% added value and nation A’s 20% added value are cumulated
to make a figure of 45% added value. At an added value of 45% or above, the product is recognized as an originating product.
*Full cumulation system: Normal cumulation systems only allow cumulation for parts that satisfy the area’s rules of origin. The full cumulation system employed by the
TPP makes it possible to cumulate value added to a part by countries within the area, even if the part itself does not satisfy the rules of origin.

The TPP Agreement also liberalizes investment and theprovision of services across national borders. For example,
a country that is a recipient of investment is prohibitedfrom applying conditions to investment activities suchas the requirement for investors to conduct technology
transfers (the requirement for the transfer of specifictechnologies, production processes, or valuable proprietaryknowledge to individuals within the country) or applying
royalty regulations (the requirement for the payment ofuse fees of a fixed rate or value as specified by a licensing
contract). In addition, the introduction of Investor-State
Dispute Settlement (ISDS) means that if an SME or
midsize company has suffered damages as a result of unfair
treatment by a government, the company is able to directlyseek international arbitration regarding the issue.

Viet Nam and Malaysia have eased their restrictions on
external investment in convenience stores and other retailbusinesses; Viet Nam has eased restrictions on investment
in a wide range of areas, including areas related to “CoolJapan” initiatives, including theaters and live venues,
and tourism-related areas, including travel agents. Thiseasing of restrictions can be expected to offer benefits foroverseas expansion in a broad range of areas, including
the service industry. For example, SMEs and midsize
companies engaged in the production of foodstuffs
or specialty regional products will be able to expand
overseas through cooperation with convenience stores.
Fig. 2-3-2 compiles a list of examples of the benefits thatcan be expected from the TPP.

159

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-2

Examples of benefits offered by the TPP Agreement

Facilitation of customs procedures (Rapid customs clearance, etc.)• 48 hour rule for customs clearance from arrival of cargo (six hours in the case of express clearance)à Reduces risk of delay in delivery to overseas customers. Beneficial for online sales, etc.
Enhancement of measures against counterfeit and pirated goods• Grants authorities in each signatory country the right to interdict counterfeit goods at the border.
• Provides for mandatory criminal penalties, etc. for the use of labels or packaging that violate trademark rights and illegal recording of films.
à Approximately 20% of SMEs suffer losses due to counterfeiting of goods; these provisions offer the benefit of preventing the counterfeitingof products manufactured by SMEs and midsize companies, and of protecting brands and technologies.
à Offers the benefit of preventing piracy of digital content.
Introduction of rules concerning temporary entry of businesspersons• Each signatory country has made pledges regarding the length of stay available to short-term business visitors, contracted service providers,company transferees, investors, spouses, etc.
à Offers benefits to SMEs and midsize companies conducting trade negotiations, providing services, dispatching staff overseas, etc.
Introduction of rules concerning e-commerce• Liberalization of cross-border data transfer.
• Abolition of requirement to locate servers in other countries’ territories.
à Will benefit SMEs and midsize companies engaged in the sale of products using IT from bases in Japan.
Introduction of rules concerning state-owned enterprises• The TPP makes it a principle that state-owned enterprises will not discriminate against companies based in other signatory nations, and ensurestransparency among state-owned enterprises.
à These provisions will benefit SMEs and midsize companies conducting transactions with state-owned enterprises overseas.
Introduction of rules concerning government procurement• Nations which are not parties to the WTO Agreement on Government Procurement, such as Viet Nam and Malaysia, will be subject to discipline
under the TPP.
• Organizations including some US power-related organizations and Malaysian investment-related agencies will be newly subject to discipline.
à Improves access to infrastructure markets and government-affiliated agency procurement markets. SMEs and midsize companies will also benefit.
Introduction of rules concerning SMEs
• Each signatory nation will establish a dedicated website on which it publishes the text of the TPP Agreement, etc., which will include information
specifically for SMEs.
• The Agreement stipulates the establishment of subcommittees to identify means of supporting SMEs in making use of the business
opportunities offered by the TPP, etc.
à Nations will cooperate in encouraging the use of the TPP by SMEs.

160

Part II The earning power of SMEs

2-3-1

Asai Nursery, Inc.

An example of an agriculture-commerce-industry joint venture that hasrealized increased productivity through the use of Dutch cultivation techniques

Section 1

Case

Asai Nursery, Inc. (employees: 13; capital: ¥50 million), based in Tsu City in Mie Prefecture, cultivates flowers andplants and operates a landscape gardening and greenification business, in addition to engaging in research anddevelopment, cultivation, and distribution of agricultural products, chiefly tomatoes.
After its foundation in 1907, the company’s initial business focus was the cultivation and sale of trees forgreenification. During its heyday, the company’s annual turnover reached ¥500 million, but changes in lifestylefollowing the collapse of Japan’s bubble economy saw demand for trees decline, and the company’s sales sankto a tenth of what they had been in its peak period. In his university days, Asai Nursery’s President, Yuichiro
Asai, interned at a seed and seedling company in the US, and came to recognize the low level of productivity ofJapan’s family-run agriculture in comparison to US-style agriculture. He felt strongly that he had to change Japan’s
agriculture. Experience in the experimental cultivation of mini tomatoes and the systematization of cultivation
methods for a fertilizer company in Shizuoka Prefecture made him realize the potential of tomatoes. Believingthat he would be able to restructure his family’s company through research on mini tomatoes and their production
and sale, he returned home and commenced the greenhouse cultivation of tomatoes as a new business, having
been appointed the company’s President.
When he commenced the experimental cultivation of mini tomatoes, Mr. Asai had no expertise in cultivating
vegetables, and he found it hard going. Encouraged by Professor Norihiro Nishimura of Mie University, he enteredthe university’s graduate school and commenced research on the selective breeding of tomatoes using genome
technology. He also introduced a system created by a Dutch company which is the world’s largest producer ofgreenhouse cultivation systems, and focused on increasing productivity, receiving advice from Dutch consultants
and controlling the temperature, humidity, and amount of carbon dioxide in the greenhouse. In the area of
distribution, Mr. Asai commenced direct sales, enabling him to maintain a constant awareness of customers’
needs and to avoid being caught between agricultural cooperatives and other entities, and he steadily cultivatedbusiness partners.
Four years ago, seeking to expand its sales channels and spur overseas demand, Asai Nursery formulated a plan
to jointly launch a Vietnamese subsidiary that would become a local production base. However, this attempt failed
as a result of trouble with the company’s local business partner. Learning from this experience, Mr. Asai createda system enabling the company to expand its business overseas by traveling overseas and surveying foreign
markets for himself, identifying reliable local partners
and employing staff possessing language abilities
making it possible to smoothly conduct overseas businessand local Chinese personnel with Ph.D. degrees. The
company is today exporting tomatoes and other highquality agricultural produce to Asian countries including
China and Singapore, and, while the pace is gradual, its
overseas sales are increasing.
In 2013, Asai Nursery was involved in the joint
foundation of Ureshinoagri Inc., an agriculturecommerce-industry joint venture (Tsuji Oil Mills Co.,
Ltd: 65%; Asai Nursery, Inc.: 20%; Mitsui & Co., Ltd.:15%) seeking to incorporate industrial and commercial
expertise in order to realize a new agriculture. In
September 2014, the venture completed the constructionof a large-scale plant factory with a total floor area of two
Yuichiro Asai, President of Asai Nursery, Inc.
hectares. The facility focuses on the production and saleof high-quality mini tomatoes, using sunlight and waste
heat from a neighboring Tsuji Oil Mills biomass boiler forgreenhouse temperature management, and applying
the latest technologies to the maintenance of optimal
temperature conditions for tomatoes, using sensors
and computers. In addition to this, the standardizationof procedures inside the greenhouse has enabled therealization of a high level of productivity.
Mr. Asai says “In addition to expanding our joint
venture in future, I also want to work to move into theglobal food market by gathering together young farmmanagers and promoting the overseas expansion of“Ureshino” truss tomatoes produced by Asai Nursery, Inc.
Japan’s agricultural and food industries.”

161

Chapter 3 Initiatives among SMEs to tap into overseas demand

Section 2

Investment in overseas expansion among SMEs:
Status and outcomesThis section will consider the status of investment inoverseas expansion among Japanese SMEs, and clarify

1.

Outcomes of investment in overseas expansion and effects on enterprises█ Outcomes of investment in overseas expansion

Fig. 2-3-3 shows outcomes from exports, direct
investment in production bases, direct investment insales and services bases, and investment in responses toinbound tourism. For each of these types of investment inoverseas expansion, the proportion of enterprises whichhave experienced positive outcomes in terms of “Sales
expansion” and “Development of new markets, andacquisition of new customers overseas” is high. This canbe considered to indicate that no matter which category
is chosen, conducting investment in overseas expansion
leads to the acquisition of overseas customers, and as aresult to increased sales.
The proportion of enterprises responding “Increasein brand recognition” is also high in the categories ofexports and investment in responses to inbound tourism.
It may be inferred from this that the presentation of
goods and services to overseas customers in their own
countries and to overseas visitors to Japan increases a
company’s level of recognition and boosts the value of
its brand.

162

the outcomes which can be obtained from conducting
such investments.

Numerous enterprises indicated “Cost reduction,”“Increase in customer satisfaction,” and “Increasein profit rate and productivity” as effects of direct
investment in production bases. In the case of direct
investment in sales and service bases, a higher proportionof enterprises indicated the “Development of new markets
and acquisition of new customers overseas” as outcomesthan was the case for other forms of investment, andnumerous enterprises also indicated the “Collection of
information on overseas markets,” “Enhancement ofsales and marketing ability and planning ability,” and“Increase in customer satisfaction” as effects. We caninfer that direct investment in production bases enables
enterprises to reduce costs and increase their productivity
and profit rate by taking advantage of the low-cost laborand geographical advantages offered by locating theirproduction bases overseas. In the case of direct investment
in sales and service bases, it can be assumed that theestablishment of sales centers and offices overseas and thesubsequent pursuit of sales activities enables enterprises
to collect information on overseas markets and to acquire
new overseas customers.

Source:

Notes:

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Fig. 2-3-3(1) Effects of export(%)(2) Effects of direct investment in production bases

(%)

(%)

(%)

Section 2

Sa
lePart II The earning power of SMEs

Effects of investment in overseas expansion(n=611)(n=235)(n=209)(n=68)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Categories respectively aggregate results for companies investing in export, conducting direct investment in production
or sales/service bases, or investing in responses to inbound tourism.
2.	 Total does not always equal 100% as multiple responses were possible.

163Chapter 3 Initiatives among SMEs to tap into overseas demand█ Changes in recurring profit margin withinvestment in overseas expansion

In order for a company to boost its earning power, it must
increase sales and reduce costs to increase profitability.
What is the correlation between investment in overseas
expansion and labor productivity? Using data from the
Ministry of Economy, Trade and Industry’s Basic Surveyof Japanese Business Structure and Activities, this section
will consider changes in labor productivity following thecommencement of exports and the conducting of direct
investments, in order to determine whether investment
in overseas expansion contributes to increased laborproductivity.
Based on data for SMEs that responded each fiscal
year to the survey regarding their export status from fiscal
2001 to fiscal 2013, Fig. 2-3-4 shows changes in labor

Fig. 2-3-4

productivity for companies that conducted continuous
exports from fiscal 2001 to fiscal 2013 (“exporting
companies” below) and companies that did not conduct
any exports between fiscal 2001 and fiscal 2013 (“nonexporting companies” below), with the figure for 2001
considered as 100. For non-exporting companies, there islittle change in the level of labor productivity from fiscal
2001 to fiscal 2013. By contrast, exporting companies
display a steady increase in labor productivity fromfiscal 2001 onwards. While labor productivity figures forexporting companies dipped temporarily below those fornon-exporting companies in 2009 due to the effect of theLehman crisis, they recovered following this, and havemaintained a consistently high level in relation to figures
for non-exporting companies.

Labor productivity for exporting and non-exporting companies(Labor productivity;
FY2001=100)

Companies that maintained consistent exports from fiscal 2001 to fiscal 2013
(Exporting companies)
Companies that did not conduct any exports between fiscal 2001 and fiscal 2013
(Non-exporting companies)(FY)

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Aggregates results for SMEs only.
2.	 Labor productivity calculated as value added domestically divided by number of domestic employees.
3.	 Aggregates results for companies responding to the survey every fiscal year from fiscal 2001 to fiscal 2013.

Fig. 2-3-5 shows the relationship between direct
investment and labor productivity. Based on data for
SMEs that responded each fiscal year to the survey
regarding their direct investment status from fiscal
2001 to fiscal 2013, the figure shows changes in laborproductivity for companies that conducted continuous
direct investments from fiscal 2001 to fiscal 2013 (“directinvesting companies” below) and companies that did not164

conduct any direct investments between fiscal 2001 andfiscal 2013 (“non-direct-investing companies” below),with the figure for 2001 considered as 100. As in the caseof results for exports, little change in labor productivity
is observed for the non-direct-investing companies fromfiscal 2001 to fiscal 2013. By contrast, labor productivity
began to increase for direct-investing companies fromfiscal 2001. Figures dipped below those for non-direct-

Part II The earning power of SMEs

investing companies in fiscal 2009 due to the effect of theLehman crisis, but recovered following this to maintain

Fig. 2-3-5

a consistently high level in relation to figures for nondirect-investing companies.

Labor productivity for direct-investing and non-direct-investing companies

Section 2(Labor productivity;
FY2001=100)

Companies that maintained consistent direct investments from fiscal 2001 to fiscal 2013
(Direct-investing companies)
Companies that did not conduct any direct investments between fiscal 2001 and fiscal 2013
(Non-direct-investing companies)(FY)

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Aggregates results for SMEs only.
2.	 Labor productivity calculated as value added domestically divided by number of domestic employees.
3.	 Aggregates results for companies responding to the survey every fiscal year from fiscal 2001 to fiscal 2013.

The results discussed above do not demonstrate a
causal relationship between investment in overseas
expansion and increased labor productivity (it is not clear
whether investment in overseas expansion increased laborproductivity for these companies, or whether companies
boasting a high level of labor productivity conductedinvestments in overseas expansion), but they do at least
demonstrate that there is a correlation between investment
in overseas expansion and increased labor productivity.

█ Relationship between investment in overseas
expansion and number of domestic workers

Up to this point, we have considered outcomes related
to investment in overseas expansion. This section will
look at the effect of investment in overseas expansion on
employment in companies.
Fig. 2-3-6 shows changes in the number of domestic
workers with investment in overseas expansion, by typeof investment. Slightly more than 10% of companies
conducting direct investment in order to establish
production bases overseas responded that their numberof domestic workers had declined, a higher proportion
than for companies conducting other types of investment.

However, for all types of investment, approximately
70 to 80% of companies responded that there had been
no change, and the proportion of companies respondingthat their number of domestic workers had increased isconsistently higher than the proportion responding thatthe number had decreased.
Based on these results, we may conjecture that in thecase of investment in exports and responses to inboundtourism, with the commencement of investment inoverseas expansion, companies acquire new customers,
increasing their sales and turnover, and hire moredomestic workers in order to respond to this increased
sales volume. In the case of direct investment for theestablishment of production bases, because production
processes originally conducted domestically are shifted
overseas with the establishment of local factories, etc., thenumber of domestic workers decreases. However, we canalso assume the existence of companies which increase
their domestic workers following the commencementof direct investment, for example through the hiring ofdomestic personnel for the management of overseas
subsidiaries, the collection of information on overseas
markets, the formulation of business strategy, etc., or

165

Chapter 3 Initiatives among SMEs to tap into overseas demandthrough the domestic recruitment of specialized personnel
with the transition to a high-value-added research anddevelopment-based business model.

Fig. 2-3-6

This indicates that rather than hollowing-out domestic
employment, investment in overseas expansion has thepotential to boost employment.

Changes in number of domestic workers with investment in overseas
expansion (by type of investment)
Increased

No change

Decreased

Export(n=591)
Directinvestment(Production
bases)(n=228)
Directinvestment(Sales/service
bases)(n=203)
Responses
to inboundtourism(n=72)

Source:Note:

166

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Categories respectively aggregate results for companies investing in export, conducting direct investment in production
or sales/service bases, or investing in responses to inbound tourism.

Part II The earning power of SMEs

Case

2-3-2

Kahoku Lighting Solutions Corporation

Kahoku Lighting Solutions Corporation (employees: 120; capital: ¥100 million), based in Ishinomaki Cityin Miyagi Prefecture, is a manufacturer of light bulbs and other lighting products for industrial and medical
applications.
The company was established in 1927 as a manufacturer of lamps for projectors. Over the course of its
history it concluded joint venture contracts with the overseas companies GTE Sylvania, Inc. and Phillips
Lighting Holdings B.V., but in 2006 the company extinguished these contracts, and became independent as
Kahoku Lighting Solutions Corporation. Because the company had previously been foreign-owned, it hadfor years been conducting exports to countries and regions including Asia, the US, and Europe, and its ratioof overseas sales was high. Possessing no brand power in comparison to larger companies, the achievementof brand recognition among users represents an issue for the company. Kahoku Lighting Solutions’ strengthis its ability to understand customer desires and dissatisfactions that larger companies are unable to respondto, and to respond flexibly to these needs using the expertise it has accumulated in the more than 80 years
since its foundation in 1927.
The Lehman crisis in 2008 reduced revenue by around 30%, and area such as semiconductors received asignificant effect. Feeling that it was necessary to find a new business axis to add to its business in the areas of
medical equipment and semiconductors, one that would not be affected by economic downturns, the company
turned to airport lighting. However, manufacturing its products in Japan meant that it was unable to matchexisting manufacturers in terms of cost. In order to realize cost-competitiveness, the company therefore began
to investigate offshore production from 2009. Representatives traveled overseas and collected information
on overseas markets, and the company began formulating a business plan for overseas expansion. It thenproceeded to systematically implement its overseas expansion plan, beginning with the selection of a country
or region to locate its production base in. Taking costs and the level of acceptance of Japanese companies into
consideration, the company selected Viet Nam, and commenced operation of a local subsidiary in April 2013.
In conducting investment in overseas expansion, the company first consulted with the liaison service of
the Japan External Trade Organization (JETRO) for the support of Japanese companies venturing overseas.
JETRO was able to introduce it to a partner with extensive knowledge of manufacturing in Viet Nam. As
a result, the company was able to secure local personnel for the main posts in its local subsidiary, and its
factory launch was extremely smooth. One staff member from the Head Office in Japan is stationed inViet Nam, with the remaining almost 30 employees having been locally recruited. The local personnel tend
to be hard-working, and the development of their skills through efforts by the company to cultivate its
human resources has enabled the realization of increased operational efficiency. However, because local
employees often quit very soon after commencing their employment, the company feels that in the future
it will be necessary to make improvements to employee treatment and the working environment in orderto retain local staff. The fact that the local legal system and business practices differ from Japan’s in many
areas has also meant that the company has experienced its share of problems in Viet Nam, but step-by-step
instruction is gradually leading to improvements.
The establishment of an overseas production base through the foundation of a local subsidiary has enabled
the company to reduce manufacturing costs, and the creation of a system of overseas mass production is
gradually increasing sales, boosting its profit rate.
The establishment of an overseas production base, the overseas shiftof its domestic production, and the creation of a system of overseas mass
production has also not only made it possible for the Japanese Head
Office to strengthen its research and development efforts, enabling it torespond to new demand in the future, but also to plan the establishmentof a system for high-unit-cost small-lot production.
Company President Yasumasa Konno says “In the domestic market wewere fighting for customers, and it was vital for us to access overseas
demand through exports and direct investment in order to increase
our sales. We are also aware that our main products at present might
not be successful forever, and so we want to enhance our research anddevelopment in Japan and create a system that enables us to respondrapidly to future demand. To make this possible, we intend to boost ourcompany metabolism by recruiting personnel able to advance research
Yasumasa Konno,
and development and sales every year, and giving attention to fostering
President of
Kahoku Lighting Solutions Corporationthese human resources.”

Section 2

A company that has enhanced cost-competitiveness and realized highadded value by establishing overseas production bases and strengthening
its domestic business

167

Chapter 3 Initiatives among SMEs to tap into overseas demand

2.

Status of overseas expansion among SMEs

This section will consider the status of exports, direct
investment, and responses to inbound tourism among
Japan’s SMEs against the background of intensifying
international competition with the growth of companies
in emerging nations.

█ Status of exports among SMEs

The status of exports among Japan’s SMEs will be

Fig. 2-3-7(Number ofcompanies)

considered first. Fig. 2-3-7 shows changes in the number
and percentage of exporting companies among small andmedium-size manufacturing enterprises (SMMs) andmicro manufacturing businesses. While the number ofexporting companies among SMEs and micro-businesses
has increased over the long-term, the percentage of thesecompanies against the total number of SMMs has notexceeded a low 3.5%.

Number and percentage of enterprises(by enterprise size; manufacturing industry)
Number of micro manufacturing enterprises
conducting direct exports (left axis)
Percentage of total number of micro
manufacturing enterprises (right axis)

conducting

directexports

Number of small and medium-size manufacturing
enterprises conducting direct exports (left axis)
Percentage of total number of small andmedium-size manufacturing enterprises (right axis)(%)(Year)

Sources: Recompiled from METI, Census of Manufactures; MIC, METI, 2012 Economic Census for Business Activity.
Notes:
1.	 Statistics for workplaces with four or more workers re-aggregated for units of companies.
2.	 According to the 2013 Census of Manufactures, there are approximately 180,000 SMEs and approximately 130,000
micro businesses with manufacturing sites having four or more workers.

Fig. 2-3-8 shows the composition of direct exportby small and medium-size manufacturing enterprises
conducting direct exports, by industry. Of 24
classifications for the manufacturing industry, the top fivebusiness types account for 50.3% of exports, or more than168

half of the total. This indicates that export among Japan’s
SMMs is fundamentally underpinned by machinery andequipment-related export, in particular the export ofproduction machinery.

Part II The earning power of SMEs

Fig. 2-3-8

Composition of direct export (by industry; SMMs)
(%)

Other

Chemicalindustry

Section 2

Production machineryand equipment
manufacturing

Electric machineryand equipment
manufacturing

Metal products
manufacturing
Industrial machinery andequipment manufacturing

Source:Note:

Recompiled from METI, 2013 Census of Manufactures.
Statistics for workplaces with four or more workers re-aggregated for units of companies.

Fig. 2-3-9 shows changes in the number of enterprises
conducting direct exports in the top five industry categories
from Fig. 2-3-8. Production machinery and equipment
manufacturing, the category with the highest number ofexporting companies, has maintained a consistent increase

with the exception of the period directly following theLehman crisis, while numbers in the other four industry
categories have recovered to roughly their pre-Lehman
levels in recent years.

169

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-9

Changes in the number of enterprises conducting direct exports(by industry; SMMs)
Production machinery andequipment manufacturing
Metal products manufacturing

Chemical industry
Industrial machinery andequipment manufacturing

Electric machinery andequipment manufacturing(Company)(Year)

Sources: Recompiled from METI, Census of Manufactures; MIC, METI, 2012 Economic Census for Business Activity.
Notes:
1.	 Statistics for workplaces with four or more workers re-aggregated for units of companies.
2.	 Results for top five industry categories in 2013.

Fig. 2-3-10 compares the ratio of SMMs conducting
direct exports by number of employees, for 2009 and2013. These results show that the ratio of exporting
companies increases with an increasing number of
employees. In addition, the fact that the amplitude of the170

increase between 2009 and 2013 is greater in proportion to
the size of the company indicates that the manufacturingindustry, which is characterized by comparatively largescale companies, has driven the increase in the number ofcompanies conducting direct exports.

Part II The earning power of SMEs

Fig. 2-3-10 Ratio of enterprises conducting direct exports(by number of employees; SMMs)
2009

(%)

2013

4−10
employees

11−15
employees

16−20
employees

21−30
employees

31−40
employees

41−50
employees

51−100employees

101−200
employees

Section 2

point

201−300
More thanemployees 300 employees

Sources: Recompiled from METI, 2009 Census of Manufactures and 2013 Census of Manufactures.
Note:
Statistics for workplaces with four or more workers re-aggregated for units of companies.

Fig. 2-3-11 compares the number of exporting
companies and the annual value of exports for large
enterprises and SMEs. Data for the number of exporting
companies were aggregated from METI, 2013 Census of
Manufactures6), and data for the value of exports were
aggregated from METI, 2014 Basic Survey of JapaneseBusiness Structure and Activities7). The fact that there aredifferences between the enterprises surveyed in the data

sets should be borne in mind. The results show that while
approximately 90% of Japan’s 7,225 exporting companies,
or 6,397 companies, are SMEs, at an annual export valueof 3.38 trillion yen, they account for less than 10% of thenation’s annual export value of 56.80 trillion yen. This
demonstrates that the export value per company for SMEs
is extremely low in comparison to large enterprises.

6) The Ministry of Economy, Trade and Industry’s Census of Manufactures is a survey focusing on manufacturing industry workplaces
throughout Japan with four employees or more.
7) The Ministry of Economy, Trade and Industry’s Basic Survey of Japanese Business Structure and Activities is a survey focusing on
companies with 50 or more employees and capital of ¥30 million or more.

171

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-11 Number of exporting companies and value of exports(by enterprise size; manufacturing industry)
Large enterprises

SMEs

(%)

100

6.0

90

¥3.38 trillion

80
70
60

6,397 companies
88.5

50

94.0

40

¥53.42 trillion

30
20
10

828 companies
11.5

0
Number of exporting companies

Value of exports

7,225 companies¥56.80 trillion

Sources: Recompiled from METI, 2013 Census of Manufactures; 2014 Basic Survey of Japanese Business Structure and Activities.
Note:
Statistics for workplaces with four or more workers re-aggregated for units of companies.

Up to this point, we have looked at trends in exports
among small and medium-size manufacturing enterprises.
To continue, we will consider trends in exports among
other types of enterprise, using financial data sourced
from Teikoku Databank, Ltd.
Fig. 2-3-12 shows the percentage of enterprises
conducting direct exports and indirect exports, byenterprise size and industry category. The results indicatethat while the percentage of large enterprises and SMEs
conducting direct and indirect exports in the manufacturing
and wholesale sectors is comparatively high, little export
activity is being conducted in the retail and services
sectors, irrespective of the size of the enterprises8).

8) It should be borne in mind that because Teikoku Databank, Ltd. aggregates data for which it has received requests for credit research, thecompany’s data do not present a comprehensive overview of export trends among Japanese companies.

172

Part II The earning power of SMEs

Fig. 2-3-12 Percentage of enterprises conducting direct and indirect exports(by enterprise size and industry; 2015)(%)

Direct exports (Large enterprises)

Indirect exports (Large enterprises)

Direct exports (SMEs)

Indirect exports (SMEs)

Section 2

Manufacturing

Wholesale trade

Retail trade

Services

Sources: Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database) and CCR (Corporate Credit Research
Files).

█ Status of direct investment among SMEs

Below, we will look at the status of direct investment
among SMEs. Fig. 2-3-13 shows changes in thenumber of enterprises conducting direct investment,by size and industry category. Comparing 2001 and2006, we see a significant increase in the number ofenterprises conducting direct investments among bothlarge enterprises and SMEs. From 2006 to 2009 a slightdecline in the number of both large enterprises and
SMEs conducting direct investments can be observed
as a result of factors including the Lehman crisis, but

between 2009 and 2014, both large enterprises and SMEs
display an increase. In addition, 1,590 of the 6,346 SMEs
conducting direct investment in 2014 were SMEs otherthan enterprises engaged in manufacturing, retail orwholesale activities, representing a significant increase inthis category compared to 2009. It may be conjectured
from this that while direct investment has traditionallybeen driven by the manufacturing industry, SMEs in avariety of other industries, including retail and services,
have commenced direct investment.

173

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-13 Changes in the number of enterprises conducting direct investment(by enterprise size and industry category)(Company)

SMMs

Small and medium-size
wholesale enterprises

Small and medium-size
retail enterprises(Numberof SMEs)(Numberof SMEs)

Percentage represented
by SMEs: 68.2 %Percentage represented
by SMEs: 70.6 %Other SMEs

(Numberof SMEs)

Percentage represented
by SMEs: 70.6 %Large enterprises(Numberof SMEs)(Year)
Percentage represented
by SMEs: 72.4 %Sources: Recompiled from MIC, Establishment and Enterprise Census, 2009 and 2014 Economic Census for Business Frame.
Notes:
1.	 “Enterprises conducting direct investments” here refers to enterprises that have an overseas subsidiary (A company ofwhich the parent company holds more than 50% of voting rights; this includes cases in which either the subsidiary or
the subsidiary and the parent company combined hold more than 50% of voting rights, and subsidiaries that appear
on the parent company’s consolidated financial statements, even if the parent company holds less than 50% of voting
rights), but not including small offices/home offices.
2.	 “Large enterprises” here refers to any enterprise other than an SME as defined by the Small and Medium-sizedEnterprise Basic Act.

To continue, we will look at the ratio of enterprises
conducting direct investments based on METI’s Basic
Survey of Japanese Business Structure and Activities.
Fig. 2-3-14 shows changes in the ratio of enterprises
with overseas subsidiaries, i.e., enterprises conducting
direct investments, by enterprise size. These results

174

show that like large enterprises, there has been an annual
increase in the percentage of enterprises conducting
direct investments for SMEs overall, and there has beena proportional increase in the ratio of SMMs conducting
direct investments.

Part II The earning power of SMEs

Fig. 2-3-14 Changes in the ratio of enterprises with overseas subsidiaries(by enterprise size)(%)

Large enterprises

SMEs (manufacturing only)

SMEs

Section 2(Year)

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 “Enterprises that own overseas subsidiaries” refers to enterprises that own an overseas subsidiary or affiliatedcompany at the end of the fiscal year.
2.	 “Subsidiary” refers to a company of which the owning company holds at least 50% of the voting rights. This includes
companies in which the subsidiary itself or the subsidiary and the parent company together in total own at least 50%of the voting rights. “Affiliated company” refers to a company in which the parent company directly owns between
20% and 50% of the voting rights.

Fig. 2-3-15 shows changes in the ratio of industry
sectors for enterprises with overseas subsidiaries,
by enterprise size. These results show that while
manufacturing enterprises continue to represent the greater
share of companies with overseas subsidiaries among
both large enterprises and SMEs, from 2008 to 2013, thepercentage of manufacturing enterprises declined little bylittle, and there was a proportional gradual increase in thepercentage of enterprises in the wholesale, informationand communications, and services sectors. Based on theseresults, we may conjecture that against the backgroundof shrinking domestic demand resulting from population
decline, enterprises in the diverse range of businesstypes represented by the wholesale, retail and services
industries are advancing overseas in order to accessoverseas demand.

175

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-15 Changes in the ratio of industry sectors for enterprises with overseas
subsidiaries(Year)

Manufacturing

Wholesale trade

Services

Other

Information and communications

Large
enterprises

SMEs

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 “Enterprises that own overseas subsidiaries” refers to enterprises that own an overseas subsidiary or affiliatedcompany at the end of the fiscal year.
2.	 “Subsidiary” refers to a company of which the owning company holds at least 50% of the voting rights. This includes
companies in which the subsidiary itself or the subsidiary and the parent company together in total own at least 50%of the voting rights. “Affiliated company” refers to a company in which the parent company directly owns between
20% and 50% of the voting rights.
3.	 The services industry includes services such as retail trade and the accommodations, eating and drinking services.

To conclude this analysis, we will consider thecountries and regions in which these companies are
conducting direct investments. Fig. 2-3-16 showschanges in the makeup of countries and regions in which
subsidiaries are located, by enterprise size. These results
show that from around 2011, the ratio of direct investment
in China began to decline among both large enterprises
and SMEs. At the same time, there has been a significant
increase in the ratio of direct investment in other Asian
countries, in particular the ASEAN nations9). As thisindicates, there has been a recent shift away from China
and towards emerging Asian nations as targets for direct
investment among Japanese companies. This trend can beseen to have been significantly influenced by the decline

in the pace of growth of the Chinese economy and a senseof uncertainty over the future, in addition to spiraling
labor costs. The realization of the appeal of countries andregions other than China and the business opportunities
they represent as production and sales/services bases by
the manufacturing and other sectors, in particular thewholesale and services sectors, and a shift towards thesecountries and regions as the focus of investment, canalso be assumed. This phenomenon also demonstrates
that there has been a change in the traditional pattern of
manufacturing industry-focused overseas expansion, in
which production and sales bases were situated in China
in order to take advantage of low labor costs and abundant
demand.

9) ASEAN is a regional entity made up of 10 nations: Malaysia, Thailand, the Philippines, Indonesia, Viet Nam, Cambodia, Singapore, Laos,
Myanmar, and Brunei.

176

Part II The earning power of SMEs

Fig. 2-3-16 Changes in composition of countries and regions for location of local overseas
offices (by period of investment and enterprise size)
China (including Hong Kong)

Taiwan

Korea

ASEAN

Other countries in Asia

North America

EuropeOthers(%)

Section 2

Large
enterprises

before(%)(Year)

SMEs

beforeSource:Notes:(Year)

Recompiled from METI, 2014 Basic Survey of Overseas Business Activities.
1.	 “Local overseas offices” is a generic term referring to subsidiaries and second-tier subsidiaries. A “subsidiary” is anoverseas corporation in which the Japanese parent company has a stake of at least 10%. An “second-tier subsidiary”
is an overseas corporation in which a subsidiary at least 50% owned by the Japanese parent company has a stake ofat least 50%, or an overseas corporation in which the Japanese parent company and a subsidiary at least 50% ownedby the Japanese parent company jointly have a total stake of at least 50%.
2.	 The data totaled is for enterprises with Japanese head offices determined to be large enterprises and SMEs as definedin the Small and Medium-sized Enterprise Basic Act.

█ Status of responses to inbound tourism among
SMEs

Finally, we will look at the status of responses toinbound tourism among Japan’s SMEs. This is a topic thathas attracted attention recently against the background of amarked increase in the number of overseas tourists visiting
Japan. When fewer overseas tourist were visiting Japan,
domestic companies focused on exporting their goods
and services and establishing overseas production andsales bases as methods of tapping into overseas demand.
Because of this, only some industries, in particular the
manufacturing industry, were able to actively accessoverseas demand. With the increase in the number ofoverseas tourists, however, a diverse range of industries,
in particular retail, eating and drinking services, andaccommodations, are now able to access overseas demandby providing goods and services to tourists, as discussed
in Part II, Chapter 1 above.
Here, we will consider characteristics of industry
category and enterprise size in relation to responses
to inbound tourism. Fig. 2-3-17 shows the ratio ofenterprises conducting responding to inbound tourism,by industry category and size of enterprise, based on the
results of a questionnaire survey. Looking at all industry
categories, only 3.9% of companies are responding to
inbound tourism. Turning to the industry categories able
to most easily respond to consumption among inboundtourists, we see that 6.1% of retail companies and 7.5%of services companies, including companies providing
accommodations and eating and drinking services, areresponding to inbound tourism. Looking at results bysize of enterprise, we see that the ratio of companies
responding to inbound tourism is higher among companies
with 21 employees or more than among companies with
20 employees or less.
These results indicate that Japanese companies are
beginning to make efforts to respond to inbound tourism,
and that this trend is centered on the retail industry, which
provides products to overseas tourists visiting Japan, andservices industries that have considerable opportunity
to engage with tourists, including the accommodations,amusement, and eating and drinking services industries.

177

Chapter 3 Initiatives among SMEs to tap into overseas demand

In addition, we can note that the larger a company is, thegreater its flexibility in terms of allocating employees,
and the easier it therefore is for it to respond to inboundtourism. Because it involves accessing overseas demand
without leaving Japan, responding to inbound tourism
may be considered an easier option for investment thanexport or direct investment, but it is also lagging behindthese other options. This means that even more SMEs will
be able to use this opportunity and increase their sales byaccessing overseas demand through efforts to respond toinbound tourism.

Fig. 2-3-17 Ratio of enterprises responding to inbound tourism(1) Ratio of companies responding to inbound tourism (by industry category)(%)

All industries

Manufacturing

Wholesale trade

Retail trade

Services(2) Ratio of companies responding to inbound tourism (by enterprise size)(%)

20 employees or less

Source:17821−100 employees

101 employees or more

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.

Part II The earning power of SMEs

Column 2-3-1 RESAS tourism maps:
Trends in areas visited by overseas tourists▌Overseas tourists in Japan: Mesh analysis

Mesh analysis is a function added to the tourism maps in RESAS in September 2015. The meshanalysis function makes it possible to display areas in which overseas tourists are staying on meshes
in units of 10 kilometers and one kilometer, in order to show which areas are popular and whichhave few visitors and should be prioritized in future PR efforts. Using the 10 kilometer meshes, themovements of overseas tourists staying within a specific mesh to other meshes can be displayed,enabling relationships between regions to be determined. This makes it possible to understandthe patterns of the excursions undertaken by tourists, and this data can be used in examining thepossibility for tourism cooperation between regions (Data is integrated for the six-month period
from November 2014 to April 2015; Data source: NAVITIME Japan Ltd., Inbound GPS Data).
Fig. Column 2-3-1 (1) shows a heat map of areas in which overseas tourists are staying and a map
showing the relationship between regions in terms of the movements of overseas tourists between
meshes, using the 10 kilometer meshes. While the heat map is red in major cities such as Tokyo
and Osaka, we can see that there are numerous other regions which are not displayed at all. In
addition, we may conjecture from the fact that the map showing tourist movements mainly shows
links between Tokyo and Osaka and regional areas that the airports close to these cities serve as theportals for visits to Japan by overseas tourists, and that tourists visit regional areas after arriving atthese cities.
Fig. Column 2-3-1 (1)Source:Note:

Section 2

Using the Regional Economy and Society Analyzing System (RESAS), a system launched in April
2015 by the Headquarters for Overcoming Population Decline and Vitalizing Local Economy inJapan and the Ministry of Economy, Trade and Industry to enable data-based support for local
government initiatives, it is possible to survey the areas visited by overseas tourists in Japan andtrends in consumption among tourists.

Overseas tourists in Japan: Mesh analysis

NAVITIME Japan Ltd., Inbound GPS Data.
Based on Regional Economy and Society Analyzing System (RESAS) calculations.

179

Chapter 3 Initiatives among SMEs to tap into overseas demand▌Analysis of consumption by tourists visiting Japan

Consumption analysis is a function added to the tourism maps in RESAS in December 2015.
This function makes it possible to display the total value and number of credit card transactions
conducted by overseas tourists visiting Japan (by region and by nationality), the unit value of thetransactions, and changes in the total value of consumption, by sector for units of prefectures
on maps or graphs. This enables us to understand the total value of consumption and the unit
value of transactions conducted by overseas tourists in specific regions (Data is monthly data from
August 2012 to July 2015; Countries are the country of residence of the cardholder. Results are
extrapolated to the total value of transactions for all credit cards based on the share of the total
value of Visa card transactions in the total value of all credit card transactions for countries aroundthe world. Data source: Visa Worldwide (Japan) Co., Ltd. credit card data). For example, looking
at the unit value of transactions in the sightseeing and entertainment sectors, we see that thevalue per transaction was higher in a number of regions (Miyagi Prefecture, Mie Prefecture, Tottori
Prefecture, and Yamaguchi Prefecture) than in Tokyo and Osaka (Fig. Column 2-3-1 (2)).

Fig. Column 2-3-1 (2)Source:Note:

Analysis of consumption by overseas tourists visiting Japan(sightseeing and entertainment sectors; unit transaction value; 2014)

Visa Worldwide (Japan) Co., Ltd.
Based on Regional Economy and Society Analyzing System (RESAS) calculations.

▌Hanabi maps of consumption by tourists visiting Japan

Hanabi maps of consumption by overseas tourists visiting Japan display the total value ofconsumption by overseas tourists (by region and by nationality) using credit cards, by sector, as
the size of squares. The maps are formulated based on credit card data. The resulting maps makeit possible to understand the consumption behavior of tourists visiting Japan in specific regions.
(The same data as used in the analysis of consumption discussed above was employed). Looking at
the hanabi map of consumption by tourists in 2014 in Tottori Prefecture, where the consumption
analysis shown in Fig. Column 2-3-1 (2) showed that the unit value of transactions was high(sightseeing and entertainment sectors; unit transaction value; 2014), we see that 50.6% of total
annual expenditure was in the retail sector, 29.5% was in the accommodations sector, and only 7.3%
was in the sightseeing and entertainment sectors. Given this, we can project that the adoption of agreater focus on the sightseeing and entertainment sectors, in which the unit value of transactions
is high, will make it possible for the prefecture to promote more consumption by inbound tourists(Fig. Column 2-3-1 (3)).

180Part II The earning power of SMEs

Fig. Column 2-3-1 (3)Hanabi map of consumption by overseas tourists visiting Japan(Tottori Prefecture; 2014)

Consumption in 2014 (All periods): Consumption amount by sector (Major divisions)
Tottori Prefecture
All regions > All countries

Retail trade

Eating anddrinking services

Section 2

Consumption amount (Total amount): ¥490,885,795¥38,199,258
Sightseeing/
Entertainment¥248,769,103
Accommodations¥36,066,401¥10,456,063¥144,810,820

Source:Note:¥5,931,312

Visa Worldwide (Japan) Co., Ltd.
Based on Regional Economy and Society Analyzing System (RESAS) calculations.

The following functions of RESAS can also be used to assist companies in attempting to tap into
consumption by inbound tourists.

▌Analysis of areas visited by overseas tourists

This function makes it possible to display the number of overseas tourists visiting a region (using unitsof prefectures), by nationality and purpose of visit (“All purposes” or “Sightseeing or leisure purposes”)
on a map or graph. This enables analyses such as identification of which nationalities to prioritize tourism
measures in relation to.

▌Analysis of areas in which overseas tourists stayThis function makes it possible to display the status of accommodation of tourists visiting Japan byprefecture and city/town for daytime (2 PM) and nighttime (4 AM), by month. The understanding oftrends in accommodation among tourists that this offers enables analyses such as identification of which
nationalities to prioritize tourism measures in relation to.

181

Chapter 3 Initiatives among SMEs to tap into overseas demand█ Importance of investment in overseas expansion
to SMEs

Finally, we will consider the importance of investment
in overseas expansion as perceived by Japanese SMEs

(Fig. 2-3-18). The results shown here indicate thatapproximately 80% of SMEs do not consider investment
in overseas expansion to be important.

Fig. 2-3-18 Importance of investment in overseas expansion to SMEs

Important

Not important(%)
Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Responses for the items “Of the greatest importance” and “Important” have been aggregated under the category“Important,” and responses for the items “Not very important” and “Not important” have been aggregated under the
category “Not important.”

The overview of the actual status and the effects ofinvestment in overseas expansion among Japan’s SMEs
presented in this section has indicated that despite thefact that the number of companies engaging in efforts
to tap into overseas demand via investment in overseas
expansion is gradually increasing, the ratio of thesecompanies to the total number of SMEs remains low, anda relatively high proportion of companies do not consider
this form of investment as being important.

182

However, as shown in Fig. 2-3-3, there are enterprisesthat have experienced the benefits of the cultivationof overseas markets and increased sales as a resultof investment in overseas expansion. Given this, we
can consider that accessing overseas demand throughinvestment in overseas expansion will be important toJapan’s SMEs in future as a means of bolstering theirearning power against the background of shrinking
domestic demand.

Part II The earning power of SMEs

Case

2-3-3

Nanbu Bijin Co., Ltd.

Nanbu Bijin Co., Ltd. (employees: 30; capital: ¥20 million), based in Ninohe City in Iwate Prefecture, founded in1902 and hence boasting over 100 years of history, is a long-established maker of sake using the pure water foundin its local area.
Demand for sake within Japan has become saturated, and younger people are moving away from the drink.
Against this background, the company’s sales were displaying an annual decline. Having spent a period in the US
as an exchange student during his high school years, Kosuke Kuji, Nanbu Bijin’s fifth-generation President, decided
to tap into overseas demand by exporting his company’s sake. Mr. Kuji brought together sake makers seeking toexport their product overseas to launch the Sake Export Association, an organization that aimed to support thepromotion of Japanese sake overseas and to make the drink international. The association actively organizedseminars and tastings with a view towards commencing overseas export. Mr. Kuji’s initial attempts to conduct
sales activities overseas faced a significant language barrier, and he found it difficult to explain the superiorityof his product and the brewing process during business negotiations. Negotiating sales in tandem with overseas
coordinators enabled him to overcome the language barrier, making it possible to commence fully-fledged exports.
The first shipment was small, consisting of 12 720ml bottles and six 1.8L bottles. However, company representatives
continued to visit points of sale and beefed-up their sales activities. The company also branded its sake “Southern Beauty”
in English and began to use English-language labels on its exports. As a result of these efforts to increase understandingof sake in the export market, the company’s brand recognition gradually began to increase, and its export sales also rose.
In 2013, the company received kosher certification (certification that the ingredients, preparation, etc. of a foodor drink adhere strictly to Jewish religious law) for its sake and its plum liqueur with no added sugar, giving its
products high added value. While sales in the US had gradually increased following the commencement of exports
in 1997, Mr. Kuji realized that sake sold overseas in only a limited range of venues such as Japanese restaurants,
and there was little opportunity for ordinary customers to come into contact with the drink. He also noted thatin the US products with kosher certification had recently increased to represent around 30% of supermarket
products, and that their image of being safe and healthful meant that it was not only Jewish consumers who werepurchasing kosher foods. At this time, there was basically no sake that had received kosher certification, and Mr.
Kuji decided to take the certification for his products, believing that it would distinguish his company from thecompetition, expand his sales channels, and increase his volume of exports and sales.
Acquiring kosher certification involved detailed inspection of the production process and storehouses, etc., andverification of every stage of the company’s procedures, fromdelivery of raw materials to the shipment of the product,
to ensure, for example, that there would be no mixing of
the raw materials for kosher-certified products and nonkosher-certified products. This cost time and money, but theacquisition of kosher certification increased the company’s
brand recognition and its sales, and in 2014, its overseas
sales increased 1.2-fold against the previous year.
One of the factors in Nanbu Bijin’s success inexporting its products is that in looking towards overseas
expansion, Mr. Kuji explained his concept of the purposeof the venture and his vision to all employees. Following
this, decisions were made rapidly, and all the company’s
employees came together as one to work towards
expanding overseas. Another factor in the company’s
success is the fact that it has developed a system by meansof which Mr. Kuji is able to give attention to guiding the
A sake tasting for members of the Jewish community in the US
overseas business onto a successful trajectory, while the(Company President Kosuke Kuji in the center)
employees around him provide support to ensure thatthe domestic business is not neglected.
With the acquisition of kosher certification, thecompany expects to further expand its business bycommencing exports to areas that were previously closed
to it, such as Israel, Northern Europe, and Eastern Europe.
Mr. Kuji says emphatically, “As a company that has received
kosher certification, a world-standard guarantee of thesafety and security of a product, for Japanese sake andliqueur, we want to continue to communicate the appealof Japan’s traditional culture to the rest of the world.”
Kosher certification

Section 2

A company that increased its sales by boosting overseas exports of sakewith the acquisition of kosher certification

183

Chapter 3 Initiatives among SMEs to tap into overseas demand

Case

2-3-4

WILLER TRAVEL, Inc.

A company that has succeeded in tapping the inbound tourism market bydeveloping and marketing products for overseas tourists visiting JapanWILLER TRAVEL, Inc. (capital: ¥70 million), based in Osaka City in Osaka Prefecture, is a member of the WILLER
ALLIANCE Group, an operator of highway buses and other travel services. Using the Internet, via its own website
and other companies’ travel sites, WILLER TRAVEL provides a wide range of services, including the sale of highway
bus, airplane and ferry tickets and reservations for hotels and other accommodation. The company also engages
in comprehensive Web marketing activities, from listing advertisements10) and display advertisements11) to acquire
new customers through its website/company system to measures to entice existing customers, for example sendingout mail magazines. At present, 98% of the company’s customers make bookings via the Internet.
The mission of the WILLER ALLIANCE Group is to bring value innovation to the movement of people throughout
the world. Recognizing the potential for the use of buses to transport overseas tourists visiting Japan from theairport to the city and to offer sightseeing excursions, from 2009, when the number of tourists visiting the country
began to steadily increase, the company took the lead over its competitors by working to cultivate an Internetbased business aimed at overseas tourists, seeking to tap into demand from this market.
In addition to developing products specifically tailored to overseas tourists visiting Japan, WILLER TRAVEL has
also built a system enabling it to respond to the needs of these tourists, including offering reservations via its
website in English, Chinese and Korean, enabling online credit card transactions, recruiting non-Japanese staff
members able to respond in other languages in its physical offices, and conducting English-language training for
its other staff members. It has also commenced offering announcements at its bus stations in English and onboard
its buses in multiple languages. By advertising on sites in different languages and using listing advertisements, thecompany has also increased its recognition among overseas tourists visiting Japan through its marketing activities.
In launching these initiatives to tap the inbound tourist market, the company formulated a vision for a business targeting
foreign tourists at a Group management meeting featuring all the Group companies, and informed its employees of thisvision at one of its three-monthly strategy meetings. The company incorporated this business vision into a business plan,
and worked to cultivate its business while verifying the effectiveness of the plan and adjusting its course each month.
These steady efforts saw WILLER TRAVEL succeed in making steady inroads into the inbound tourist market,
and the number of users of its services increased annually. From 2014 to 2015, the company increased its annual
number of users from 70,000 to approximately 100,000, mainly from Europe and Asia, a 143% year-on-yearincrease, and numbers have continued to increase steadily.
In addition, in September 2015 the company commenced operation of a website called “JAPAN BUS LINES,” whichenables overseas tourists to search for and make reservations on highway bus routes throughout Japan in English, Chineseor Korean. The company sought to promote consumption by inbound tourists in Japan’s regional areas by securing routes
that connected all major cities and regional areas, but it found this a difficult process in practice, leading to the creationof the website. Bus companies from around the country can register with the site, providing overseas tourists with a onestop service by means of which they are able to reserve seats and purchase tickets on route buses throughout Japan. In
the future, the company intends to further strengthen its grip on the inboundtourist market by means of measures including increasing the range of languages
available on its website and expanding its scope to normal route buses.
In March 2016, in cooperation with WILLER CORPORATION, a member of the
WILLER ALLIANCE Group that plays a role as a regional trading company in orderto promote regional revitalization, and umari inc., the company launched Japan’s
first double-decker restaurant bus12) to enable overseas tourists to experience the
Shigetaka Murase,appeal of Japanese food. In the future, a program enabling visitors to experience
president of WILLER TRAVEL, Inc.
harvesting vegetables on a farm in Niigata Prefecture and enjoysightseeing while savoring regional foods is being planned. In
tandem with this initiative, the company, in cooperation withumari inc., has launched the “NIPPON Travel Restaurant” on it
homepage as a new eating experience that fuses the attractionsof regional foods and travel. By spreading information regarding
appealing regional dishes from Japan to the world via its
homepage and encouraging visits to different regional areas byforeign tourists, the company is seeking to contribute to regional
The company’s restaurant bus
revitalization and expand the inbound tourist market.
10) “Listing advertisements” are advertisements that relate to search terms input to a search engine by Internet users, and which are displayed on
the search results page.
11) “Display advertisements” are advertisements using images, movies, etc. that are embedded in webpages.
12) The company’s restaurant bus is a double-decker bus with refrigerators, sinks, and a kitchen for the preparation of food on the first level, andtables and seating space for 25 passengers on the upper level. The upper level also features a transparent roof that can be opened and closed.
Opening the roof on warm and sunny days makes it possible for passengers to eat their meals on the bus while enjoying the surrounding scenery.

184

Part II The earning power of SMEs

Section 3

Problems related to investment in overseas expansion
and initiatives of high-revenue enterprises

In this section, we will discuss problems associatedwith investment in overseas expansion for SMEs, andclarify factors in the success of companies that haveboosted their results by conducting investment.
As was the case in Chapter 2, Section 3, this section
will also focus on the recurring profit margin, whichis essential to enhancing companies’ earning power.

1.

Dividing SMEs into high- and low-revenue enterprises,
we conduct a comparison of their recurring profit margins
in order to analyze the differences between the initiatives
implemented by, and the effects of investment for,companies that have become high-earning enterprises
through investment in overseas expansion and enterprisesthat have not.

Reasons that enterprises do not conduct investment in overseas expansion

In this section, we will consider companies that are
not conducting investment in international expansion.
Fig. 2-3-19 shows responses from enterprises regarding
their reasons for not conducting investment in overseas
expansion, despite viewing such investment as important.
We see that the most frequent response was “Lackthe knowledge/information/expertise for international

business,” followed by “Cannot secure personnel able
to conduct international business procedures,” “Cannot
secure local overseas partners, trading companies, etc.,”
and “Too busy with domestic business to consider
overseas expansion.” These results indicate that evenamong companies that regard investment in overseas
expansion as important, limiting factors (a lack of relevant
information or expertise, a lack of human resources orpartner companies, limited time due to domestic business)are preventing them from conducting investment.

Section 3█ Reasons enterprises not conducting overseas
investment are not investing in overseas
expansion

Fig. 2-3-19 Reasons enterprises not conducting overseas investment are not investingin overseas expansion
(%)

inf

L
orm ack t
int atio he k
ern n/ noati exp wle
on
al ertis dge/bu e fsin ores
ab Can
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tm s
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or regec ardonom ing poic
sit litica
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rtn Can
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r
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o
or
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ac r lo ec
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for us expetovis ign t omer rt
itin ou s,
g J rist
ap s
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nc
ern
s
of ovetra r ledease kingcrets(n=93)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies that are not conducting investment in overseas expansion, but responded thatinvestment in overseas expansion is important.

185

Chapter 3 Initiatives among SMEs to tap into overseas demand█ Issues related to investment in overseas expansion

Fig. 2-3-20 shows problems that enterprises experience
in relation to conducting exports. “Securing local partners,
trading companies, etc.,” is the most frequent response,

followed by “Risk of exchange rate fluctuations,”“Dealing with local legal system/business procedures,”and “Cost management/Risk in collection of receivables.”Fig. 2-3-20 Problems related to exports(%)

pa Secu
co rtner ring
mp s,
a tr loc
Ris nies adingal,k
rat of e etc.
e f xclu
ctu hanleg Dea gal
sy aling tionseste w
m/ ithCo pro busin loca
ce e ls
Rist man dure ss
k i ag snoc emov JaSecu f rec ollec ent
ers pa rin eiv tio /ea ne g a ab ns e se nd les
Qu xpan staf trainfali
ty sion to le ing
e ad co
Ob ate ntro ffortsd
ov tain man l/De
ers ingag liv
Un eas info emeeryde ma rmnt
rs
r a
Int tand ket t tion
o
en
r
i
e
n
g n nd nss
co ity o
mp f c eeds /a omVpro iola red t petitope tionin rty of Jap ionanco rig inp
y ht teDan evel ing o s/Incllectu
d s opfar
erv me prod ease l
ice nt o uct
sf fp s
or ro
Re
ov du
sp
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on
din m rsea tsSesag
to rket
cu
irre
rin
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g
d
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an
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d
r m pe
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rso
a
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a
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es
Dif
nt
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ry
ult
Fin funyo
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cin
qu f com
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g
mu
t
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Re
of nicsp an pro ati
reg ond d se du ng
ula ing rvi cts
tio to ces
ns do
Se sys (Lice mestc
A u te ns ic
tou cce ring m, et ing
ris ssin cus c.)ts
v g o tom
La isitin vers ers/
g J ea
ck
of
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inf
a
r
as n
No
t
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pa
tur
rtic
e
ula
rp
rob
lem
s

(n=551)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting exports.

Fig. 2-3-21 shows problems that enterprises experience
in relation to direct investment. As we can see, the mostfrequent responses for both enterprises investing in
production bases and enterprises investing in sales orservice bases were “Securing foreign personnel/Labor
management” and “Dealing with local legal system/
business procedures.” We may consider this as being due
to the fact that in order for enterprises situating overseas
production or sales/service bases to establish overseas
subsidiaries, it is necessary to secure local personnel todeploy locally, and to respond to local laws and practices
related to commercial transactions. A high proportion ofenterprises establishing production bases also indicated“Quality control/Delivery date management,” “Risk of
exchange rate fluctuations,” and “Securing and training
Japanese staff to lead overseas expansion efforts” as issues.

186

This may be considered to be due to the fact that local
production necessitates quality control and delivery datemanagement, and that sales and procurement necessitate
attention to problems of the exchange rate. A highproportion of enterprises establishing sales or services
bases also responded “Securing local partners, trading
companies, etc.,” “Securing and training Japanese staff tolead overseas expansion efforts,” and “Cost management/
Risk in collection of receivables.” This may be considered
to be due to the fact that it is necessary for these enterprises
to search for local partners in order to secure local sales
destinations, and that they must also recruit Japanese
staff possessing a high level of experience of work in an
overseas environment and linguistic proficiency in orderto support their local sales offices.

f
La oreig
bo n Ser m pe cu
leg De ana rson ringngal
sy aling eme el/
ste w nt
m/ ithQup bu loali
ty roc sin cal
da con edur ess
te troma l/D es
na eliv
ge er
Ris
me y
ko
nt
r
Se ate f ex
Ja cur fluc cha
pa ing tu ng
ov nes an atio e
ers e s dnea taf trai ss e f to nin
xp le g
Se
an ad
cu
si
r
fun ing neffor on
ds ecets
Se/Fi ssna ar
tra curin
nc y
din g
ing
g c loc
om al pa
pan rtnC
Risost m ies, eers,
k i ann c ag tc.
eoInt
r llec meens ece tio nt/
co ity o ivab n of
mp f clare om esRe
d t petspoon
Ja ition
din
pa
n
gt
Ob
oi
rre
ov tainers inggdu
Un eas info ema larnde ma rm
rst rk ati dae oLa ndin t tre n on
ckg n ndsofinf eeds /
Re
ras
sp
t
o
r
reg nduc
tur
ula inge
tio tons do
Vio sy (Lic meses
pro latem ns tic
p ti
i
in erty on of , etc ng
co rig in.)De pyin hts telle
an vel g o /Inc ctu
f
o
ds p
a
r
erv me prod ease l
ice nt o uct
sf fp s
or ro
ov du
Se
Ac curin merseacts
tou ce g
Dif ris ss cu arke s
fic ts ing sto tuvmqu lty o isitin over ers
ali f co g se /ty
aof mm Japa s
pro un nNo
du icatpacrtic se ts a ing
ula rvic ndr p es
rob
lem
s

(%)

(1) Problems related to direct investment in production bases(%)

Source:Notes:

Finally, Fig. 2-3-22 shows problems that enterprises
experience in relation to responding to inbound tourism.
The number of enterprises investing in responding to
inbound tourism is lower than the number investingin exports or conducting direct investments. The mostfrequent response among these enterprises was “Securing

Section 3f
La oreig
bo n Ser m pe cu
leg De ana rson ringngal
sy aling eme el/
ste w nt
m/ ithQup bu loali
ty roc sin cal
da con edur ess
te troma l/D es
na eliv
ge er
Ris
me y
ko
nt
r
Se ate f ex
Ja cur fluc cha
pa ing tu ng
ov nes an atio e
ers e s dnea taf trai ss e f to nin
xp le g
Se
an ad
cu
si
r
fun ing neffor on
ds ecets
Se/Fi ssna ar
tra curin
nc y
din g
ing
g c loc
om al pa
pan rtnC
Risost m ies, eers,
k i ann c ag tc.
eoInt
r llec meens ece tio nt/
co ity o ivab n of
mp f clare om esRe
d t petspoon
Ja ition
din
pa
n
gt
Ob
oi
rre
ov tainers inggdu
Un eas info ema larnde ma rm
rst rk ati dae oLa ndin t tre n on
ckg n ndsofinf eeds /
Re
ras
sp
t
o
r
reg nduc
tur
ula inge
tio tons do
Vio sy (Lic meses
pro latem ns tic
p ti
i
in erty on of , etc ng
co rig in.)De pyin hts telle
an vel g o /Inc ctu
f
o
ds p
a
r
erv me prod ease l
ice nt o uct
sf fp s
or ro
ov du
Se
Ac curin merseacts
tou ce g
Dif ris ss cu arke s
fic ts ing sto tuvmqu lty o isitin over ers
ali f co g se /ty
aof mm Japa s
pro un nNo
du icatpacrtic se ts a ing
ula rvic ndr p esrob
lemsPart II The earning power of SMEs

Fig. 2-3-21 Problems related to direct investment(n=211)(2) Problems related to direct investment in sales or service bases(n=193)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting direct investments.

customers/Accessing overseas tourists visiting Japan,”followed by “Obtaining information on overseas market
trends/Understanding needs,” “Responding to irregulardemand,” and “Difficulty of communicating quality of
products and services.”

187

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-22 Problems related to responses to inbound tourism(%)
35(n=65)
29.2

30
25

23.1
20.0

20

18.5

16.9

15.4

15
10

16.9
13.8

13.8
7.7
4.6

5

4.6

3.1

1.5

A
tou cceris ssi cu Secu
Ob ts vi ng o stom ringov tain siting vers ers/
ers ing
J ea
Un eas info apan sde ma rm
rst rk ati
an et ondin tre onRe
g n nd
sp
ee s/
on
ds
din
gt
oi
Dif
rr
fic
u
de egulama rqu lty oali f co
nd
ty
of mm
pro undu icatSecicu
se ts anng
rin
rvi d
gf
c
es
La oreigbo n
r m pean rsoag nn
Sem el/
Ja ecuren
pa ingt
ov nes aners e s dea taf trainsfSe
ex to l ing
cu
pa ea
rin
ns d
gn
i
ec effor on
es
sa ts
r
D
Finy funan evelan ds/
d s op
cin
m
erv e
g
ice nt o
sf fp
or ro
ov du
er ct
Qu
ma seas s
ali
rke
ty
c
t
da on
te troma l/Denlag iveV
em ry
pro iolaenp titin erty on ofco rig inpy ht teing s/I llec
Reof ncr tuaspro ea lregponddu sects
i
ula ngtio tons dosy (Lice mesCo
ste n ticsm, sinco t maetc g
lle nacti ge.)on mof entrec /Reiv isk
ab in
La
les
ck
of
inf
ras
tru
ctu
No
re
pa
rtic
ula
rp
rob
lem
s

0

Source:Notes:

2.

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting responses to inbound tourism.

Investment in overseas expansion: High-revenue enterprises and low-revenue enterprises

Up to this point, we have considered problems that
SMEs experience in relation to exporting, conducting
direct investments, or responding to inbound tourism,
and we have seen that a variety of problems related toinvestment in overseas expansion prevent SMEs fromexpanding overseas. In addition, it is not difficult toimagine that overcoming these problems increases indifficulty the smaller the enterprise. However, against
this background, there are enterprises that have conductedinvestments in overseas expansion, and which haveincreased their revenue as a result. In this section, we willcompare the effects of investment in overseas expansion
and initiatives conducted prior to and following
these investments for high-revenue and low-revenue
enterprises, seeking to clarify factors in success wheninvesting in overseas expansion.

█ Impetus for investment in overseas expansion for
high-revenue and low-revenue enterprises

Fig. 2-3-23 compares the factors that provided theimpetus for investment in overseas expansion for high-188

revenue and low-revenue enterprises. The most frequent
responses for high-revenue enterprises were “Received
a request when client shifted offshore,” “New market
available, saw merit in early entry,” “Had confidence
in products and services and decided to try sellingthem overseas,” and “Looking towards high growth in
an intensely competitive market.” The most frequent
responses for low-revenue enterprises were “Received arequest when client shifted offshore,” and “New market
available, saw merit in early entry,” as in the case ofhigh-revenue enterprises. However, the proportion of
low-revenue enterprises responding that the impetus forinvestment in overseas expansion was “To reduce thecost of manufacturing processes, etc.” and “Because
investment cost was comparatively low” was higher than
was the case for high-revenue enterprises.
These results indicate that rather than attempting to
reduce costs, high-revenue enterprises tend to advanceoverseas because they have confidence in their products
and services, and because overseas markets are displaying
growth.

Part II The earning power of SMEs

Fig. 2-3-23 Impetus for investment in overseas expansion(by high-revenue or low-revenue enterprise)(%)

High-revenue enterprises(n=202)

Low-revenue enterprises(n=185)All enterprises(n=775)Rec
wh eiveen d aclie rent quess
off hifte t
sh d
Ne
ore
sa w mw
me arkeritt
in avaea ilarly bleen ,try
pro Hadduconcse and ts an fidellinnd
g t dec ser ce in
he ide vicmd
ov to t es
ers ry
ea
s
Sa
les
in
w
do ereme ststi agn
cm a
ark ntetLoogro kinwt g toco h in war
mp an ds
eti int hig
tiv ene m se hark ly
et
To
red
of
u
m ce
pro anuf the cce act os
ss uri t
es ng
,e
tc.
Du
nu e tomb in
er creoacu f fore sed
sto ig
me n
Ins
rs
pir
ed
b
y
co
mp of s exam
an uc
ies ces plessoin
ind same f
Be
us
ca
try
wa uses c invom estpa me
rat ntive coly stlowSuac ggecost
ins unta ion front
org itutio t, fin m a
an n, s anc n
iza up ial
tio pon,
etc rt.

Section 3

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting investment in overseas expansion.

█ Effects of investment in overseas expansion for
high-revenue and low-revenue enterprises

Fig. 2-3-24 compares the effects of investment inoverseas expansion for high-revenue and low-revenue
enterprises, based on the categories shown in Fig. 2-3-3.
These results indicate that for all categories of investment
in overseas expansion, more high-revenue enterprises
experience “Development of new markets and acquisitionof new customers overseas” as an effect than lowrevenue enterprises. A high proportion of high-revenue
enterprises similarly experience the effects “Sales
expansion,” “Increase in profit rate and productivity,” and“Collection of information on overseas markets” fromdirect investment for the establishment of production
bases, “Sales expansion,” “Collection of information on
overseas markets,” and “Increase in brand recognition”
from direct investment for the establishment of sales/
service bases, and “Expansion of sales” from investment
in responding to inbound tourism. Summarizing theseresults, we can see that there are differences between
high- and low-revenue enterprises in terms of the effects
of investment in overseas expansion, and that highrevenue enterprises tend to experience “Sales expansion”
and “Development of new markets and acquisition of new
customers overseas” as effects.

189Source:

Notes:

190

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n

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Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-24 Effect of investment in overseas expansion(by high-revenue or low-revenue enterprise)(%)

Low-revenue enterprises(%)

Low-revenue enterprises(%)

Low-revenue enterprises(%)

Low-revenue enterprises

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Categories respectively aggregate results for companies investing in export, conducting direct investment in production
or sales/service bases, or investing in responses to inbound tourism.
2.	 Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

█ Initiatives related to investment in overseas
expansion among high-revenue and low-revenue
enterprises ― Factors in investment success ―Fig. 2-3-25 Status of implementation of significant initiatives for realization of effects ofinvestment in overseas expansion (by high-revenue or low-revenue enterprise)
High-revenue enterprises (n=170)

Low-revenue enterprises (n=152)

of Clepu aov for rposr sta
ers inv e o temea est f/v ens e me isi t
xp nt on
Fo
an fo
rm
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an ithsion(%)

Section 3

Above, we considered the significant effects obtained
from investment in overseas expansion by high-revenue
enterprises. Below, we compare initiatives implemented
by high- and low-revenue enterprises prior to andfollowing investment in overseas expansion in order todetermine what types of initiatives enable enterprises toincrease their profitability, thus elucidating factors in the
success of investment in overseas expansion.
Fig. 2-3-25 compares high-revenue and low-revenue
enterprises with regard to initiatives put into effect prior

to or following investment in overseas expansion thathave proven significant for obtaining effects from theinvestment. The results show that a higher proportion ofhigh-revenue enterprises than low-revenue enterprises
indicate “Clear statement of purpose of/vision forinvestment for overseas expansion,” “Formulation ofplan for overseas expansion,” “Projection of effects ofinvestment in overseas expansion,” “Recruitment ofoverseas personnel,” “Recruitment of Japanese personnel
to lead overseas expansion efforts,” and “Phased
implementation of overseas expansion/Domestic andoverseas monitoring following implementation” asinitiatives that they have implemented.

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Aggregates data for companies conducting investment for overseas expansion.
2.	 Total does not always equal 100% as multiple responses were possible.
3.	 Responses for “Other” item are not shown.

The survey of initiatives put into effect in relation
to investment in overseas expansion by high-revenue
enterprises offered here tends to indicate that in orderto engage in business overseas, which is more difficult
to predict than domestic business, it is important forenterprises to recruit and train personnel, including
foreign personnel, and to project the effects of investment,in addition to clarifying the exact purpose of overseas
expansion and conducting the investment while

monitoring and correcting the course of the company’s
overseas expansion in stages.
If low-revenue enterprises formulate plans suited totheir own company and conduct investments in overseas
expansion after taking these factors in the success of highrevenue enterprises into consideration, they can anticipate
succeeding in increasing their sales and opening up
new overseas markets, and by this means boosting theirearning power.

191

Chapter 3 Initiatives among SMEs to tap into overseas demand

Case

2-3-5

SUEHIRO EPM Corporation

A company that has succeeded in winning overseas demand by unifying
with a will to solve its customers’ problems
SUEHIRO EPM Corporation (employees: 43; capital: ¥40 million), based in Yokkaichi City, Mie Prefecture,
has been engaged in the design and manufacture of edible oil milling machinery and food processing
equipment since its foundation in 1953. At present the company holds a share of basically 100% in thedomestic oil milling machinery market, and exports to 18 countries, including Indonesia and South Korea.
The company was established in 1953 by Hitoshi Sakuma, father of current Chairman Hiroshi Sakuma, as
a business conducting repairs of oil milling machinery. At that time, most oil milling machinery in Japan was
manufactured overseas, mainly in Germany or the US. The machinery frequently broke down, and ordering
replacement parts took time, causing problems for domestic users. Seeking to solve its customers’ problems,
SUEHIRO EPM Corporation commenced in-house development, and in 1959 succeeded in developing Japan’s
first edible oil milling machine. In 1966, Hitoshi Sakuma stepped down, and the current Chairman, Hiroshi
Sakuma, joined the company at the age of 27. Mr. Sakuma constantly considered the customers’ perspective
and sought to identify his customers’ problems, having the belief that he was promoting himself as much as
his products. This attitude enabled him to build up relationships of trust with customers, and the company’s
domestic customer base steadily grew. In 1975, the company developed a pressurized extruder using its
milling machine technology (capable of conducting functions including crushing, mixing, heating andsterilizing in a short period), and its share of the domestic market grew even further.
With the advancement of customers into overseas markets (through the establishment of overseas
subsidiaries, etc.), SUEHIRO EPM’s machinery came to be used overseas, and the reputation of its products
for high quality and superior operation began to spread among overseas edible oil producers. In 1984, thecompany commenced exports through the overseas base of a domestic customer. Export issues such as tariffs
and problems caused by the language barrier were handled for the company by its customer, and it wasable to conduct smooth exports. As the result of incurring a large debt when conducting indirect exports
through a trading company in the past, SUEHIRO EPM now conducts almost all of its exports as directtransactions, without the use of trading companies as intermediaries. The company is able to minimize therisk represented by exchange rate fluctuations by conducting all of its transactions in yen. It has also madeefforts to open up new sales channels by recruiting a staff member proficient in foreign languages who
handles overseas transactions full-time, and visits overseas markets to collect information and survey market
needs.
Carrying on the spirit of solving its customers’ problems that was present at its foundation, SUEHIRO EPM
conducts joint developments and research projects with its customers and works to solve their problems. In
doing so, it has won the trust of customers both in Japan and overseas, and it has been able to expand its
sales by tapping into overseas demand through exports.
Speaking emphatically, Mr. Sakuma says “Our ability to expand out of the domestic market and acquire
overseas customers was based on the entire company sharing the same thinking regarding our overseas
expansion. This was a result, first, of clearly presenting
and sharing my vision for the company, in particular
in relation to overseas expansion, with President andcompany executives at our monthly meetings, andalso of making all our employees aware of this vision
via my messages in the company newsletter, which is
published once a month. But above all, it is a resultof thinking about what our overseas customers’
problems are, and making use of information onmarket needs and market data collected by our fulltime overseas sales supervisor, in order to develop andA group photograph ofdesign products able to solve those problems.”
SUEHIRO EPM staff about to ship a product192

Part II The earning power of SMEs

Case

2-3-6

YUKI Precision Co., Ltd.

A company that has opened up new fields and taken up the challenge ofentering the aerospace industry using its twin strengths, quality and reliability

Section 3

YUKI Precision Co., Ltd. (employees: 30; capital: ¥35 million), based in Chigasaki City, Kanagawa Prefecture,undertakes OEM machining, manufacture and development of precision machined parts for the aerospaceand medical instruments industries, in addition to conducting in-house development.
Established in 1950, the company was initially involved in the mass production of metal machined parts
under contract to a major electrical machinery manufacturer. With the collapse of Japan’s bubble economy,
the company experienced a serious decline in orders due to factors including the effect of cheap offshoreparts manufacture. Company President Masato Otsubo joined in 2006 with a brief to reorganize the company.
The results of a questionnaire survey of customers reaffirmed to Mr. Otsubo that YUKI Precision’s strengths
were high quality and high reliability. He therefore determined to shift away from the company’s previous
low-mix, high-volume business model, towards a high-mix, low-volume model that would see the company
supplying high-quality and high-value-added products, and to enter advanced markets, including the aviationand space industries, the medical equipment industry and the automotive industry. The company also moved
away from an exclusive reliance on OEM manufacture and machining, establishing an in-house development
department, and increasing the amount of work it handled in-house from design to manufacture. In orderto acquire customers in new fields, the company first redesigned its logo to do away with its previous
corporate image, and worked to cultivate new sales opportunities by actively providing information via
its website and through events such as product exhibitions. Next, in order to establish a high-mix, smalllot production system, the company rationalized its operational procedures through the development andintroduction of an IT system for order-based production13). These initiatives enabled it to acquire customers
in the aerospace, medical and automotive fields, and the transition in its company system to one capable ofsupplying high-value-added products through low-volume, small-lot production saw sales steadily recover,until the company’s figures, which had shown a temporary decline, displayed a V-shaped recovery.
Following this, believing that its high level of technological expertise would be valued overseas, YUKI
Precision decided on a path of expansion into overseas markets via exports. Mr. Otsubo communicated his
vision regarding this overseas expansion to the company’s employees, and an awareness that it would be
essential not to rely on domestic demand exclusively, but also to access demand from overseas, if the company
was to survive came to be shared within the group. Communicating this message outside the company via
the Internet and at product exhibitions attracted global business-ready personnel, individuals with expertisein foreign languages and experience of working overseas and knowledge of export procedures, with whom
the company’s vision for overseas expansion resonated. By actively undertaking business negotiations
overseas and building relationships of trust, the company was able to acquire local business partners, andcommenced exports to Europe, in particular France, which has a vigorous aerospace industry. Today, YUKI
Precision’s overseas sales are showing a steady annual increase.
The company has also formulated a medium- to long-term plan in relation to overseas expansion. In thefirst stage, it established a local subsidiary in Lyon, France, in May 2015 in order to function as a base for sales.
The company intends to steadily increase its numberof local sales representatives, and in the future, to alsoestablish production bases. At present, overseas sales
make up around 10% of YUKI Precision’s overall sales,
but its plan for the future is to increase this figure to
50% by 2020 by targeting France’s aerospace industry
and marketing its precision cutting and machining
technologies.
Company President Masato Otsubo emphasizes “In
the future, via manufacturing with a focus on quality
and reliability, and further expansion of our overseas
sales channels, we want to introduce the world to theexcellence of Japanese manufacturing, and, throughour products, to bring happiness to society, our
YUKI Precision’s booth at an aviation industry show held in Paris
customers and our employees.”(2015)
13) The company’s IT system for order-based production is a system created by integrating the databases of its existing IT system. The system
integrates work processes throughout the company, from the receipt of an order to production and shipping, in a way that is optimal for
production based on the receipt of orders.

193

Chapter 3 Initiatives among SMEs to tap into overseas demand

Case

2-3-7

Saito Optical Science Manufacturing Ltd.

A company that has promoted technological innovation in the market andgenerated domestic and overseas demand by supplying technologies andproviding consultation services
Saito Optical Science Manufacturing Ltd. (employees: 52; capital: ¥10 million), based in Misato Town in Akita
Prefecture, is a company providing OEM machining services (polishing of glass materials and semiconductor
substrates employed in electronic components, medical devices and measurement devices), and technologicalservices including polishing-related consultation.
Established in 1977, the company initially based its headquarters in Saitama Prefecture. Its main business at thetime was OEM polishing of glass for wristwatch covers, but Japan’s major domestic manufacturers eventually moved
their production bases offshore, and the rise of Chinese and Taiwanese companies led to undercutting of prices in
the area of OEM polishing services. The company’s President at the time, Touji Saito, father of current President
Nobuei Saito, recognized that there was no future in the company’s existing business model, and restructured
the company in order to make the transition to a system able to provide high-value-added technologies andservices. First, seeking to secure superior human resources in the region, the company established a plant in Akita
Prefecture in 1985. In 2009, it acquired a research and development facility in Gunma Prefecture through an M&A.
In addition to hard crystal substrate polishing technologies to add to its existing glass polishing technologies, thisbrought the company extensive equipment to devote to research and development, enabling it to commence
providing consultation services to support the development of products in the field of polishing technology.
This consultation service represented a business model that was previously unknown in the industry, and thecompany began to receive requests for consultation not only from Japan, but also from the US, South Korea, andChina. Ordinarily, the company would not have considered supplying its technologies to a domestic competitor
or an overseas company, but Nobuei Saito, who became President in 1994, felt that by providing technologies tocompanies in Japan and the rest of the world, the company would
be able to spur technological innovation in the market, and by thismeans would accumulate information enabling it to provide evenhigher-level technological services. Mr. Saito made his thinking
known to company employees, and took their opinions onboard tocreate a company-wide consensus. In 2009, the company commenced
providing technological guidance to overseas companies. Prior to
becoming involved with overseas companies, Saito Optical Science
investigates its potential business partner and projects the balanceof income and expenditure involved in its consultation services,thus minimizing the risks involved in overseas business. In addition
to this, the company also deploys staff members with knowledge oftrends in overseas markets and who are proficient in the relevant
languages, enabling it to build relationships of trust with its clientsas it steadily increases its overseas share.
By steadily pursuing initiatives and conducting strategic
facility investments while exporting its technologies in the formof polishing-related consultation services, Saito Optical Science
Company President Nobuei Saito
has succeeded not only in tapping into demand in the domestic
market, but also in the overseas market.
In 2013, the company transferred its research and development
facility in Gunma Prefecture to Akita Prefecture, and in November
2015 it also relocated its headquarters from Saitama Prefecture to
Akita Prefecture. By concentrating all of its company functions,from finance to research and development and manufacturing, in
Akita Prefecture, the company has created a system that enables
it to make rapid business decisions and management judgments.
Company President Nobuei Saito says “Based on the verylatest industry data that we are able to compile through ourpolishing technology consultations, we are able to accurately
grasp the direction of the industry and to supply technologies
the effectiveness of which is objectively verifiable to companies
in Japan and overseas. By this means, an SME in Japan is able tospur development by major corporations. We intend to continue
focusing our efforts on the technological services field, in order toPolished sapphire substrates
invigorate the domestic and overseas markets.”

194Part II The earning power of SMEs

Column 2-3-2 Support measures to assist companies in overseas
expansion
This column looks at support programs for overseas expansion offered by governmentorganizations.

[Measures related to securing partner companies and customers]▌Invitation of overseas buyers/Individual business meetings(Japan External Trade Organization (JETRO))

Method of implementation
Period for applications
Fees, etc.

JETRO’s webpage provides an overview of the business meetings and the method of
applying for participation.
http://www.smrj.go.jp/keiei/kokusai/event/index.html

Section 3

JETRO invites leading overseas buyers and experts in a range of areas including machinery,
environment and energy, agricultural, forestry and fisheries products and foodstuffs, designer
and traditional products, fashion (textiles and apparel), and content (film, anime, etc.) to Japanand matches them with Japanese companies seeking to cultivate overseas markets for individual
business meetings.

Participation in business meetings is free

▌ Support for exhibition of products in international trade exhibitions, etc. held in Japan(Organization for Small & Medium Enterprises and Regional Innovation, Japan (SMRJ))The SMRJ provides support for companies to exhibit their products in international trade
exhibitions held in Japan which are visited by large numbers of overseas buyers.

Details of support

Support for translation of materials for business meetings and advance preparation via
consultation with liaison staff, support for involvement of experts and interpreters, etc. during
exhibition, provision of advice on formulation of contracts following exhibition, support forfollow-ups after business meetings, etc.

Method of implementation
Period for applications

When the plans for an exhibition have been concluded, the SMRJ calls for applications fromcompanies wishing to exhibit on its website, etc.
http://www.smrj.go.jp/keiei/kokusai/event/index.html

Fees, etc.

Part of the expenses involved in exhibiting are subsidized by the SMRJ.

▌ Support for exhibition in Japan Pavilions of overseas trade fairs and trade exhibitions(Japan External Trade Organization (JETRO))JETRO provides support for exhibition in the Japan Pavilions of overseas trade fairs and trade
exhibitions that it organizes or participates in, providing a package with a range of services that
includes support for exhibition procedures, customs clearance and transportation for exhibits, andadvertising.
Method of implementation
Period for applications

Fees, etc.

JETRO calls for exhibiting companies and groups on its webpage.
The period for applications differs depending on the exhibition(See the JETRO website for details).
http://www.jetro.go.jp/events/tradefair
Part of the expenses involved in exhibiting are subsidized by JETRO.
(Individual details are provided when companies apply for exhibition.)

195

Chapter 3 Initiatives among SMEs to tap into overseas demand▌ Support for exhibition in overseas trade exhibitions(Organization for Small & Medium Enterprises and Regional Innovation, Japan (SMRJ))The SMRJ provides comprehensive support for companies exhibiting in overseas trade fairs(mainly in the Japan Pavilions organized by JETRO), from the stage of preparation for the exhibition(advice on establishing overseas sales channels, support for the formulation of materials for businessmeetings, etc.) to follow-ups (support for contract procedures, provision of import/export expertise,etc.). Services are provided without charge, other than translation services, for which the company
pays one-third of expenses.

[Measures for the collection of overseas information]▌ Seminars on overseas expansion(Organization for Small & Medium Enterprises and Regional Innovation, Japan (SMRJ))At these seminars, companies are provided with information on trends in new overseas markets,
useful information for overseas expansion, etc. in an easy-to-grasp fashion while discussing casestudies.
Method of implementation
Period for application
Fees, etc.

Seminars are held by SMRJ in collaboration with financial institutions, etc.
(The seminar schedule and information on applying are published on the website of SMRJ.)
http://www.smrj.go.jp/keiei/kokusai/seminar2/index.html
Depends on individual caseFree

▌ Consultations with overseas coordinators regarding export support(Japan External Trade Organization (JETRO))

Coordinators (specialists) stationed overseas offer consultations to companies wishing to expand
overseas (regarding products that sell well in the target country, the potential for sales in the target
country, etc.) in the areas of agricultural, forestry and fisheries products and foodstuffs, apparel/
textiles, designer products/traditional products, content, machinery and parts, and environment
and energy.
Method of implementation
Period for application
Fees, etc.

Inquiries and applications are accepted at Japanese offices of JETRO.
http://www.jetro.go.jp/services/coordinator
Depends on individual caseFree

▌ Provision of advice to support internationalization(Organization for Small & Medium Enterprises and Regional Innovation, Japan (SMRJ))The SMRJ provides advice concerning issues involved in internationalization, etc. Specifically, thebusiness challenges of the company seeking consultation are identified, a target country is selected,
and advice is offered concerning the development or modification of products for the overseas
market, etc.
Companies can apply by FAX (03-5470-1527) or email (kei-kokusai@smr.j.go.jp).
Method of implementation Advice is offered at 10 locations throughout the country.
http://www.smrj.go.jp/keiei/kokusai/advice/index.html
Period for application
Fees, etc.

196

Depends on individual caseFreePart II The earning power of SMEs

[Measures to assist in securing necessary funds]▌ Funding for overseas expansion/Business restructuring

The Japan Finance Corporation loans funds (including funds for subleasing from overseas
companies) to support the commencement or expansion of overseas business by SMEs and therestructuring of business for overseas expansion (Fig. Column 2-3-2).
Fig. Column 2-3-2[Overview of system for provision of funds for overseas expansion andbusiness restructuring]Companies that fall into either of the following category 1 or 2:

How loans may be used

Loan limits

Section 3

Who is eligible for a loan

1.	Overseas expansion is essential from the business perspective in order to respond to
structural changes in the economy, and the company meets all of criteria (1)−(3).
(1) The business subject to the commencement or enhancement of overseas expansion isof such a scale that it can be considered an extension of the relevant SME’s domestic
business(2) The company continues to locate the base for its business activities (its headquarters)in Japan(3) The company seeks to conduct business in overseas markets as part of efforts towards
business innovation, and corresponds to any of categories a−d		 a.	Overseas expansion is essential as a result of the overseas advancement ofcustomers
		 b.	Overseas advancement is essential given the status of supply of raw materials
		 c.	Overseas advancement is essential due to a shortage of labor power
		 d.	Overseas expansion is essential because the contraction of the domestic market
makes it impossible for the company to project growth without cultivating andsecuring overseas markets
2.	The company corresponds to both (1) and (2) in responding to economic structural change
overseas(1) The company will restructure the business it is expanding overseas by conducting
direct investments (including scrapping all or part of the business), and this is essentialfrom a business perspective(2) The company will continue its domestic operations, and anticipates medium- to longterm growth.
Funds for the necessary equipment or operations for the relevant business(including funds for subleasing from overseas companies, funds for the restructuring of thebusiness being advanced overseas, and funds to repay debts resulting from these)(SME Unit)¥720 million (of which ¥250 million may go to fund operations)(Micro Business and Individual Unit)¥72 million (of which ¥48 million may go to fund operations)

Loan interest rates(SME Unit) Standard interest rate, special interest rate
(Micro Business and Individual Unit ) Standard interest rate, special interest rate

Loan periods

Equipment funds: Within 20 years <period of deferment not exceeding 2 years>
Operating funds: Within 7 years <period of deferment not exceeding 2 years>

Financial institution
handling loans

Japan Finance Corporation (SME Unit and Micro Business and Individual Unit)
The Okinawa Development Finance Corporation

197

Chapter 3 Initiatives among SMEs to tap into overseas demand[Avoiding risk in relation to overseas expansion]▌ Export payment insurance for SMEs (Nippon Export and Investment Insurance (NEXI))NEXI provides specialized insurance for SMEs covering the risk of collection of export
payments. The program provides an insurance payout in the event that payments cannot becollected due to the manifestation of risks in the destination country following shipment (conflict,restrictions on the sending of foreign currency, natural disaster, etc.) or in relation to the buyer(bankruptcy, shortage of funds, etc.).

Method of implementation

Period for application
Fees, etc.

Inquiries and applications are accepted at NEXI offices in Japan.
Customer Liaison, Nippon Export and Investment Insurance
Head office: 0120-672-094 (toll-free)
Osaka office: 0120-649-818 (toll-free)
http://nexi.go.jp/
Depends on individual caseCompanies pay insurance premiums, as determined by the details of their contract.

▌ Overseas investment insurance (Nippon Export and Investment Insurance (NEXI))

This program provides insurance payouts to companies conducting direct investments(investment through capital contribution, acquisition of rights to real estate, etc.) in the event thatthey are unable to continue their business due to the manifestation of risks in the destination country(war, restrictions on the sending of foreign currency, natural disaster, etc.).

Method of implementation

Period for application
Fees, etc.

198

Inquiries and applications are accepted at NEXI offices in Japan.
Investment Insurance and Underwriting Group, Nippon Export and Investment Insurance
Head office: 03-3512-7668
http://nexi.go.jp/
Depends on individual caseCompanies pay insurance premiums, as determined by the details of their contracts.

Part II The earning power of SMEs

3.

Human resources for investment in overseas expansion

Above, we have seen that a high proportion ofcompanies conducting investments in overseas expansion
regard securing human resources to lead the process as
one of the problems they face, and a high proportion ofcompanies which are not investing in overseas expansion
list the difficulty of securing human resources as a reason
for not pursuing investment. This section will look at
the status of initiatives and problems in relation to thehuman resources that are essential to investing in overseas
expansion.

First, we will look in detail at the status of employmentof global business-ready human resources14). Fig. 2-3-26

Section 3█ Status of employment of global business-readyhuman resources/foreign employees

shows the degree of adequacy of the number of global
business-ready human resources, by type of investment.
As the results show, around 40% of companies conducting
exports and direct investments have been able to secure
global business-ready human resources, while 44.0%
in the former category and 57.3% in the latter category
report a lack of human resources. Among companies
responding to inbound tourism, only 15.7% report thatthey have secured the necessary human resources for
global business, with 68.6% reporting a lack of humanresources. As this indicates, companies attempting to
respond to inbound tourism are feeling the lack of suitable
human resources more keenly than companies conducting
exports or direct investments.

Fig. 2-3-26 Adequacy of number of global business-ready human resources(by type of investment in overseas expansion)Sufficient number

Insufficient number

Outsourcing; personnel not necessary

Export(n=480)

Directinvestment(n=286)

Responses
to inboundtourism(n=51)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Categories respectively aggregate data for companies conducting exports, direct investment, or responses to inboundtourism.

Fig. 2-3-27 shows the status of employment of foreign
personnel, by type of investment in overseas expansion.
Because enterprises conducting direct investments
employ foreign staff both in Japan and overseas at theirproduction or sales/service bases, the proportion of theseenterprises with foreign personnel is higher, at a little over
60%, than it is among enterprises conducting other typesof investment. The employment of foreign personnel
among enterprises conducting exports or responding to
inbound tourism is much less well advanced than it isamong enterprises conducting direct investments, with
between 60 and 70% of enterprises not employing any
foreign staff members at all.

14) “Global business-ready human resources” refers to Japanese staff possessing excellent language skills, resident oversea or with extensive
experience of working overseas, and with an international outlook.

199

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-27 Employment of foreign personnel (by type of investment in overseas expansion)Company employs foreign personnel with Japanese language skills and international awarenessCompany employs other foreign personnel

Company does not employ foreign personnel

Export(n=502)

Directinvestment(n=298)

Responses
to inboundtourism(n=66)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Categories respectively aggregate data for companies conducting exports, direct investment, or responses to inboundtourism.

█ Employment of foreign human resources andlabor productivity

Fig. 2-3-28 shows sales volume and recurring profit
margin for enterprises conducting investments in overseas
expansion, by employment or non-employment of foreign
human resources and type of investment. The results
show that the level of sales volume and recurring profit
margin is higher for enterprises that employ foreign

200

human resources than for those which do not for all
types of investment in overseas expansion. While thisdoes not demonstrate a causal relationship between theemployment of foreign human resources and increased
sales volume and recurring profit margin, we can at least
point to a correlation between the employment of foreign
human resources and business results.

Part II The earning power of SMEs

Fig. 2-3-28 Business results (by employment or non-employment of foreign personnel)(1) Sales volume
Foreign personnel(Million yen)

Direct investment

Responses to inbound tourism(2) Recurring profit margin
Foreign personnel(%)

ExportSource:Notes:

No foreign personnel

Direct investment

Section 3

ExportNo foreign personnel

Responses to inbound tourism

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Categories respectively aggregate data for companies conducting exports, direct investment, or responses to inboundtourism.
2.	 Sales volume and recurring profit margin are both calculated based on averages for the three-year period from 2012
to 2014.

█ Initiatives for securing and developing humanresources for overseas expansion

In this section, we will look at the status of initiatives
for securing and developing human resources for overseas
expansion (the global business-ready human resources
and foreign personnel necessary for overseas expansion)
among SMEs.
Figs. 2-3-29 and 2-3-30 respectively show the status
of initiatives for securing human resources and initiatives
for developing human resources among enterprises
conducting investments in overseas expansion, by type ofinvestment. In the case of enterprises conducting direct
investments, the most frequent response concerning
initiatives for the securing of human resources is “Securingof Japanese personnel with excellent language skills andhigh level of specialized knowledge through mid-career
employment,” followed by “Active recruitment of foreign

personnel (foreign students, local human resources,etc.),” and “Recruitment of new graduates with excellent
language skills and high level of specialized knowledge.”
Among enterprises conducting exports and responding
to inbound tourism, the highest proportion of enterprises
respond “Personnel are needed, but not making any
specific effort towards recruitment.”
Turning to initiatives for the development of humanresources, despite the fact that there are enterprises
conducting direct investments that responded “Jobexperience/education/training for overseas staff in Japan”
and “Early overseas dispatch of Japanese personnel,”overall the proportion of enterprises for all types ofinvestment responding “Human resources are needed,
but not making any specific efforts to develop humanresources” was high.

201

Source:

Notes:(%)

Source:Notes:

202

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Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-29 Status of initiatives for securing human resources(by type of investment in overseas expansion)
ExportExport(n=430)

Direct investment

Direct investment(n=277)

Summarizing these results, we can indicate that while apercentage of SMEs are working to secure global businessInbound tourism

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting exports, direct investment, and responses to inbound tourism.

Fig. 2-3-30 Status of initiatives for the development of human resources(by type of investment in overseas expansion)

Inbound tourism(n=53)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting exports, direct investment, and responses to inbound tourism.

ready human resources through mid-career employment
and externally recruiting foreign human resources such as

Part II The earning power of SMEs

foreign students in Japan, there is still a high proportionof companies which have not secured the necessary
human resources. In addition, there is a tendency among
companies conducting all types of investment in overseas
expansion not to make efforts to develop human resources
for overseas expansion.

█ Problems associated with securing and developing
human resources for overseas expansion

Section 3

What types of problems prevent enterprises conducting
investments in overseas expansion from securing anddeveloping the necessary human resources? Figs. 2-3-31
and 2-3-32 respectively show problems that enterprises
encounter in securing and training personnel, by type ofinvestment in overseas expansion.
Looking first at problems in securing human resources,
the highest proportion of enterprises conducting exports
and direct investments respond “Lack of high-quality

human resources in areas of production management,
design technology, interpreting, etc.,” while the mostfrequent response among enterprises attempting to
respond to inbound tourism is “Insufficient time/margin
for securing personnel due to volume of domestic
business.”
Turning to problems experienced in developing
human resources, a high proportion of enterprises
for all types of investment responded “Insufficient
time/margin for securing personnel due to volume ofdomestic business.” In addition, the highest proportionof enterprises conducting exports responded “Lack ofexpertise in instructing/fostering personnel,” while themost frequent responses for enterprises conducting direct
investments were “Lack of expertise in instructing/fostering personnel,” “Communication is difficult due todifferences in language/culture/business practices,” and“Personnel do not stay in employment.”

Fig. 2-3-31 Problems in securing personnel (by type of investment in overseas expansion)

Source:Notes:se No
cu
rin probg p leers mson innelap Inspulab lican fficie
or ts f nt
du or nutie pro mbsop , eq duct er of
era uip ion
tio me ,
n, nt
etc
.

rso Cos
nn t oel f reisex cruice tinss g
ive

Inbound tourism (n=58)

pe

Direct investment (n=284)

U
pe nsurso renn wh
el at
are typ
req esuir ofed

Export (n=474)

Lahu ck omfarma ea an rehighna s of sou qua
ge pr rc lit
me od es y
int te nt, d uctio in
erp ch es n
ret nol ign
ing ogy
,e ,
tc.
La
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qu th
ire odpe s ors r
or onn expe
do el l rtis
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ca
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Ins
u
se ffic
cu ienrin t tg
im
vo pers e/mlum on are o nel gin
f d du foroebu mes to
sin ticess(%)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting exports, direct investment, and responses to inbound tourism.

203

Chapter 3 Initiatives among SMEs to tap into overseas demandFig. 2-3-32 Issues in developing human resources(by type of investment in overseas expansion)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Aggregates data for companies conducting exports, direct investment, and responses to inbound tourism.

These results indicate that a lack of human resources of
the requisite quality is preventing companies conducting
exports and direct investments from securing humanresources; in the case of companies responding to inboundtourism, the issue is the fact that companies are toobusy dealing with their domestic workload. Companies
conducting exports are prevented from developing humanresources by a lack of expertise in instructing and fostering
personnel. Companies conducting direct investment face
the problems of a lack of expertise in instructing andfostering personnel, difficulty in communicating withforeign human resources due to differences in language,
culture, and business practices, and in addition are unable
to retain employees. Companies responding to inboundtourism are mainly prevented from developing humanresources by the fact that they are too busy dealing with
their existing workload.
Tapping into overseas demand is by no means a simple
matter, and the utilization of global business-ready humanresources and foreign personnel is essential to success.
However, as we have seen, due to a variety of problems,

204

Inbound tourism (n=51)

sto
res f deou velorce pis i ngs e hu
xc ma
es
siv n
La
e
ck
org of ne
for aniz twor
ex atio k oterfna ns/sp extel tr
ain ecia rnal
ing list
,e s
tc.
No
iss
ue
hu s in d
ma ev
n r eloesou pingrces

Direct investment (n=274)

Co

Export (n=430)

La
ins ck o
tru f excti
ng perti/fo sepe ster in
rso ing
nn
el
Ins
uff
for icise ent
cu
tim
e/
d rin
do ue t g per margme o v so
sti olu nne in
cb m
us e o l
ine f
Co
ss
mm
un
du icae t tionola di isbu ngu ffere diffic
sin ag nc ult
es e/c es
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rac ure
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es
Pe
rso
nn
e
in l doem noplo t st
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en
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Pe
rso
nn
el
lac
km
oti
va
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(%)

many companies conducting investment in overseas
expansion are unable to recruit and develop humanresources for this purpose in-house. Fig. 2-3-28 showeda correlation between the employment of foreign humanresources and companies’ sales volume and recurring
profit margin. If SMEs are unable to secure and develop
global business-ready human resources within their own
companies, then the contracting and utilization of diverse
human resources, including foreign personnel with a goodcommand of Japanese and an international perspective,
from outside the company would represent one means ofsucceeding in investment in overseas expansion.
By securing and developing global business-readyhuman resources within their own companies at the sametime as contracting and utilizing diverse human resourcesfrom outside, without insisting that those humanresources be Japanese, Japanese SMEs could expect theirinvestments in overseas expansion to be successful inenabling them to tap into overseas demand and increase
their earning power.

Part II The earning power of SMEs

Case

2-3-8

Fuji Filter Manufacturing Co., Ltd.

A company that has succeeded in overseas expansion by cultivating theessential personnel in-house

Section 3

Fuji Filter Manufacturing Co., Ltd. (employees: 180; capital: ¥57.4 million), based in Chuo City in Tokyo,
develops, designs and manufactures high-precision industrial filters and filter systems. The company
manufactures filters for a wide range of applications, supplying 30% of its products to the chemical industry,
24% to the automotive industry, 20% for plant engineering applications, and 20% for shipping applications.
Fuji Filter Mfg.’s strength is its ability to combine high-mix, low-volume production and low-mix, highvolume production, two production systems with differing characteristics. In addition to its Head Officein Tokyo, the company has a manufacturing plant in Tochigi Prefecture, and sales representatives in morethan 15 countries, enabling it to supply Japanese-made filters not only in Japan, but throughout the world.
In 1966, Kazumitsu Shiomi retired from a foreign-funded trading company, taking filter inventory in lieu
of a retirement allowance. Using this as capital, he founded a company and commenced manufacturing
Japanese-made filters. Because joint development with a US company ensured that the quality of thecompany’s products was high, and Mr. Shiomi had experience of working overseas and was proficient inEnglish, the company was able to commence exporting to the US a few years after its foundation, andbegan to cultivate overseas customers through the establishment of overseas sales representatives.
Following his father Kazumitsu’s example, current President Chika Shiomi joined the company and gained
knowledge about its products and production management on the factory floor, in addition to learning
sales skills in the overseas sales department. In 2006, she succeeded her father as the company’s President.
Having established the management principle of making its employees the world’s happiest, based on theunderstanding that it is employees that support a company, the company listened to opinions from its
employees and put effort into studying issues rather than adopting a top-down management style, enabling
it to develop and manufacture products able to solve
problems for its customers. In looking towards overseas
expansion, strategies and plans were formulated
together with employees, and all employees shared
the vision, enabling the company to cultivate new
business partners both in Japan and overseas, and by
this means to boost its business results.
One of the company’s distinctive features is theeffort that it puts into proposal-based sales. Industrial
filters have a wide range of applications, from theautomotive coating process to cosmetics manufacture.
The company is therefore fostering sales staff able tomarket its products overseas, without the need to rely
on trading companies, by having them learn about
products through factory training, followed up by
study meetings and tests.
In addition, in 2012 the company established Fuji
Group photograph at a company technical seminar in Thailand,
Filter Korea in South Korea as a joint venture in order2014 (Ms. Shiomi is the sixth from the left in the front row)
to increase the added value and cost competitiveness of
its filters. With this move, the company now conductspart of the design process for filter cases, previously
manufactured by a supplier, in-house, enhancing its inhouse design ability. The company has also establishedsales bases in Germany and the US in order to collectinformation on the global market and boost its sales.
Company President Chika Shiomi says “We havebeen able to take our products to the world precisely
because, following our principle of ensuring that ouremployees are the happiest in the world, managers
and employees share a management vision, enabling
us to cultivate our human resources in the workplace,and generating a feeling of unity as we listen to ourcustomers and develop and manufacture products
The company’s products, employed in a wide range of
scenarios, from space to the ocean floor
that respond to their problems and their needs.”

205

Chapter 3 Initiatives among SMEs to tap into overseas demand

Case

2-3-9

Yamanaka Engineering Co., Ltd.

A company that has succeeded in advancing into the overseas market andtaking its business to the world by fostering its personnel and deploying
diverse human resources
Yamanaka Engineering Co., Ltd. (employees: 230; capital: ¥85 million), based in Higashiosaka in Osaka Prefecture,
manufactures precision cold-forged15) dies used in the production of automotive parts, provides design anddevelopment solutions for dies and parts, and manufactures components. Placing a priority on how to solve its
customers’ problems, the company is responsive to customer needs, and has built relationships of trust with its clients.
This has enabled it to develop a broad customer base, including major automakers. Using its high-level machining
technologies, the company is able to manufacture high-precision and high-quality dies in short periods, and it is alsoable to develop high-value-added products based on designs formulated using its high-level analytic technologies.
From its foundation in 1961, the company constantly challenged itself to tackle new issues, and it increased
quality through innovation in machining technology, winning high regard and a high level of trust from its
customers. This saw its business steadily expand. However, with the advancement of economic globalization,
Japanese manufacturers shifted their production bases offshore, and came to procure dies from overseas companies
rather than domestically. Having studied in the US during his student days, company President Masahito Yamanaka
keenly felt the necessity for global business, and, believing that his company possessed a level of technologicalexpertise that was not matched by foreign companies and could succeed in global competition amid the trend of
the overseas movement of Japan’s manufacturing industry, resolved to work towards overseas expansion.
Mr. Yamanaka communicated his passion to his employees, and, prioritizing a bottom-up process, formulated avision for the company’s overseas expansion incorporating the opinions of his employees. This ensured a consensus
within the company. In addition, the company worked to render its management indicators visible and shared themwith its local partners overseas, strengthening its relationships of trust with its local partners. Seeking to open up
overseas sales channels, the company employed overseas staff members and provided training and education at its
Head Office in Japan to ensure that these personnel understood its management vision. This enabled it to achieve
steady progress in its overseas expansion. By creating a corporate structure that made active use of non-Japanese
staff members (for example, the company’s employment of a Korean acquaintance of Mr. Yamanaka’s from his
student days in the US enabled it to succeed in securing large orders from Korean automakers, which had previously
been monopolized by its rivals), the company overcame its previous difficulties in entering overseas markets.
Commencing with the establishment of a production base in Singapore in 1994, the company established local
subsidiaries to act as production bases in China in 2002 and 2010, and in Thailand in 2011, and now exports tomore than 20 countries throughout the world.
Believing that the growth of employees ensures thegrowth of the company, and that human resources are thewellspring of technological capability in manufacturing andtechnological development capability, the company works
to foster its human resources not only through OJT, butalso by conducting education programs by rank and ability,
and operating an in-house application system for posts that
become vacant. The company also believes in the necessityof creating an open environment in order to encourage
openness in thinking among its employees, and therefore
actively recruits foreign employees, calls for applications overthe Internet, recruits staff without prejudice regarding theiracademic background, and assigns members of staff to suitable
Company employees reviewing a design
positions. In addition, seeking to form overseas networks inorder to open up new overseas sales channels, the company isworking to increase its opportunities to offer presentations atinternational conferences and meetings of academic societies.
By making even greater use of its non-Japanese personnel
through these initiatives, the company is aiming to increase
its overseas sales ratio from the present figure of 25% to30%. Mr. Yamanaka says “Securing and fostering personnel
able to lead overseas expansion will be the key to advancing
our expansion even further. In order to do so, we will work toenhance our fostering of personnel with a global outlook,for example by actively assigning young staff membersin their 20s to overseas bases, and we will deploy diverse
human resources, including non-Japanese staff members
The company’s production base in Thailand
who understand and share our management vision.”15) Cold forging is a technique of forging and molding metal materials at room temperature. The method uses less energy than hot forging, andmaterial loss is low, reducing manufacturing costs.

206

Part II The earning power of SMEs

Column 2-3-3 Support for Securing Global Business-ready Human
Resources
This column looks at measures to provide support for SMEs in utilizing the global businessready human resources and foreign human resources that are essential to investment in overseas
expansion.

[Support for securing human resources]

The Japan International Cooperation Agency (JICA) provides information on companies wishingto employ individuals who have participated in their volunteer programs to volunteers wishing toseek employment upon their return to Japan following their term of volunteering. Making use ofthis system enables SMEs to recruit human resources whose volunteer experiences have given them
the ability to function cross-culturally, and who can contribute to success in overseas expansion.

Section 3▌ Presentation of information concerning job openings to individuals who have participated in JICA
volunteer programs(Japan Overseas Cooperation Volunteers, volunteers with Japanese corporations overseas)(Japan International Cooperation Agency (JICA))[Flow]

Company
contacts JICAèJICA sends
explanatory
materials andan applicationformè

Company
returns
application
form to JICAèJICA presents the company’s information to volunteers
returning to Japan through the comprehensive
international cooperation career website “PARTNER”
and other means▌ Provision of assistance for the utilization of specialists in overseas expansion(Japan External Trade Organization (JETRO))

This system assists with part of the expenses necessary in employing external experts on overseas
business when SMEs and midsized companies are attempting to expand overseas (establish bases,
conduct exports, etc.) to emerging nations and other countries.
[Overview]

Target companies

Method of implementation
Period for applications

Fees, etc.

1.	SMEs
2.	Midsized companies (Companies other than SMEs that had sales of less than ¥100
billion in the most recent fiscal year prior to the fiscal year in which the application is
made, or companies with less than 1,000 regular employees, or groups made up of suchcompanies (Groups of which two-thirds of the members are midsized companies andwhich are operated for the benefit of midsized companies))* In the case of groups made up of midsized companies and SMEs, the existence of acentral administrating company is a prerequisite.
A preliminary review is necessary. (For details, see the JETRO website.)
http://www.jetro.go.jp/services/expert-subsidy
Expenses eligible for subsidization and upper limits for subsidies are as follows:• Personnel costs for hiring of expert advisors (¥1.8 million)• Expenses for long-distance domestic travel by expert advisors (Upper limit: ¥700,000)• Cost of contracting a proxy for registration of an overseas subsidiary(Upper limit: ¥500,000).

207

Chapter 3 Initiatives among SMEs to tap into overseas demand[Support for development of human resources]▌Internships to foster international business-ready human resources(Japan External Trade Organization (JETRO) and The Overseas Human Resources and Industry
Development Association (HIDA))

In an initiative designed to foster human resources possessing international business skills andhuman resources able to develop new products and services that are fitted to the diverse andrapidly changing markets of emerging nations, developing nations in Asia and elsewhere and
the Japanese government, government-affiliated organizations and private sector organizations
mutually provide young workers and students with opportunities to participate in internships withbusinesses in their respective countries.

[Overview]

Purpose• To support SMEs in overseas expansion (market surveys, searches for local partners,
connections with government-affiliated organizations, etc.)• To promote the development of networks and cooperative relationships with governmentaffiliated organizations and key individuals to enable SMEs to win infrastructure-related
business• To cultivate future global leaders

Method of implementation

The program calls for applications from young workers and students wishing to participate
in internships with government-affiliated organizations, industry organizations, local privatecompanies, etc. in developing nations (nations on the OECD/DAC list), with a focus on Asian
nations.

Desired applicantsFees, etc.

Japanese workers and students (Japanese nationals)
The program subsidizes expenses for traveling to the destination country, living in thedestination country, etc.

▌ Training for management personnel in companies expanding overseas(Organization for Small & Medium Enterprises and Regional Innovation, Japan (SMRJ))

Focusing on companies wishing to expand into Asia (for overseas trade or the establishmentof bases), this program develops human resources which will function as key personnel, providing
education in basics including trade procedures, international contracts, and sales negotiations
with overseas customers, and training to acquire the knowledge and expertise that is essential toconducting direct investments and promoting the overseas expansion of a business.

[Overview]
Details of training
Fees, etc.
Method of implementation

208• Participatory training involving methods including workshops and research on casestudies in addition to lectures, in order to instill the necessary knowledge for overseas
expansion• Individual guidance in the formulation of plans for overseas expansion¥75,000 for nine days (2015 figure)
SME Universities call for applicants for classes (As classes are scheduled)Part II The earning power of SMEs

4.

Conclusion
overseas demand are increasing against the backgroundof factors including the TPP Agreement and the increasein foreign tourism in Japan.
By taking advantage of this tail wind and actively
investing in overseas expansion after learning fromexamples of success and establishing a strategy, JapaneseSMEs can fully expect to increase their earning powerand establish a virtuous cycle in which profits obtained
as a result of overseas expansion are channeled into
investment in further growth.

Section 3

Chapter 3 has offered an overview of the status ofinvestment in overseas expansion among Japan’s SMEs,
and considered factors in success and the problems
encountered by SMEs when conducting these investments.
As we have seen, SMEs experience a variety of problems
and restrictions in attempting to expand overseas,
including a lack of expertise and a lack of appropriate
human resources. However, as Japan’s population
declines and domestic demand shrinks, opportunities forretail and service companies in addition to manufacturing
companies to invest in overseas expansion and tap into209

Chapter 4
Risk management, supporting the earning power
As we have seen up through the previous chapter, the business environment for enterprises isundergoing profound changes with the spread of globalization and information technology andthe transformation of the structure of transactions. There is now more global-scale uncertainty
than before, meaning that enterprises face a variety of risks. In order for SMEs in Japan to growand develop, they must tolerate risk and invest for growth. Moreover, to avoid future costs, theyneed to learn their latent risks and respond to them appropriately. However, SMEs are often not
sufficiently aware of risk and thus have not taken sufficient countermeasures to it. In this chapter,
we will look at how well SMEs are responding to the risks they face and analyze issues with theircountermeasures.

Section 1
1.

Risks facing SMEs

Types of risks

People generally use the word “risk” to mean “danger,”i.e., the possibility of some negative result happening.
However, sometimes we can think of risk as “uncertainty,”
which includes the possibility of both positive and negative
results. In this chapter, we define risk more broadly as“uncertainty of some event happening.” This includes notjust the danger of some loss, but the possibility of either
gain or loss from expanding into new business.
There are various ways to categorize risk, but mostcommonly there are two categories: pure risk andspeculative risk. “Pure risk” is risk that can only cause
loss. It is easy to understand conceptually, and though
the incidence of individual events is hard to predict,
it is easy to take measures against them, such as using
nonlife insurance. Therefore, up to now, countermeasures
to risk have been thought of as targeting pure risk only,
as their objective has been to avoid loss. On the other
hand, “speculative risk,” also known as “business risk,”210

is an event that might lead not just to loss but to gain. In
recent years, businesses have begun to recognize that risk(including speculative risk) is the source of gain. They
are actively accepting risk with the understanding that anenterprise cannot grow unless it takes risks in its pursuitof gain.
Fig. 2-4-1 gives specific examples from the broad rangeof risks as they apply to enterprise management. “Risks
related to business opportunities” refers to risks involved
with strategic decision-making in the management of abusiness. The questions to ask here might be, for example,
whether entry into a new business field will be successfulor whether the scale of capital investment is appropriate.
“Risks related to conducting business activities” are thoserisks involved in the proper and efficient conducting ofbusiness processes. Risks include property destruction
by earthquake and information leaks owing to network
security troubles.

Part II The earning power of SMEs

Specific examples of risks in enterprise management initiatives

Category

Specific examples

Risks related to business
opportunities• Risks related to entering new business field (e.g., will entry into a new business field be
successful?)• Risks related to capital investment (e.g., is the scale of investment appropriate?)• Risks related to product development strategy (e.g., will development of new models be
successful?)• Risks related to funds procurement strategy (e.g., capital increase vs. corporate bonds; willborrowing, etc., be successful?)Risks related to
conducting businessactivities• Risks of damage to goods, environment, etc. (earthquakes, inappropriate factory waste liquid
processing, etc.)• Risks related to information systems (e.g., information leaks caused by security troubles)• Risks related to product quality (occurrence or distribution of defective goods, etc.)• Risks related to compliance (legal violations, etc.)• Risks related to financial reports (fraudulent accounting, etc.)

Prepared by SME Agency based on Research Council on Risk Management and Internal Control, Internal Control in a New
Era of Risk.

What awareness do enterprises have of the impact ofthe various risks on their business? This section analyzes
risk management initiatives used by SMEs, according to
the Survey on Risk Management Initiatives at SMEs.1)
The survey asked about the risks that enterprises

Risks that enterprises anticipate would make continuation of businessdifficult, by enterprise size

Tro

Fir
e/

I
se nformcurity atio
ris n
ks

ter
as
dis
al
tur
Na

Eq
bre uipm
ak en
do t
wn

SMEs
(n=3,188)

Source:Note:All(n=3,516)

ex
plo
sio
n
ub
le
in or
the breamaena ow nter kdow
ge n b pri
me us se’ nsintsy ness
ste
m
Tra
din
g
ba parnk tne
rup r
tcy
Inf
ec
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us
dis
ea
se
Ac
cid
en
tw
ith
pro
du
ct
Ch
ao
do s inme Ja
sti paclog neseist
ics

Large enterprises(n=328)(%)

virode nmestr nt
uc al
tio
n
na
tur Wa
r, t
al
di
er
ou saste roristsi
de r, et m,
Ja c.,
panFig. 2-4-2

anticipated would make business continuity difficult if
they were to emerge. The results indicated that, overall,large enterprises responded at a higher rate to different
risks than SMEs, and SMEs on the whole had a lower
awareness of risk (Fig. 2-4-2).

En

Source:Section 1

Fig. 2-4-1

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Looking at specific items, more than 80% of bothlarge enterprises and SMEs answered that “equipment

breakdown” was such a risk. Next came “natural disaster”
and “information security risks,” though there was a1) Survey of 20,000 enterprises conducted by Mizuho Research Institute Ltd. in December 2015, commissioned by the SME Agency. The
response rate was 18.1%.

211Chapter 4 Risk management, supporting the earning power

marked difference between large enterprises and SMEs,
which listed these as risks threatening business continuity
at the rate of nearly 90% and about 75% respectively. If
any of these risks were to emerge, it could cause serious

2.

damage and have a big impact on business continuity, nomatter what the enterprise size. Therefore, it is importantto take countermeasures in advance.

Natural disaster risk

First we will discuss the natural disaster risk. This is a
type of “pure risk,” as it would only cause loss. How has
natural disaster affected Japan? Fig. 2-1-22 (cited earlier)shows the cost of damages from natural disasters aroundthe world between 1985 and 2015. Japan suffers quite afew natural disasters compared to other parts of the world,

and there have been great damages. By country, the U.S.
sustained the most damage (nearly 30%), and the rest of
the Asian region has also sustained much. Despite thefact that Japan only has 0.25% of the world’s landmass, itsustained 17% of the monetary damages. Obviously it is acountry liable to damage by natural disaster.

Fig. 2-1-22 (Cited earlier)Global proportions of damage costs and natural disaster damage costs(Top figure: $100 million,
Bottom figure: ratio (%))

Japan
Other countries in Asia
U.S.A.
Other countries in America
Germany
FranceU.K.
Other countries in Europe
Oceania
AfricaSource:Notes:

Prepared by the SME Agency based on CRED/OFDA International Disaster Database (EM-DAT) of the Université
Catholique de Louvain.
1.	 Figures represent total cost of damage done by natural disasters between 1985 and 2015.
2.	 At least one of the following criteria must be fulfilled to be considered an EM-DAT disaster: 1. Ten (10) or more people
reported killed, 2. Hundred (100) or more people reported affected, 3. Declaration of a state of emergency, and 4. Callfor international assistance.

A breakdown of the damage caused by natural disasterin Japan shows the most common natural disaster, at
57.5%, is “typhoons,” followed by “earthquakes” and212“flooding” (Fig. 2-4-3). Earthquakes, which can cause
massive damage over a large area each time they happen,
account for more than 80% of the costs of natural disasters,

Part II The earning power of SMEs

Fig. 2-4-3

the Great East Japan Earthquake and massive flooding
when the levees of the Kinugawa River failed.

Breakdown of costs of natural disasters in Japan, by type of disaster
Earthquake

TyphoonFlooding

Landslide

Section 1

followed in order by typhoons and flooding. In recent
years, disasters of a larger scale than previously predictedhave been occurring more frequently. Examples include

Volcanic eruption

Cost ofdamagesNumber ofincidents

Source:Notes:

Prepared by the SME Agency based on CRED/OFDA International Disaster Database (EM-DAT) of the Université
Catholique de Louvain.
1.	 Figures represent total cost of damage done by natural disasters between 1985 and 2015.
2.	 At least one of the following criteria must be fulfilled to be considered an EM-DAT disaster: 1. Ten (10) or more people
reported killed, 2. Hundred (100) or more people reported affected, 3. Declaration of a state of emergency, and 4. Callfor international assistance.

Next, let’s look at trends in the costs of damages
from natural disasters in Japan and the number of suchdisasters (Fig. 2-4-4). The most immediate period showsa big increase in costs of damages, in part because of
the Great East Japan Earthquake in 2011. The numberof incidents is also increasing in recent years, so we cansay the threat from natural disaster is growing. Japan’snatural conditions (its topography, geology, and climate,for example) make it vulnerable to natural disasters
like earthquakes, typhoons, and flooding. Therefore,
enterprises in Japan need to be aware of natural disasterrisks and take countermeasures like providing better
earthquake resistance at business sites and performing
construction to prevent business site flooding.

213

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-4

Trend in frequency of and damage from natural disasters in Japan($100 million)(Incidents)
Cost of damages (left axis)

Number of incidents (right axis)(Year)

Source:Notes:

214

Prepared by the SME Agency based on CRED/OFDA International Disaster Database (EM-DAT) of the Université
Catholique de Louvain.
1.	 Figures represent total cost of damage done by natural disasters between 1971 and 2015.
2.	 At least one of the following criteria must be fulfilled to be considered an EM-DAT disaster: 1. Ten (10) or more people
reported killed, 2. Hundred (100) or more people reported affected, 3. Declaration of a state of emergency, and 4. Callfor international assistance.

Part II The earning power of SMEs

2-4-1

Kaneki-Yoshida Co., Ltd.

A marine product processing company that in the immediate aftermathof the Great East Japan Earthquake secured a base for procuring raw
materials and alternate production enabling it to continue doing business

Section 1

Case

Kaneki-Yoshida Co., Ltd. (employees: 90; capital: ¥37 million), based in Minami-Sanriku Town, Miyagi Prefecture,
is a marine product processing company that deals with sea urchin, abalone, kelp, and the like.
Motivated by the tsunami alerts issued in Japan at the time of the 2010 Chile earthquake, Kaneki-Yoshidainstituted twice-yearly evacuation drills and training. Furthermore, owing to the frequent occurrence ofearthquakes in the area where the company’s headquarters are located, it also worked to inform its employees
in morning assemblies and through in-house announcements of evacuation procedures for the workplace, duringcommutes, and when at home.
When the 2011 Great East Japan Earthquake occurred, Kaneki-Yoshida’s employees were able to evacuate
quickly. However, the headquarters and four plants and storage and cultivation facilities in the same town weredamaged by the tsunami that followed, making production impossible. All of the facilities were covered bycatastrophe insurance, but only half were also accompanied by contracts for earthquakes. The amount of insurancemoney received covered approximately 20% of the total amount of loss. During the period immediately after thequake when there was no official assistance, the company coped by taking early withdrawals of insurance moneyand financing from banks.
There was a strong desire at Kaneki-Yoshida to resume operations at the earliest possible date, so the company
began by working to secure raw materials. The earthquake occurred in March, which is when kelp—the ingredientfor the company’s key products—is harvested. Normally, this overlaps with the time when orders are placed for theentire year’s processed volume. Since there were concerns that the company would not be able to resume business
until the following season if orders were not placed immediately and stock laid in, employees were dispatched
to inland districts that still had phone service so they could make contact with trading companies. The employees
let the trading companies know that Kaneki-Yoshida had weathered the disaster in good shape, needed raw
materials, and would not be losing out on purchases from outside the disaster reached that were expected toincrease since the company would respond flexibly regarding the purchase price. By the end of that March, thecompany had received delivery of the raw materials.
Next, because Kaneki-Yoshida’s plants in its hometown had completely stopped operations, the company
decided to look for candidate facilities mainly among other companies in the same industry as alternate production
sites. It learned that there was a business in Hachinohe City, Aomori Prefecture, that had taken on consignment
processing work for Kaneki-Yoshida from before the earthquake that had a vacant factory, and so an approach
was made. The then-vacant factory had been damaged in the tsunami, but the Hachinohe company said KanekiYoshida could use it for two weeks if it did the repairs. Accordingly, in late March it decided to follow through. At
this point when production was expected to resume, it informed buyers and began deliveries to customers in the
Tohoku and Kanto regions.
The alternate production approach was kept in place for about half a year, from mid-April to the end of October.
The variety of products was limited to about 20% of normal, and production volume was around 60% to 70% of
the same. While sales did not reach the ¥2.2 billion level
seen in the period that ended January 31, 2011, prior to
the quake, they were still able to maintain a level of ¥1.48
billion for the same period ending the following year.
When it came to rebuilding facilities after the quake,as much as possible Kaneki-Yoshida chose sites in the
town not at risk of floods and restored them there. As forprovisions on the financial front, the company reexamined
the insurance policies it had taken out and added special
earthquake contracts to the catastrophe insurance foreach facility. On top of that, for the main plant it beefed
up indemnification by also adding compensation forbusiness suspension. Finally, the company also gave
attention to its financial standing, and has made every
effort to refrain from investing in sectors such as realestate that have scant connection to its core business and
The company’s rebuilt Number 2 plant
to condense debts that are not urgent.

215

Chapter 4 Risk management, supporting the earning power

3.

Risks in expanding into new business2)

As the previous chapter showed, it is important thatenterprises respond to the changes in the environmentthat they face and aim for growth by getting into new
business. However, while expanding into new businesscan potentially lead to great gains, there are dangers fromnot sufficiently preparing in advance or from encountering
sudden changes in the environment. Such dangers could
lead the enterprise to withdraw from the new business or
have a big impact on its existing business. Next we lookat risks in expanding into new business, which are among
those business risks that could lead to either gain or loss.

█ State of expansion into new business, andbenefits

First, let’s look at how enterprises have expanded

into new business so far and see how they evaluate thatexperience (Fig. 2-4-5). Taking out those enterprises thatgave the answer “No expansion into new business,” there
were still nearly 60% of enterprises that had expanded
into new business. The most common descriptions ofthat expansion were “Expansion into new sales regions
within Japan,” “Development or sale of new products
or services,” and “Exporting products or services fromJapan.” Asked how they evaluated their experience withnew business, there was some variance among items, but
in each case some 40% − 60% of those enterprises that
had expanded replied that the expansion was “Neutral”
and a similar percentage said it was a “Failure.” In otherwords, there are many issues for SMEs expanding into
new business.

2) In this part, “new business” is defined as “entry into a new business field or offering new products or services.” This definition allows awider look at the state of new business development at SMEs.

216

Part II The earning power of SMEs

Past entries into new business and evaluation of entry

Section 1

Fig. 2-4-5

ne Expw
sa ansiolewit s re n int
hin gio o
Ja ns
pa
n

No
ex
p
ne ansiow
bu n insin toessExpse ortin
rvi g pces f rodu
rom ctJa s or
pa
n
Ex
pa
bu ns
io
si
or ness n intodown ups new
su stre tream
pp am
ly
ch in
ain
Ex
pa
ns
io
e Ja n oov stab pan utsid
ers lish (M eea me &A
s a nt ,ffil
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rvi s
ce
s
En
ind terin
ch ustry g dif
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nte bystr
uc rnaltureEn
ind terinuges stry difftab se erelish cto ntrsu ing n bybs
idi ew
En
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ter
ing
ne
bu
w
t
sin hroeu bus
an ss tra gh M ines
oth ns &A ser
fen er fro or
ter
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se

(Actual entries into new business)

Existing business

Other than existing business(Enterprise’s evaluation of entry into new business)
Neutral

Failurene Expw
sa ansiolewit s re n int
hin gio o
Ja ns
pa
n
Ex
po
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pa
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Ex
pa
bu ns
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pp am
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ch in
ain
Ex
pa
ns
io
e Ja n oov stab pan utsid
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s a nt ,ffil
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rvi s
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s
En
ind terinugch stry difanf
gin sect ereng i or t
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uc rnaltureEn
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us g des trytab se ifferelish cto ntrsu ing n by
bs
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En
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ter
ing
n
bu
e
w
t
h
sin
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an ss tra gh M ines
oth ns &A ser
fen er fro or
ter
pri m
se

Success

Existing business

Source:Note:

Other than existing business

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses to questions about actual entries into new business werepossible.

So what kind of impact does expanding into new
business have on enterprise earnings? According to
Fig. 2-4-6, the percentage of enterprises who replied thatcurrent sales were “Rising” was 18% for those selling“Existing products only,” but higher (19% − 33%)
for those expanding into new business. Next, a look at
profitability shows a similar trend here as with sales.

Enterprises that had expanded into new business answeredthat profitability was “Rising” more often than those that
had not. Current earnings were good more often for thoseenterprises that had expanded into new business, but
enterprises where sales or profitability were on a rising
trend were only about 30% of the total.

217

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-6

Current earnings of SMEs that have expanded into new business(Current sales trend)
Rising(%)

Existing products only
(n=918)

New products(n=284)(Current profitability trend)

No change

Falling

New fields(n=145)Both(n=279)

Expanded into new business(%)

Existing products only
(n=918)

New products(n=284)

New fields(n=145)Both(n=279)

Expanded into new business

Source:Note:

Japan Finance Corporation Research Institute, Survey on New Business Development at SMEs (August 2013).
Here, “SMEs” refers to businesses with fewer than 300 workers.

█ Consideration before expanding into new
business

What kinds of things are considered in advance at thoseenterprises where an expansion into new business leads
to rising sales and profitability? Fig. 2-4-7 compares theitems considered before expanding into new business, bywhether the enterprise had established a medium- to longterm business plan covering a period of at least three years.
On the whole, enterprises that manage systematically218(those that answered “Have a medium- to long-termbusiness plan”) responded that they considered each of
the items at a higher rate, showing that they were doing
prudent consideration. Overall, enterprises less often gave
responses indicating they had considered the failure of
their new business (such as “Consideration of preparations
for failure, reserve funds” and “Consideration of criteria
for withdrawing / deciding business is a failure”).

Part II The earning power of SMEs

Items considered before expanding into new business, by whether theenterprise had established a medium- to long-term business plan
Have a medium- to long-term business plan

Cost-effectivenessanalysis, simulation,etc., on necessity of
expanding into new
business

Source:Notes:

Analysis of market
conditions

Do not have a medium- to long-term business plan

Analysis of impact of
expansion into new
business on existing
business

Consideration of
preparations for
failure, reserve funds

All

Section 1

Fig. 2-4-7

Consideration of criteria
for withdrawing /deciding businessis a failure

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The category of enterprises that “have a medium- to long-term business plan” shows the total of those that answered“We have a business plan covering a period of three years or more.”

Do enterprises get different benefits from advanceconsideration of expansion into new business based on
systems they have in place, such as whether they havean office specifically for risk management? Fig. 2-4-8
compares the benefits from considering before expanding
into new business, based on type of risk management
system at the enterprise. The percentage of enterprisesthat said that the impact of emerging risks was within
what was anticipated (i.e., they answered “We were able
to avoid various risks before they emerged” or “The riskthat emerged was within the anticipated scope, and wewere able to limit impact on business to some extent”)
was relatively high (nearly 70%) for those that said
they had an office specifically for risk management. On
the other hand, enterprises who answered that “Riskmanagement is part of the duties of the general affairs orplanning department, etc.” or “No office in charge of risk
management” scored low in both cases.
Nearly 60% of enterprises had already expanded into

new business, which is not a small number by any means.
Moreover, the responses showed that a certain percentageof them felt that sales or profits were on a rising trend
as a result. However, expanding into new business does
not in itself guarantee a gain. There is the possibility ofloss sometimes. In general, it is difficult under uncertain
conditions to determine when a loss is happening andto decide to withdraw from a business.3) Managers
sometimes make the wrong decision on whether tocontinue or withdraw when they take on a new businessand do not get the results they expected. To ensure a gain
when expanding into new business, it is also importantto anticipate a deterioration in the external environmentand set benchmarks in advance for withdrawing fromor suspending a business. An enterprise can survive
challenges by drafting a plan in advance, collecting andanalyzing the necessary information, then making rational
decisions based on that information and changing course
when the environment changes.

3) Prospect theory: A decision-making model used in behavioral economics. This theory tries to explain human behavior patterns in respect
to risk. It says that people prioritize risk avoidance in situations where they could make a gain. On the other hand, in a situation where they
could lose, people try to avoid loss as far as possible.

219

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-8

Benefits from considering before expanding into new business, based ontype of risk management system
There is an office specificallyfor risk management

We were able to
avoid various risks
before they emerged

Source:Note:

220

Risk management is part ofthe duties of the general affairs
or planning department, etc.

The risk that emerged
was within the anticipatedscope, and we wereable to limit impact on
business to some extent

The risk that emerged
was greater than
anticipated, but we wereable to limit impact on
business to some extent

No office in charge ofrisk management

The risk that emerged
was greater than
anticipated, and it had
an impact on the company’s
entire business

All

None in particularMizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Enterprises that aim to survive and grow when the environment around them is changing so
drastically need to get into new markets and business fields, not just stay in their existing businessfields. However, it is not easy for an enterprise by itself to secure all the management resources it
needs to expand into new business. This column looks at the issues involved with expanding into
new business.
Fig. Column 2-4-1 (1) shows the reasons why expansion into new business did not go well up
to now. Many enterprises (51.5%) answered, “We did not have the human resources internally to
expand into new business.” Many also (42.9%) said, “There was not enough information about theenvironment around our expansion into new business.” A certain number replied that they had notadequately anticipated losses, with 14.1% responding, “We did not sufficiently anticipate failure orwithdrawal from the business in advance.”
Next, let’s look at issues that came up when considering entry to a new business, comparing
by enterprise size (Fig. Column 2-4-1 (2)). Overall, many enterprises responded that there was a
problem with a lack of management resources (“Not enough human resources to expand into
new business” or “Funds procurement”) or a lack of information (“Not enough skill / know-how
to expand into new business,” “Securing customers / sales channels after expanding into new
business,” etc.). There was a marked difference between large enterprises and SMEs concerning“Funds procurement.” This indicates that SMEs do not have enough management resources when
expanding into new business.

Source:Notes:Ot

her

Reasons why expansion into new business did not go well

the W
h e
int uma did n
eron
int nally reso t hav
onew to ex urce ebu pan s
Th
sin d
ere
es
inf
s
orm wasnoenat
vir ion t eou onm ab nou
rego
xp ent a ut t h
ne ansi roun heow
bu n in dsin toes
Wessa faileles d toou
r n chan sec
ew ne urebu ls fsin orWeesds
an id not
wit icip t su
bu hdr ate ffici
sin aw fai en
tl
l
es al
s i fro ure o y
na m
r
t
dv he
an
Ris
ce
ks
bu rela
we sines tingha s e to t
d n me heotran ged new
tic tha
ipa
Ou
ted t
r fi
n
wo an
c
ex rsen ial s
pa ed itunda
ed whe tion
int n wobu ne e
sin w
O
es
s
we ur ent xistint ingo
we a s bu
ex lum sinepne and p aft ssew
bu d in er
sin toPeessthe opleide did
fro a
n
o
m of
or wit t liste
rec hdnon raw tosiinbu derin g
sin g
es
s

Fig. Column 2-4-1 (1)Section 1

Column 2-4-1 Issues with expansion into new business

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissionedby the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The above reasons were given by those who answered “Neutral” or “Failure” as their evaluation of their
expansion into new business.

221

Chapter 4 Risk management, supporting the earning power

Source:
Note:

222

Ot
he
r

All
(n=2,742)

onefor to go
ad to
vic
e

SMEs
(n=2,491)

No

Large enterprises(n=251)N
res ot en
ou ou
int rces gh honew to ex umanbu pansin desskn Notow enohint ow ughon
ew to ex skill
bu pan /
sin d
es
Se
s
cu
sa ringlescuexpa chan stomnd
ing nels ers
in aft /bu to ne er
sin w
es
s
Fu
nd
sp
roc
ure
me
nt

(%)

Issues with expansion into new business, by enterprise sizePooex r sy
ist neing rgbu y wisin th
es
No
s
ca
ref
u
wa l cca s don onsidreful e int erati
op ern oninno ions ally,t w di
in d
ou
t
Did
no
t fi
nd
ap
art
ne
r

Fig. Column 2-4-1 (2)Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

2-4-2

Tohken Thermo Tech Co., Ltd.

A company taking what it had learned in overcoming an unexpectedbad situation in an overseas business and applying those lessons to its
subsequent overseas development initiatives

Section 1

Case

Tohken Thermo Tech Co., Ltd. (employees: 740; capital: ¥88 million), based in Osaka City, Osaka Prefecture,possesses broad range of basic technologies for thermal processing and performs processing on commission.
The company set up shop in Thailand in 1995, Malaysia in 1996, China in 2010, and Mexico in 2012, giving
it at present four overseas bases of operation.
Tohken Thermo entered the Malaysian market shortly before the Asian financial crisis, and went throughthe experience of seeing its operations there sink into quicksand as business with the customer that had
been expected to account for the majority of its sales dramatically decline as a result of the crisis andnot recover in the aftermath. As for processing commissions, normally the risks were low for this sales
channel when it came to getting an inquiry from a customer and then pursuing the business. However,after sales entering the market dropped off significantly more than had been expected. The resulting
situation was a severe one that imposed financial burdens on the head office in Japan as well, and thecompany momentarily even looked at pulling out. At this point, the newly arrived president of the local
subsidiary and its employees made all-out efforts at cold calls and opened up a sales channel that focusedon local non-Japanese companies. Fortunately, business was also good for the Japanese head office andfinancial institutions continued to provide loans, with the result that the company remained in Malaysia
and continued to do business there. Today, the company is expanding its business with local companies
as partners. It has also wiped out its accumulated losses and moved into the black. However, investment
recovery has been a prolonged processes, and the company views the entire affair as “our experience ofdefeat, and our experience of going all out to overcome that defeat.”
Based on its experience of seeing the risks latent in a sales channel rise up to the surface, when Tohken
Thermo entered the Mexico market in 2012 it took the measure of doing so after having entering a protocol
with its customers in the event that a dedicated production line would be required for any new business.
While the protocol does not legally guarantee specific production volumes or similar, it does have thecustomer promise that it will prioritize placing orders with the company when the customer has received
orders from its own client. Tohken Thermo also had the experience in China of having to take processing
commissions at a low cost from customers owing to massive drop in such orders due to the difficulties
Japanese automobile manufacturers had, only to see not much improvement in profits once commissions
had recovered. Reflecting on that, in Mexico the company kept medium- and long-term profitability in mind
as it took a judicious approach to pricing strategies.
Furthermore, as a new initiative in Mexico, Tohken Thermo is also looking beyond Japanese companies totake North American and European enterprises under consideration as business partners, and in anticipation
has been looking at how to handle any legal risks that are expected to come. This is being done on theadvice of a consulting lawyer invited into the company as an outside board member, and the company istrying to pay even closer attention to its contracts.
Tohken Thermo has looked intently at its past experiences and future business development in its efforts
to develop measures for dealing with risk in advance. Executive Managing Director Ryuji Kawasaki saysthat in discussions held prior to a company’s advanceinto overseas markets, “it is best not to think things
will work out when the move is made. The ease withwhich a company can be set up is a separate matterfrom drumming up business. You can get general
information about things like company and tax laws
or tax incentives from support agencies or financial
institutions, but you need to exchange deep andvaried information with customers and investigate
who your competitors are in advance.”
The offices of the company’s Mexican subsidiary223

Chapter 4 Risk management, supporting the earning power

Case

2-4-3

Kawakamikiko Co., Ltd.

A company that determined in advance what it imagined its acceptable
limits were when entering the Korean market, and then was able tocontrol the effects when it decided to withdraw on their basis
Kawakamikiko Co., Ltd. (employees: 37; capital: ¥10 million), based in Takasaki City, Gunma Prefecture, is awholesaler and services company that mainly handles equipment for newspaper distributors. It gets its stockprimarily from group company Maruyamakikai Manufacturing Co., Ltd., and sells those products through sales
offices that operate mainly in eastern Japan.
Around 2000 or so, Kawakamikiko received an inquiry from a concern in Korea that wanted to mechanize thetask of folding leaflets, which was then being done by hand. The query came at a moment when the company
had decided that it would be unprofitable due to competition to continue to limit its activities only to what is its
current region of operation. It accordingly was looking into expanding its sales area in Japan. Also, sales at thetime of machines that put newspapers in plastic bags to prevent them from getting wet in the event of rain weregrowing. The company also sold the newspaper bags as maintenance supplies for the equipment, and was further
considering Korea for other suppliers.
It was against this background that Kawakamikiko came to explore developing new business in the Koreanmarket as a source of both buyers and suppliers. Initially, it looked for sales agents and selected one from among
the half dozen or so that had placed inquires. However, sales did not go well through the agent, and so in 2003
the company decided to use its own money to fund setting up a local subsidiary. Based on its sales and scale ofits profit at the time, the thinking was that it would be dangerous for the company’s business if it developed an
accumulated total loss of ¥100 million.
Prior to entering the market, Kawakamikiko had expectations of customers and judged the business environment
in Korea for its subsidiary to be favorable. However, the move came at a time when the penetration of the internet
was overlapping with that of newspapers, and sales of the latter had already peaked. The situation that resulted
as a consequence was one in which the company did not meet its sales targets and it generated red ink on theorder of several million yen annually.
It was during this period of ongoing business stagnation in Korea that the Lehman crisis occurred. Sales for
the Kawakamikiko parent company in Japan fell 40% to 50% and its financial health was worsening. Under
the circumstances, the company decided that for the sake of morale among management and employees atthe parent enterprise it would without delay end the effort to keep going a Korean operation that continued
generating losses. In addition to the ¥50 to ¥60 million worth of losses that it included in its calculations, thecompany had also invested around ¥100 million along with covering various other costs. In the end, the company
began its withdrawal at the start of 2009 and was able to finish the job that March.
Kawakamikiko does not see the series of business it developed from its Korean base as having been a “failure.”
Considering that it had no experience moving into overseas markets at the time and was worried about fallingbehind its competitors, it sees its decision to enter the Korean market as having been a good one. The experience
allowed it to see that the method of relying on agents to mitigate risk is a good one for when advancing into
overseas markets. Even today, it is still trying to find agents in various countries and do sales through them.
The fact that Chairman Seiichi Sato had been previously
involved with helping to rebuild a company that had gonebankrupt and so had a visceral understanding of how bad
performance had to get for an enterprise to collapse had asignificant influence on the thinking about the amount of
red ink that formed the basis for the decision to get out of
the Korean market. Sato explains, “While it goes without
saying that having excellent judgment is crucial, so, too,is decisiveness. Even if you can make a determination, thequestion of whether or not you can make decisions about
things like reducing your workforce or closing an operationand then carrying them out is another story”. Kawakamikiko,in fact, was able to act quickly, as it began taking steps toclose down its Korean operation at the start of 2009 after
having undertaken a restructuring of the Japanese parent
enterprise in the second half of 2008. “The crucial thing inmanagement is to be regularly thinking about risk. You can’t
have an image of only successes. There are businesspersons
who have failed here among SMEs, too,” Sato said.
The Korean subsidiary that Kawakamikiko established in 2003

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Part II The earning power of SMEs

The need for risk management█ What is risk management?

Risk management, the systematic management of risk,
is a process that seeks to avoid or minimize loss, etc.
Here, risk management refers to business management
techniques that seek to accurately learn risks that create
obstacles to the management of an enterprise, and theimpact of those risks; that seek to avoid crises by taking
countermeasures in advance; and that seek to minimize
loss when a crisis happens. The objective of thesetechniques is to maintain and increase corporate value.
Conventionally, it has been assumed that enterprises
unconsciously practice risk management when making
business decisions. Recently, however, outsourcing ison the rise as business processes become more complex.
This has resulted in new risks. For example, if businessprocesses are disrupted at an enterprise’s subcontractor,
it can have an expanding chain-reaction impact on
the enterprise. Or there can be quality problems if anFig. 2-4-9

employee breaks the law and it shakes the managementof the enterprise. Now there is greater need than everfor risk management, and enterprises need to practice it
proactively.
First, what kind of systems are in place at enterprisesthat practice risk management? Fig. 2-4-9 shows
enterprises’ risk management systems, by enterprise size.
Among large enterprises, 18.5% said that “There is an
office specifically for risk management” and 66.9% said
“Risk management is part of the duties of the generalaffairs or planning department, etc.” These answers showthat large enterprises are practicing risk management
systematically. On the other hand, a mere 3.9% of
SMEs said that “There is an office specifically for risk
management” and 40.4% answered that they had “Nooffice in charge of risk management.” So SMEs do notseem to have fully developed risk management systems.

Section 1

4.

Risk management system, by enterprise size
There is an office specificallyfor risk management

Risk management is part of the duties of
the general affairs or planning department, etc.

No office in chargeof risk management

SMEs(n=3,246)

Large
enterprises(n=335)

Source:Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.

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Chapter 4 Risk management, supporting the earning power

Fig. 2-4-10 Risk management process(1) Discover and identify risksè(2) Calculate risksè(3) Evaluate risksê(6) Evaluate residual risksç(5) Take risk countermeasuresè(8) Evaluate effectiveness ofand correct risk managementç(4) Select risk
countermeasuresê(7) Monitor and correct
risk response policies andcountermeasures

Source:Prepared by SME Agency based on Research Council on Risk Management and Internal Control, Internal Control in a New
Era of Risk.

█ Development of risk management

Generally, the practice of risk management follows
this process: (1) Discover and identify risks, (2) Calculaterisks, (3) Evaluate risks, (4) Select risk countermeasures,(5) Take risk countermeasures, (6) Evaluate residual
risks, (7) Monitor and correct risk response policies andcountermeasures, and (8) Evaluate effectiveness of andcorrect risk management (Fig. 2-4-10).
First, it is necessary to discover what kinds of risk
factors there are in relation to the enterprise’s businessobjectives and identify them as risks (1). Next, theenterprise must calculate the relative importance of theidentified risks to itself, as measured by the probability

226of that risk occurring and the degree of impact that risk
will have on the enterprise if it emerges. If it is difficult
to quantitatively assess a risk on those two scales, anothereffective approach is to assess it qualitatively as “great,”“moderate,” or “small.” The enterprise then draws a risk
map, etc., that compares the probability of a risk and its
impact on the enterprise to some benchmark, and thensets out the risks relevant to the business (2). Next, theenterprise prioritizes the risks calculated in step (2) basedon some standard (3). Risk control and risk financing are
the two main types of risk countermeasures, which are
more finely divided into six classes (Fig. 2-4-11).

Part II The earning power of SMEs

Category

Means
Avoidance

Measures that interrupt activities that bear risk andisolate predicted risks. Involves forfeiting returns.

Loss prevention

Measures that prevent losses before they occur,
reducing the frequency of losses by taking preventive
measures.

Loss mitigation

Measures that mitigate loss or prevent it fromexpanding when there is an accident; measures that
limit the scale of loss.

Separation / dispersion

Measures that separate and disperse sources of riskso they are not concentrated in one place.

Transfer

Methods such as insurance or contracts to get loss
compensation from a third party when loss occurs.

Risk control

Risk financing
Possession
Source:Content

Section 1

Fig. 2-4-11 Risk countermeasure methods

Self-paying for any losses without taking any measuresagainst latent risks, even though they are known.

Prepared by SME Agency based on Research Council on Risk Management and Internal Control, Internal Control in a New
Era of Risk.

Risk control is a method that diminishes the frequency
and size of a loss. Risk financing sets aside a source ofmoney to compensate for a loss. The latter can be subcategorized as “transfer” (using insurance, etc., to transfer
the monetary risk to a third party) or “possession” (bearing
the cost of any loss directly, for example by putting funds
in reserve). Risk control reduces loss, and risk financing
is also an effective countermeasure (4). After a risk
management program is selected to specifically achieve
the selected risk countermeasures, those countermeasures
are implemented (5). The enterprise performs anevaluation to determine if the countermeasures havebrought residual risks down to an acceptable level (6). It
is necessary to reconsider the enterprise’s response to risk
periodically or whenever a risk emerges and a major loss
occurs (7). Then, the enterprise evaluates the effectivenessof its risk management system to determine whether it has
built and is operating an appropriate and efficient system,

and it makes any necessary corrections (8). This series ofsteps is the risk management process.
Thus, risk management has to be addressed as anorganization, but that does not mean that just building
a risk management system enables an enterprise torespond flawlessly to all risks. The primary focus of risk
management is to enable the enterprise to learn thoserisks that create barriers to its sustained development andthen take appropriate countermeasures. In other words,
an enterprise must not only manage all risks, but takepriority measures against those risks with a great impact
on management. Following is a case study of an enterprisethat actively sought out external certification as part ofits risk management (Case 2-4-4). Thus, when pursuingrisk management, it is essential that managers provide
leadership and share their targets with their employees as
they carry out their initiatives.

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Chapter 4 Risk management, supporting the earning power

Case

2-4-4

Ishizaka Sangyo Co., Ltd.

A company training employees, improving operations, and achieving an
increase in sales by putting external certifications to use
Ishizaka Sangyo Co., Ltd. (employees: 135; capital: ¥70 million), based in Miyoshi Town, Saitama Prefecture, isan industrial waste disposal business focused mainly on the business of sorting, classifying, and recycling the wastethat is generated when dismantling homes and buildings.
When reports emerged in 1999 that dioxin had been detected in agricultural products grown around
Tokorozawa, despite the fact that it had been using a new type of incinerator that did not produce dioxin Ishizaka
Sangyo reflected on its corporate image and decided to get out of the incineration disposal business that had
once been its mainstay. While at the time it accounted for 70% of its sales, the decision was made that a change ofbusiness was unavoidable even if they were not able to fully sort out all the risks that might be involved.
Thus, Ishizaka Sangyo entered the recycling business in 2002. To raise awareness of the move among local
residents and environmental groups, it began by getting outside parties to look at its plant. Specifically, it sought
to expose its operations to public view by removing the sound abatement walls that had been erected around thesite and creating an inspection tour route in the plant itself. Today, the facility receives 10,000 visitors each year,
and the thinking of the company’s employees has also changed as a result of being seen by the guests.
In 2003, Ishizaka Sangyo simultaneously acquired ISO14001 Environmental Management, ISO9001 Quality
Management, and OHSAS18001 Occupational Health and Safety certifications to provide the framework of standards
for an integrated management system. The direct motivation for acquiring them was because they were being usedby a major business partner as a scoring standard for when selecting a disposal business. At first, the introductionof the new system met with opposition from employees due to the increased workload, but it gradually took root.
Ishizaka Sangyo subsequently acquired several more certifications in response to changes in the environment as wellas various demands being placed on the company related to energy conservation, business continuity, and improving
the quality of the education provided to both employees and plant visitors, among other items. These certifications
included ISO27001 Information Security Management in 2007, ISO50001 Energy Management in 2011, ISO22301
Business Continuity in 2013, and ISO29990 Learning Services in 2014. Together, the standards these certifications
represent are being put into practice as the basis for Ishizaka Sangyo’s integrated management system.
Ishizaka Sangyo’s head office takes the lead in seeing that the standards are actually put into practice. The
system calls for bottom-up reporting from the manager of each unit on the initiatives being undertaken to doso. Those managers are given the autonomy to apply the ISO standards as tools for rectifying the issues thatcome up while doing business. Training takes place in the form of a monthly ISO promotion committee meeting
to convey in readily grasped ways the notion that the
ISO mechanisms are the work of Ishizaka. Putting
the standards into practice costs several millions of
yen annually arising from the outlays for consulting
companies and expenses arising from external audits, but
the company is achieving investment effects by getting
third-party assessments about making its managementtransparent and increasing the quality of its employees.
More recently, Ishizaka Sangyo has been pouring its
energies into “Omotenashi Keiei,” a concept meaning
management geared toward providing high-quality
service. Its efforts have won external praise, with thecompany having been selected as a FY2012 Omotenashi
Keiei Company by the Ministry of Economy, Trade andIndustry (METI). Specifically, as one of its involvements
Ishizaka Sangyo’s plantwith the local community the company has been
pursuing through its “Kunugi Forest School” at Santome
Konjaku-mura4) a resource recycling program based on
the 3Rs5) and a hands-on teaching about environmental
protection using a “seeing and feeling” approach.
These initiatives to improve operations by putting
external certification standards into practice and these
CSR efforts have boosted the trust shown in the company
by outside parties and improved its corporate image,with the result that sales have continued to stay on the
upswing.
An ISO promotion committee meeting

4) A woodlands-themed amusement park operated by the company.
5) The 3Rs stands for “reduce,” “reuse,” and “recycle.”

228

Part II The earning power of SMEs

SMEs are increasingly expanding overseas to capture foreign demand. When they do so, they
face a variety of unforeseen risks, which in some cases can be an impediment to the continuity of
their business. In light of that fact, this column introduces some tools to help enterprises overcome
the challenges they face in their overseas businesses, whether they have already gotten into aforeign market or aim to expand overseas in future.

Section 1

Column 2-4-2 Tools for enterprises getting into foreign markets(1) Collection of case studies of SMEs reorganizing their overseas businesses (for the stable continuityof such business)

SMEs are expanding overseas at an accelerating pace, but there are also more and more casesof business reorganizations in the new market (e.g., shrinking or withdrawing from the business,transferring to a third country, etc.) in order to respond to changes in the local business environment.
The SME Agency has put together a collection of 28 case studies of SMEs that undertook a businessreorganization outside Japan. The collection, published in June 2015, also summarizes things totake into consideration when reorganizing overseas businesses and trends in overseas businessreorganizations by SMEs.6)eImag(2) Overseas risk management manual for SMEs

Enterprises entering foreign markets need to study the risks in their target countries and consider
how to deal with those risks. In March 2016, the Organization for Small & Medium Enterprises andRegional Innovation, Japan published an overseas risk management manual to make up for the lackof information and know-how available to SMEs. It introduces specific methods of risk management
overseas and countermeasures to 21 risks that enterprises could very possibly encounter when they
get into foreign markets. It includes a template that enterprises can follow as they work, whichenables them to run a risk management PDCA cycle.

e

Imag

e

Imag

6) http://www.chusho.meti.go.jp/keiei/kokusai/2015/150616kaigai.html

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Chapter 4 Risk management, supporting the earning power

Section 2

Establishing a business continuity plan (BCP7)) to ensurebusiness continues stably

As the previous section noted, Japan has long been
threatened by natural disasters. A massive earthquake
occurred in 2011, and heavier rains than had everoccurred happened in 2015. These are examples of natural
disasters of a scale far beyond our earlier expectations
and emphasize the increasing need for risk management.
Moreover, it is not just natural disasters that have a big
impact on enterprise management. For example, we

1.

have seen epidemics of infectious diseases and leaks of
information through computer networks. If an enterprise
does not respond correctly when faced with a crisis, it
could become less trusted, its brand power could be lost,
and the very business continuity of the enterprise could bethreatened. This section will clarify the state of measurestaken against a variety of risks faced by SMEs and issues
to be addressed in SME initiatives for business continuity.

The need to prepare for large-scale disasters

When a large-scale disaster happens and disrupts thebusiness activities of an enterprise, it does not just affectthat enterprise. The impacts can be considerable, affecting
trading partners, the local economy and society, and Japanas a whole. The Great East Japan Earthquake of March2011 caused production to shut down at enterprises
directly affected by the event, which cut supply chains.
Many enterprises were indirectly impacted when their own
business activities came to a stop as a result. Maintaining
supply chains is critical to supporting economic activity
in Japan.

█ Supply chain awarenessSince the Great East Japan Earthquake, businesses,
especially large enterprises, have increasingly

reconsidered their suppliers as part of risk management. In
some cases, the purchasing side of the partnership checks
to make sure the supplier has established a BCP when it
offers contracts. Enterprises that cannot fulfill their supply
responsibility as a member of the supply chain lose tradeopportunities.
Under those circumstances, what awareness do SMEs
have about their supply chains? First, let’s consider thatfrom the viewpoint of an enterprise in the supply chain.
A greater percentage of SMEs than large enterprises
subcontract to work for other enterprises. When firstlevel, second-level, and third-level subcontractors or
lower are added together, they make up more than 50% of
SMEs. This shows that SMEs have a very important roleto play in supply chains (Fig. 2-4-12).

7) A business continuity plan (BCP) establishes initiatives to conduct before emergencies, as well as business continuity means, methods, etc.,
to use during emergencies, to minimize damage to business assets and enable an enterprise’s core business to continue or rapidly recover if
the enterprise suffers a natural disaster, major fire, terrorist attack, or other emergency.

230

Part II The earning power of SMEs

Fig. 2-4-12 Position in the supply chain, by enterprise size
First-level
subcontractor

Second-level
subcontractor

Third-level subcontractor
or lower

We do not subcontract /Does not apply

We do not know
the big picture

Large
enterprises

Section 2

SMEs

All

Source:Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.

To prepare for business continuity, an enterprisemust not only anticipate disaster affecting itself, butalso its vendors. It is very important that the enterpriseconsider in advance what it would do if it can nolonger get a supply of products and services. Fig. 2-413 shows the state of SMEs’ examination of alternate
procurement in case procurement from their current
vendors becomes impossible. According to the results,
77.7% of manufacturing industries answered “We canfind alternate procurement for everything from companies
other than our current vendors” or “We can find alternate
procurement for some things from companies other thanour current vendors.” The manufacturing industries
had done more than non-manufacturing industries toensure alternate procurement. Looking at the results for
manufacturing industries by position in the supply chain,a relatively high percentage of third-level subcontractors
or lower answered that “We examined the situation
but cannot make up supply disruptions with alternate
procurement” (6.5%) or “We do not know because wehave not examined the situation” (29.9%), showing a lackof progress in securing alternate procurement.
Among manufacturing industries, comparing byenterprise size, 15.0% of SMEs answered that “We do
not know because we have not examined the situation,”
which is twice the rate of large enterprises giving thesame answer. Moreover, 7.8% of SMEs responded that
“We examined the situation but cannot make up supply
disruptions with alternate procurement,” which is higher
than for large enterprises. This demonstrates that SMEs
have lower awareness of maintaining the supply chain,and thus they are behind in taking countermeasures.

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Chapter 4 Risk management, supporting the earning power

Fig. 2-4-13 Examination of alternate procurement(Position in the supply chain)
We can find alternate procurement for everythingfrom companies other than our current vendors

We can find alternate procurement for some thingsfrom companies other than our current vendors

We examined the situation but cannot make up
supply disruptions with alternate procurement

We do not know because we have not examined
the situation

AllFirst-level
subcontractors
Manufacturing Second-levelindustries
subcontractors
Third-level
subcontractors
or lower
Other
Non-manufacturingindustries(Enterprise size)

Manufacturingindustries

SMEs
Large
enterprises

Source:Notes:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
1.	 Enterprises classified as “Other” in terms of position in the supply chain is the total of those that answered “We do not
subcontract” or “We do not know the big picture.”
2.	 The question about examination of alternate procurement was inquiring about vendors for the enterprise’s corebusiness.

Fig. 2-4-14 shows measures that enterprises alreadyhave taken or plan to take concerning vendors as partof their consideration of securing alternate suppliers.
By industry sector, 46.0% of manufacturing industries
answered that they “Disperse vendors within Japan” and9.8% said that they “Increase purchases from outside
Japan,” indicating a higher rate of taking countermeasuresthan is the case with non-manufacturing industries.
Comparing enterprises that have a medium- to longterm business plan with those that do not, enterprisesthat manage systematically (those that answered “Have a232

medium- to long-term business plan”) are dispersing their
suppliers more than those that do not.
While concentrating component procurement at alimited number of suppliers, etc., offers economies ofscale and thus cost savings, enterprises that do so arevulnerable to disruption of production activities if theirbusiness site is hit by disaster. Because only a small
number of respondents said that they “Aggregate vendors
within Japan,” it seems that they have taken measures thatemphasize supply chain maintenance over efficiency.

Part II The earning power of SMEs

Fig. 2-4-14 Measures taken or to be taken concerning vendors(%)(Manufacturing industries / non-manufacturing industries)
Manufacturing industries

Non-manufacturing industries

All

Section 2

Disperse vendors
within Japan

Increase purchasesfrom outside Japan

Aggregate vendors
within Japan

Increase inventory

We have no plansto change

We have
no vendors(Have / do not have a medium- to long-term business plan)(%)

Have a medium- to long-termbusiness plan

Disperse vendors
within Japan

Source:Notes:

Increase purchasesfrom outside Japan

Do not have a medium- to long-termbusiness plan

Aggregate vendors
within Japan

Increase inventoryAll

We have no plansto change

We have
no vendors

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The category of enterprises that “have a medium- to long-term business plan” shows the total of those that answered“We have a business plan covering a period of three years or more.”
3.	 The question about measures taken or to be taken concerning vendors was inquiring about vendors for the enterprise’score business.

Maintaining the supply chain requires not justsecuring the enterprise’s own suppliers but sharing
information about the enterprise’s product supply
system with customers of the enterprise. Fig. 2-4-15
shows how well each enterprise’s customers would be
able to get alternate procurement from other companies
if the responding enterprise could not deliver, based on
position in the supply chain. Comparing manufacturing
and non-manufacturing industries, more than 60% of
manufacturing industries answered “Customers can findalternate procurement for everything with products orservices from other companies” or “Customers can findalternate procurement for some things with products orservices from other companies.” This suggests that there
is a strong awareness of maintaining the supply chain
and that many enterprises are examining the situation by
sharing information with their customers. Looking justat manufacturing industries, the lower the level of thesubcontracting enterprise, the higher the percentage thatanswered “We do not know because we have not talked
to our customers about alternate procurement,” meaning
they are not sharing information with their customers.

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Chapter 4 Risk management, supporting the earning power

Fig. 2-4-15 Examination of customer’s alternate procurement from other companies
Customers can find alternate procurement for everythingwith products or services from other companies
Customers cannot find alternate procurementwith products or services from other companies
We do not know because we have not talked toour customers about alternate procurement(%)

Non-manufacturingindustries

All

First-level
subcontractors

Customers can find alternate procurement for some things
with products or services from other companies
We do not know because our customers have not examined
the situation

Second-level
subcontractors

Third-level
subcontractors or lower

Other

Manufacturing industries

Source:Notes:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Enterprises classified as “Other” in terms of position in the supply chain is the total of those that answered “We do not
subcontract” or “We do not know the big picture.”
3.	 The question about examination of alternate procurement was inquiring about customers for the enterprise’s corebusiness.

█ State of response to risk

There are some enterprises that have actually donemuch in terms of countermeasures to risk and are
well prepared for disaster, even if they have not been
particularly aware they were taking business continuity
measures. Fig. 2-4-16 compares the state of SME risk
countermeasures, by future business direction. Overall,enterprises that said they were “Aiming to expand” hadmore advanced risk countermeasures than those that
described themselves as “Scaling back” or “Intend to
close business or transfer it to another company.” These
results show that enterprises strongly aiming to expand
had made more progress taking measures against assumed
risks, having not only an offensive but also defensive
awareness.
Looking at the nature of countermeasures taken,
the most common measure for ensuring management
resources was to “Subscribe to nonlife insurance.”8) For details about nonlife insurance, see Column 2-4-3 below.

234

Nonlife insurance may compensate not only for the costof recovery of property damaged in a disaster but also
for diminished profits, and thus can make a significant
financial contribution to the continuity of businessactivities.8) Asked what measures they had taken to
maintain systems, the most common answer fromenterprises was that they “Identify the company’s corebusiness,” but only a small percentage said that they “Settarget recovery time for core business.” It is very importantfor enterprises to forecast how much they can withstandand to set target recovery times, not only for the sake ofcustomers and markets but also for the sake of their own
financial situation. Additionally, about 30% of enterprises
replied that they “Consult with trading partners on how to
respond to anticipated risks,” meaning they will hopefully
work closely with trading partners and the community intaking countermeasures.

Part II The earning power of SMEs

Fig. 2-4-16 SME risk countermeasures, by future business direction(Ensure management resources)

Aiming to expand

Maintaining current state

Scaling backIntend to close business ortransfer it to another company

Section 2

Subscribe tononlife insurance

Decide on internal
Monitor andcommunications back up importantsystem / chain oftechnical / tradecommand in case information, etc.
of emergency

Identify resources
essential tobusiness
continuity inemergency(Maintain systems)

Identify thecompany’s corebusiness

Source:Note:

Consult withtrading partners
on how to
respond to
anticipated risks

Make importantbuildings andequipment
resistant toearthquakes
and fire

Examine business
Establish businessSet target
continuity at
continuity plan
recovery time
the company’s
in collaboration
for core businessother baseswith trading
partners, local
community, etc.

Examine methods
Calculate aof securingforecast ofalternate workers
resources
for employees
essential toneeded inbusiness continuity
emergency
in emergency

Acquire externalrisk management
certification,such as ISO

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Need for business continuity plan (BCP)

A business continuity plan (BCP) establishes
initiatives to conduct before emergencies, as well as
business continuity means, methods, etc., to use during
emergencies, to minimize damage to business assets andenable an enterprise’s core business to continue or rapidly
recover if the enterprise suffers a natural disaster, majorfire, terrorist attack, or other emergency. In an emergency
where only limited management resources are available
for use, establishing a BCP that prioritizes and focuseson the core business to be recovered and then carryingout the BCP during the emergency makes a big differencein the degree and speed of recovery (Fig. 2-4-17). A BCP

anticipates and prepares for various disasters, so thatthe enterprise that encounters an unexpected situation
can quickly recover its business processes and fulfill its
responsibility to supply its trading partners and customers.
Managers need to stop thinking of BCP as somethingout of the ordinary. It needs to be handled actively as partof the management of the enterprise, in much the same
way as hiring, HR development, and business succession(Fig. 2-4-18). Aside from improving the capacity of theorganization to respond to crisis, other benefits fromestablishing and operating a BCP are stronger relationships
with trading partners, more efficient management, andother things that increase corporate value.

235

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-17 The need for BCP

Emergency
100%

With BCP

Operating level

Core
Target businessrecovery recoveredtime

Businessshrinks

Without BCP

0%EnterpriseclosesTime
Source:SME BCP (Business Continuity Plan) Guide

Fig. 2-4-18 Benefits of establishing and using BCP

Hiring /developing
human
resources

SME
management

Use of IT
Responding totax system

Source:236

Improving responsiveness during emergency

Business
succession

Investing/funds
procurement

Management
innovation

Business
continuity (BCP)

Strengthening relationships
with trading partners, etc.

Improving day-to-day management
Promoting management efficiency
Developing
sales channels
Sometimes the enterprise can get preferential
treatment in financing and insurance

Prepared by SME Agency based on Guidelines for Formulating and Using BCPs at Small and Medium Enterprises.

Part II The earning power of SMEs

Column 2-4-3 Preparing for risk with insurance

Fig. Column 2-4-3

Overview of nonlife insurance

Risk category

Specific examples

Property loss

Loss to office, factory, or machinery fromfire, flood, wind, earthquake, etc.

Comprehensive enterprise asset
insurance, earthquake damage
compensation rider, movables
comprehensive insurance

Decreased
profitability

Lost operating income and increased
ordinary expenses when operations are
disrupted because of disaster

Enterprise cost and general profitability
insurance

Liability

Product defects, food poisoning, facility
explosions, construction accidents

Facility liability insurance, contractor
liability insurance, output liability
insurance

Personal damages

Employee injured while working at factory

Comprehensive occupational accident
insurance, injury insurance

Automobiles

Traffic accident caused by employee
driving a company car

Automobile insuranceManagement

Diminished profitability because of
failed investment, liability claim fromshareholders hurt by lower profitability

Directors and officers (D&O) liability
insurance

Other

Information leaked when employee took
it off premises, network disruption fromcyber attack

Information leak liability insurance,
cyber security insurance

Note:

Section 2

Insurance is an effective way to prepare for the various risks facing an enterprise, offering great
returns at little cost. Enterprises recognize risk and choose a course of action as a countermeasure,specifically, subscribing to insurance. There are several problems with this course of action, suchas 1) underestimating the probability of disaster and the extent of the damage, 2) the behavioral
pattern that prefers to own the risk instead of transferring it to someone else by paying an insurance
premium, and 3) the existence of relief programs for victims after disasters reduces the incentive to
subscribe to insurance.
This column provides an overview of nonlife insurance for various risks, including new risks thathave emerged with the changes in the environment. Enterprises need to correctly understand therisks and then make a self-help effort, using tools like insurance as advance preparation.

Examples of corresponding insurance

Types of compensation may be limited depending on the type of insurance.

237

Chapter 4 Risk management, supporting the earning power2.

Current state of BCP initiatives█ BCP recognition

What awareness do SMEs have of BCP? Fig. 2-419 shows how well SMEs understand BCP. Those who
answered “We know it well and consider it necessary”
or “We’ve heard about it and consider it necessary”

together make up about 60% of all SMEs. On the other
hand, nearly 40% of them answered “We’ve heard about
it but don’t consider it necessary” or “We’ve never heardof it and don’t know anything about it.” This indicatesconsiderable variability in SMEs’ BCP awareness.

Fig. 2-4-19 BCP recognition at SMEs

We know it well and consider it necessary
We’ve heard about it and consider it necessary
We’ve heard about it but don’t consider it necessary
We’ve never heard of it and don’t know anything about it

Source:Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.

█ Percentage of SMEs that have established a
BCP

Fig. 2-4-20 compares the state of BCP establishment
at SMEs, by number of employees at enterprise.9) Overall,
15.5% of enterprises said they had “Finished establishing”
a BCP, while 64.4% said they had “Not established” aBCP. Clearly, the initiatives to establish BCPs have been
insufficient. Addressing the question of BCP recognition,
Fig. 2-4-19 showed that about 60% of SMEs answered“We know it well and consider it necessary” or “We’ve
heard about it and consider it necessary.” Even so, very
few SMEs said they had “Finished establishing” a BCP.
The percentage saying they had “Finished establishing”
a BCP was particularly low for enterprises with few
employees. This shows that SMEs recognize the needto establish a BCP, but it was not a high priority in their
day-to-day business activities, such that more than a few
enterprises had not yet established one.

9) See Appended note 2-4-1 concerning the state of BCP establishment at large enterprises.

238

Part II The earning power of SMEs

Fig. 2-4-20 State of BCP establishment at SMEs, by number of employees
Finished establishing(%)

Currently establishing

Planning to establish

Not established

Section 2

All

Source:10 or fewer

11 − 50

51 − 100

101 − 300

More than 300

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.

Fig. 2-4-21 shows the year a BCP was established atenterprises that have one, alongside the times when majordisasters happened. The figure shows the trend in thepercentage of enterprises that had finished establishing a
BCP each year (the 100% mark refers to the number ofenterprises that replied they had finished establishing one
as of 2015).
Enterprises in Japan started paying attention to BCPs
in about 2001, the year of the 9/11 terrorist attacks in the
U.S., but very few enterprises had actually established a
BCP by then. Even after that, the number of enterprisesthat had established a BCP did not grow very much evenas other large-scale disasters happened. As of 2010, theyear before the Great East Japan Earthquake, only 34.8%
had done so. However, the remaining two-thirds (65.2%)
have established a BCP since 2011. So the number ofenterprises with a BCP is on a rising trend, but it is still
not enough. It is feared that as time passes, the lessons
from the great earthquake will fade. Japan faces many
natural disasters, and many kinds of risks are anticipated
as a result of the changes in the environment facing
enterprises. In a country like this, it will be important totake a stronger response to risk in future.

239

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-21 Year BCP established at enterprises that have one (cumulative percentage)
Niigata Chuetsu
Earthquake(%)

Noto Peninsula
Earthquake
Outbreak of
Niigata Chuetsu
new strain
Offshore Earthquake of influenza

Great East Japan
Earthquakeor earlier

Source:Note:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
On this scale, 100% refers to the 558 enterprises that reported what year they had established a BCP. The percentage
shown for each year is the percent of those 558 enterprises that had established a BCP by that year.

█ Motivation for establishing BCP

What was the background that led enterprises toestablish a BCP? Fig. 2-4-22 shows the motives andbackground that led to BCP establishment at thoseenterprises that had one. The most common answer(49.5%) was that it was a “A business decision madeby upper management,” followed by “An emphasis
on responsibility for supply to customers.” In BCP
initiatives, it is important that managers recognize

240

fulfilling the supply responsibility as one of their mostcritical management issues and demonstrate leadershipas they advance their measures. There were also many
enterprises who responded that there had been a “Requestfrom parent company or group company” or “Requestfrom customer.” So there are a certain number ofenterprises that established a BCP when an outside party
asked them to.

Part II The earning power of SMEs

Fig. 2-4-22 Motivation for establishing BCP(%)

dup ecis A b
pe ion usrmin
an mad ess
ag e bem yAn
esu res emp nt
pp po halynto sibi sis ocu lity nRe
sto foqume rrs
co est f
mp ro
m
an
p
y o arr g enA c com roup tpa
tha orpny
t is orris ver ate c
k m y a ult
an wa ureraris Exp gem e ofktenha erie
im t em nce t
pa
cte erg withd b edaRe
us and
ine
qu
es
s
s
t fr
om
cu
sto
me
r
so
W
cia e flly elt
ne it w
ce
ss as
Im
ary
pro
vin
gc
orp
o
To
im rateag
contr
e
co ibulltethe abor to a
co ate nd
mm witun hEnity
ind cous uraes try g ged
tab roblish up y
Re
BC to
qu
P
es
t fr
om
ve
nd
or
fin
R
an equcia
l in est f
sti rom
tut
ion
Re
qu
em est fplo romyeEsestak tabe a lisdv hedanisu gove tage t tobs
idi rnme ofes, e nttc.

Section 2

Source:Note:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-4-23 looks at the reasons for not establishinga BCP at those enterprises that did not have one, by
industry sector. Overall, the most common answer was“Not enough skill / know-how,” at 49.8%. There was aparticularly marked difference between industry sectors forthe choice “Not especially important for our enterprise.”
Just under 40% of non-manufacturing industries gave thisanswer, indicating a lower awareness of the importanceof BCPs than in manufacturing industries. As for the
supply chain perspective, there are greater benefits to be
had by enterprises that collaborate with trading partners
and industry peers rather than just working alone. Evenso, nearly 20% of respondents said that a BCP was “Notrequested by trading partners, or cannot collaborate withtrading partners” or “Collaboration with industry peers isdifficult.”241

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-23 Reasons for not establishing BCP, by industry

Note:

Non-manufacturing industries

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ When establishing BCP

Various tools are available to support the establishmentof enterprise BCPs. Fig. 2-4-24 shows the manuals thatenterprises referred to when establishing a BCP. The
most common answer (20.0%) was “Booklet provided byindustry group,” followed by “Guidelines for Formulating
and Using BCPs at Small and Medium Enterprises” and“Booklet provided by Cabinet Office.” On the other hand,
16.8% replied that “We did not refer to any manual inparticular.”Fig. 2-4-25 indicates the organizations that provided
advice for establishing or operating the BCP. The mostcommon sources of advice were “Trading partner,” “Taxaccountant,” and “Financial institution” (chosen by up to

242

All

N
tra ot redca ing ques
wit nn pa
h t ot c rtn ted b
rad ol ers y
ing lab , or
pa orat
rtn e
ers
Co
lla
bo
ind rati
us on
try w
is pee ith
dif
fic rsult
Trano dingtesta partn
bli
sh ers h
ed
a
BC ve
Ps
No
on
e
ad to gv
the ice o o to f
en uts or
ter idepriseNo
wit onehi
n t to coheco llabo
mm ratun eityNofin t ap
an pr
cia ecl in iatesti d b
tut
ion y
s

st
Co

No
ma t eno
np ug
ow h
er

No
t
im espeou por cia
r e tan lly
nte t frpr oriseN
ill / ot e
kn nou
ow gh
-ho
w
sk

Source:

pro
ble
ms

Manufacturing industries(%)

about 20% of respondents). This indicates that enterprises
were going to institutions with deep ties to their businessactivities for advice. On the other hand, nearly 20% said
that they went to “No one in particular.”Thus there are manuals and supporting organizations,but as Fig. 2-4-23 shows, a lack of skill and knowhow is still the most commonly given reason for not
establishing a BCP. Keeping this in mind, there seems to
be a possibility that SMEs have not begun the process of
BCP establishment in spite of the availability of manuals
and sources of advice because they do not see the merits
in doing so. The results also suggest there are issues ofrecognition and ease of understanding of existing manuals
and supporting organizations.

Source:

Note:

ey

ff a
of t chacan omm mbe
dir
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us
Inf
t
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orm
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co stens
ult ms
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No
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Sta

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orn

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(e. veg., rnmof sta en
bu ff i t onor sines cha fficecons s aff rge
ult air
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on
)

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up

pe

gro

us
try

Ind

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Note:

Ind

Source:dima d nonu t realin fer topa
rtic any
ula
r

We

Ot
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r

ch Book
am lebe t prr o ovf c idan omm ed bydind erceus
tryok
loc let p
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rnm d by
en
t

Bo

“
Fo Guid
rm eli
Sm Us ulat nes
all ing ing for
an BC andd M Ps(S Ente edi at
ME rp um
Ag rises
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)
Bo
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(“B
p
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)

Boby okleind t pus rov
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Section 2(ve Trand dinor, g pcu artsto ne
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r)
Ta
xa
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Fin
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ion

Part II The earning power of SMEs

Fig. 2-4-24 Manuals referred to when establishing BCP(%)

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-4-25 Sources of advice for establishing / operating BCP(%)

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

243

Chapter 4 Risk management, supporting the earning power

Column 2-4-4 Investment based on BCP
Setting up a BCP-based system requires funds, but what specific things do enterprises invest
in? Fig. Column 2-4-4 (1) shows that the most common answer (49.4%) was “Preparation of meansof communication during disaster,” an investment to ensure the necessary information during
an emergency. Other frequent investments were to prevent facility destruction in an earthquake(“Preventing machinery from falling or tipping over” and “Better earthquake resistance at businesssite”) or to mitigate damage (“Preparation of emergency power generators or fuel” and “Use of
remotely located servers or cloud service”).
Nature of investment based on BCP

Pr

ep
ar
of ationcom odu mu f mea
rin nic
g d at ns
isa ionste
fro Prerm
fal vent
lin inggor ti mac
pp hining er
ov y
er
Pr
ep
po arat
we ionrg
en of emera
tor erges o ncr fu y
el
Us
e
se of
rve rers moor telclo y loud ca
se tedrvi
ceres Beist ttersit ane ( ce eartreihnfo at bu qua
rce sin kemreb en ess
uil t or
din
g)
Cr
im
ep
re
eq venuip tio
me n
nt
Pr
ep
wa arati
ter onsu of epp
ly mereq ge
uip nc
me y
nt
Co
ns
bu trucsti
or iness on tolands site prev
lid flo ene d od t
am ing
ag
e
No
sp
ec
ific
inv
es
tm
en
ts

Fig. Column 2-4-4 (1)Source:Note:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Many small-scale enterprises, though aware of the need to invest based on their BCP, faced
funding challenges doing so. The Japan Finance Corporation offers a program to provide funding
needed to maintain facilities based on a BCP. It supports SMEs that have established a BCP tominimize business disruptions caused by events such as disasters (Fig. Column 2-4-4 (2)).

244Part II The earning power of SMEs

Fig. Column 2-4-4 (2)Funds to maintain social environment response facilities (BCP-related)

Parties maintaining disaster prevention facilities, etc., based on a BCP they have
Who is eligible for a loan established as per “Guidelines for Formulating and Using BCPs at Small andMedium Enterprises”

Loan limits(SME Unit)¥720 million (of which ¥250 million may go to fund operations)(Micro Business and Individual Unit)¥72 million (of which ¥48 million may go to fund operations)

Loan interest rates(SME Unit)[Equipment funds] Standard interest rate, special interest rate
[Operating funds] Special interest rate
(Micro Business and Individual Unit)[Equipment funds] Special interest rate
[Operating funds] Special interest rate

Loan periods

Equipment funds: Within 20 years <period of deferment not exceeding 2 years>
Operating funds: Within 7 years <period of deferment not exceeding 2 years>

Financial institution
handling loans

Japan Finance Corporation (SME Unit and Micro Business and Individual Unit)

Note:

Section 2• To fund equipment necessary to prepare (including improve and repair)facilities, etc., that help prevent disasters (*excludes land-related funding,
except in those cases based on a BCP established in collaboration with the
How loans may be usedcommunity as per a local authority’s disaster prevention work plan, etc.)• To fund operations necessary to perform a seismic durability diagnosis asbased on a BCP

See http://www.chusho.meti.go.jp/bcp/ for more information about “Guidelines for Formulating and Using BCPs
at Small and Medium Enterprises.”245

Chapter 4 Risk management, supporting the earning power3.

Benefits and issues of business continuity management (BCM)10)█ Benefits of BCM

Management before an emergency happens―training
employees and taking measures in advance―is important
to ensure that the BCP functions effectively when an
emergency actually happens. This management process
is called business continuity management (BCM). Whatkind of benefits are there for enterprises that establish a
BCP and practice BCM?
Fig. 2-4-26 shows the benefits of establishing a BCP
and practicing BCM before an emergency happens, when
the risks have not yet emerged. It shows that the mostcommon benefit was “Learned management resources,”
helping the enterprise to know its own strengths andweaknesses, followed by “Developed human resources,”“Made business processes more efficient, improved
processes,” and so on. This indicates that establishinga BCP and practicing BCM have positive outcomes for
management.
When asked about the benefits of BCP / BCM during
an actual emergency, the responses indicated benefits forbusiness continuity and supply chain maintenance (forexample, “There was some damage, but we were able tocontinue business,” “We were able to fulfill our supply
responsibilities to customers,” and “Mitigated damage”)(Fig. 2-4-27).

Fig. 2-4-26 Benefits of BCM prior to emergency

Source:
Note:

ew
tr
pa adin
rtn g
ers
dn
pe
ve
lo
De

De

ve

lop

ed
res hum
ou an
rce
s

Im
pro
be ved
tw co
ee mm
nm u
an ana nicad e ge tio
mp me n
loy nteesLearn
wit edh t sta
rad teing of
pa trad
rtn e
ers
Ma
de
mo bu
re sineeff
icie ss p
nt, roce
im s
pro prov ses
ce ed
ss
Str
es
en
gth
en
ed
wit relat
h c ionus shitom ps
ers
Str
en
gth
en
ed
rel
wit ationh v shen ips
do
rs
Im
pro
ve
df
ina
nc
ial
sit
ua
tio
n

Le

arn

ed

ma

na
res gemou entrces(%)

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

10) Business continuity management (BCM) is the act of establishing and continually operating a business continuity plan, and a mechanism forcontrolling it. It includes the following actions: 1) understanding the business, 2) preparing a BCP cycle operating policy, 3) establishing a
BCP, 4) getting a culture of BCP firmly established, and 5) giving BCP training and maintaining, updating, and auditing the BCP cycle.

246Source:

Note:
e

ag

am

dd

ate

tig

Mi

Th
e
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we
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In
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e b bl e,
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ine
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ere

Section 2

Th

Part II The earning power of SMEs

Fig. 2-4-27 Benefits of BCM during emergency(%)

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

247

Chapter 4 Risk management, supporting the earning power

Case

2-4-5

Taisei Fine Chemical Co., Ltd.

A company where the strong awareness of the proprietor is driving
Business Continuity Management, and linking it to cost cutting andemployee training on a regular basis
Taisei Fine Chemical Co., Ltd. (employees: 66; capital: ¥40 million), based in Asahi City, Chiba Prefecture, wasestablished to take over the resins business of the Taiseikako Group when that group moved to a split holding
company arrangement in 2004. Taisei Fine Chemical designs, develops, manufactures, and sells synthetic resinscomprised mainly of acrylic resins used as materials for printing and packaging, coatings, electronics, makeup, andmedical supplies. Its headquarters are located in Chiba’s Asahi City, and it has a sales office and laboratories at asite in Katsushika City, Tokyo, where Taiseikako is located.
Taisei Fine Chemical President Toyohito Ino learned about risk management from the company’s chairman, andlong had the idea of wanting to cement its place in the company’s culture. As a first step, he proposed internallythat work be done to draft a business continuity plan (BCP), but he was unable to get others to see the need.
He had staff get to work on a management plan in April 2010 and a manual completed that October, but they
lacked a sensibility applicable to conditions on the ground and the initiative went nowhere. Only one directive
was issued on earthquake-resistance inspections in an internal audit conducted in October. This was for a seismic
mitigation rack to be installed that would prevent storage drums in the warehouse from being tossed about. Work
was completed on March 7, 2011. Four days later, the Great East Japan Earthquake struck. Some employees said
the racks saved their necks.
While the headquarters and factory were not damaged by the tsunami, Taisei Fine Chemicals found at thetime that it was not able to confirm the status of all its employees. Immediately after the disaster, staff wereappointed to make note of all processes undertaken in interviews with Ino
and the company’s various departments. The goal was to revise the production
plan and update manuals to reflect what was learned from writing down how
conditions were actually dealt with such as what jobs took priority. With regard
to the factory, various issues emerged including equipment failures, problems
with power supply, and injuries to employees. Operations unavoidably wereshut down for one month as a result. Furthermore, some customers were lost for
certain products because their manufacture was delayed.
Based on these experience, Taisei Fine Chemical decided once again to take up
the task of drafting a BCP. The company got advice from a private consultancy
with the assistance of Tokyo Metropolitan Government and a BCP was created.
Because the drafting process was an open one in which auditors and employees
working on the ground also participated, it also helped in the area of employee
education. Based on the BCP, the company put up a headquarters administrationbuilding with an earthquake-resistant structure, dispersed its warehouses,
secured its inventory, built a large dedicated power generation station, installed
emergency shutdown equipment for use in the event of power loss, andcommissioned an outside data center to handle data needs. It also guaranteed
it would have operating funds on hand through such measures as maintaining
cash and deposits three times the level of accounts receivable, shifting fromThe seismic mitigation racks
promissory note to cash collections, and eliminating debt. One senses that
installed on March 7, 2011,
the BCP-based initiatives led to a reduction in operational costs thanks to thethat prevented damage in theearthquake that followed
commissioning of an outside data center. Furthermore, the drafting of the planoverall were beneficial when it came to insurance companies calculating the costsof their policies.
The initiative further led to collaborations and tie-ups with outside parties. The
audits of external consignors resulted in audits being undertaken over awarenessof BCPs in the sense of whether or not the external consignor could continue its
business in the event of an emergency. And furthermore, it led to the draftingof a Taiseikako Group BCM Document internal to the group. Additionally, theinitiative expanded the circle of alliances through the exchange of friendshipagreements with companies in other lines of work that set down the grounds forproviding mutual assistance in an emergency.
According to Ino, “It is important for a company’s executives to have a strong
awareness of the issues at stake when pursuing risk management initiatives.
The fact that we tried to make them a part of the regular work cycle so that
employees did not see them as extra work and connected them to improvements
Power generator installed after the2011 earthquakeand earnings is what made the initiative a success.”

248

Part II The earning power of SMEs

Case

2-4-6

Oizuru Corporation

Oizuru Corporation (employees: 56; capital: ¥10 million), based in Mizuho Town, Nishi-Tama County, Tokyo, hasbeen involved since its founding in 1958 in all manner of packaging-related services ranging from the design andmanufacture of packaging and cushioning materials to logistics.
Oizuru was aware of the risk management concept from its own experience of a fire at the company that saw
it continue to supply its products thanks to assistance in the form of getting another company in its industry tohandle alternate production for it. At the time of the H1N1 influenza outbreak of 2009, in response to Tokyo
Metropolitan Government’s invitation to provide support with drafting business continuity plans (BCPs) for fiscal
2010 the company decided to participate and drafted a plan that hypothesized an earthquake directly under
the Tama area. It put business continuity management (BCM) procedures into practice in June 2011, and in June2012 obtained BS25999 Business Continuity Management certification (superseded in May 2014 by the ISO22301
certification).
Oizuru’s employees were not interested in BCM at first, but management took the approach of working steadily
to get staff on board as a way of demonstrating how serious management was. They undertook an analysisof all the danger spots in the company’s facilities, and implemented various specific measures to remedy those
items thought to pose immediate dangers. These included such steps as immobilizing copiers, making servers tipresistant, making glass shatter-resistant, and making shelving tip-resistant and linking units together. As these
improvements were made in ways visible to the eye, employee attitudes also changed.
The BCM System11) initiatives Oizuru pursued entailed creating plans for drills to be conducted every year.
The company would then follow up on the drills by seeing what could and could not accomplished, and review
the contents of its manuals accordingly. Manuals andprocedures were refined at this point by having all
employees bring up points they had noticed and giving
them thought. The documents that were created or
updated were then posted and made plain to see,leading to improvements in operations. The abilities of
employees to problem-solve were also improved throughsuch initiatives, which had an enormous effect on regular
operations.
One benefit these efforts produced for Oizuru was
improved relations with its suppliers. In order to bolster
its supply chain, the company got particularly its major
suppliers to lend a hand with the BCMS initiative. The effort
to visit suppliers, distribute and collect questionnaires,and conduct interviews regarding screening items led toAnalysis of danger spots in Oizuru’s facilities
and prevention and mitigation strategies
a strengthening of relations with them.
Furthermore, Oizuru also linked up with four othercompanies in its industry to conclude a five-party mutual
cooperation agreement that built a support network fortimes of disaster. This makes it possible for the companies
to share production information and carry out alternate
production in emergencies. The initiative was very wellreceived among the company’s customers. Some had
been procuring goods from Oizuru alone, but wereconcerned that relying on a single supplier might be risk.
Learning about the BCMS initiative changed their minds,
since Oizuru’s agreement with other companies meant
the risk had been mitigated. The company’s case is agood example of how an initiative to adopt BCMS served
Posted material regarding BCP activities
to prevent a drop in order volume or loss of orders.

Section 2

A company pursuing work on business continuity management systems
internally and externally, and linking those initiatives to improving its
own operations and its business partners’ assessments

e

Imag

e

Imag

11) A system for establishing, implementing, enacting, reviewing, maintaining, and improving business continuity, comprising one part of acompanywide management system.

249

Chapter 4 Risk management, supporting the earning power█ Issues with the execution of BCM

Fig. 2-4-28 compares the state of validation, training,
and reconsideration of an established BCP, by whether
the enterprise had established a medium- to long-termbusiness plan covering three years or more. Overall,more than 40% of enterprises responded “We haveperiodically re-examined the content of the BCP” or “Wehave periodically given training to employees.” However,nearly 30% said that “We have not done any validationin particular.” Looked at by whether the enterprise had
established a medium- to long-term business plan,

those that said that they “Have a medium- to long-termbusiness plan” had taken initiatives at a higher rate thanthose answering “Do not have a medium- to long-termbusiness plan.” This suggests that enterprises that manage
systematically are more proactively executing BCM.
Business continuity and recovery during an emergency is
only possible with employee cooperation, and therefore it
is important to share the content of the established BCP
with employees, give training before an emergency, andcontinually improve the BCP.

Fig. 2-4-28 State of BCP validation, training, and reconsideration, by whether theenterprise had established a medium- to long-term business plan(%)

Have a medium- tolong-term business plan

We have periodicallyre-examined thecontent of the BCP

Source:Notes:We have periodicallygiven training toemployees

Do not have a medium- tolong-term business plan

We have taken
initiatives such as
establishing a manual
based on the BCP

We have not done any
validation in particular

We have publicly
disclosed the content
of the BCP

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The category of enterprises that “have a medium- to long-term business plan” shows the total of those that answered“We have a business plan covering a period of three years or more.”This section has looked at how SMEs are managing
risk so they can fulfill their social mission of continuingbusiness even if threats emerge that could have a major
impact on enterprise management. Although awarenessof the importance of establishing and operating a BCP isrising, there is a great deal of variance in the degree of
initiatives depending on the enterprise. SMEs are known
to have limited management resources, but actions like
identifying the enterprise’s own core business, consulting
on how to check employees’ safety, and consulting on how
to communicate with trading partners are not very costly
and can enhance the enterprise’s capacity to respond in an
emergency. Instead of working alone to try to establish
a BCP that is perfect from the beginning, an enterpriseshould first establish a BCP, gradually improve it, and thenpractice BCM and entrench it as an organizational activity.

250

All

This review has shown that establishing a BCP andpracticing BCM will help enterprises look back on their
management. This will not only enhance their ability
to respond to crises, but also help raise corporate value
when there is no emergency, by developing humanresources, increasing business process efficiency, andthe like. Industry groups provide support and tools
commensurate to the characteristics of their industry sothat even SMEs with limited management resources cantake initiatives. In recent years, moreover, enterprises areworking more closely with industry peers and others intheir communities to ensure that alternate production ispossible, and a movement to maintain supply chains is
growing. Proactive efforts to collaborate with others, andSME preparations for business continuity, will hopefully
advance in future.

Part II The earning power of SMEs

Case

2-4-7

Doei Industry Co., Ltd.

Doei Industry Co., Ltd. (employees: 40; capital: ¥80 million), based in Isehara City, Kanagawa Prefecture, is anenterprise established in 1956 that engages in precision-stamping and connector processing.
In June 2013, right as Doei Industry was struggling with the issue of managing succession it was approachedby the Japan Metal Stamping Association (JMSA) about being selected as a BCMS model corporation for the
METI commission business.12) While Doei President Hirohiko Matsui knew of the existence of BCMS, he had not
yet fully grasped what it entailed. He learned that BCMS was an undertaking connected to business continuity,and thought that making an effort of this sort would have some appeal as his company approached successor
candidates. Furthermore, he knew that few companies had acquired ISO22301 certification and that his enterprisewould be able to receive assistance from METI via the JMSA, so he decided to pursue the initiative.
Initially, Matsui received vehement opposition from Doei’s executive staff for numerous reasons. These included
the fact that acquiring the company’s ISO9001 certification had been extremely difficult, there were hardly any
materials then-available about ISO22301, the undertaking was projected to require massive amounts of work, andthe period for acquiring it was too short. Matsui responded by pointing out there were successor candidates, andto encourage one to join the company would require dealing with business continuity as a company. He explainedthat the succession problem was one that would also have a direct bearing on the executive staff itself in the
future. The executives eventually agreed, and work on the initiative began. Two younger executives who had notbeen involved in the effort to acquire the ISO9001 certification were put in charge.
The fact that Doei’s president himself had displayed his strong will and leadership, as well as the fact that thecompany knuckled down in short order to select these young executives to deal with the problem of business
continuity that was so close out at hand, helped the company to obtain its ISO22301 certification in January 2014.
It used the tools that the JMSA had created in its effort to acquire the certification. The JMSA had explained thetechnical vocabulary involved in readily comprehensible ways and was a big help in the BCMS initiative.
One result of this initiative was that when an earthquake struck in May 2015, as they had drilled employees
immediately turned off the machinery at their respective posts and gathered together in the designated location.
External benefits included getting new orders because it was greatly reassuring to do business with a certified
company, and the company’s banks offering high praise for the initiative as a splendid undertaking.
Matsui had taken Doei’s first steps toward obtaining the ISO22301 certification in October 2013, which was rightaround the time when they also began considering successor candidates and the implementation of a business
continuity management system. It took six months, but that individual finally agreed to join the company. That
person is now handling their duties as a member of the company.

Aluminum doors that are easily opened and closed in the event ofemergency

Section 2

An enterprise that solved succession problems by getting support froman industry group while it obtained ISO22301 certification and improved
how it was assessed as a company

A metal storage area outfitted with apparatus to prevent items
from falling12) “Model Projects for Improving Business Competitiveness based on New Management System Standards for Business Continuity and Their
Application (Model Projects for Improving Business Competitiveness, Group category),” included in the supplementary 2012 budget. The
program targeted 28 groups chosen through public subscription. The objective was for the groups to implement model initiatives that madestrategic use of international standards such as ISO22301 Business Continuity and ISO50001 Energy Management and then determine andanalyze the factors behind any successes.

251Chapter 4 Risk management, supporting the earning power

Case

2-4-8

Japan Metal Stamping Association (JMSA)

A trade association that creates tools for assisting in BCMS building andhas set up its own qualification system
The Japan Metal Stamping Association (JMSA), based in Minato City, Tokyo, is a trade association
comprising groups and enterprises that manufacture metal stamping products. Many of the association’s
members are located in regions where there are concerns about the effects of potential earthquakes along
the Nankai Trough and the like. The JMSA made attempts to popularize BCMSs as a part of CSR activities,
but the effort languished. At this point, the association applied to METI’s commissioned project13) programand undertook a BCMS propagation effort.
It began by putting together the tools an SME would need to construct a BCMS in a short period of timethat would also be effective. As part of its project, the association got member companies to actually makeuse of the tools that had been put together and worked to get them to acquire ISO22301 certification as
external recognition. One member company, Doei Industry Co., Ltd. (Isehara City, Kanagawa Prefecture)
was selected as a model enterprise and was able to acquire ISO22301 certification in short order, taking lessthan half a year.
Also, the expenditures required for acquiring BCMS-related certifications from outside bodies arequite high, which represents a large burden for an SME. In light of this, the JMSA put together its own
qualification system for assessing the effectiveness of a BCMS. Normally, getting an outsider certificationin this area will require expenditures of close to ¥1 million to ¥2 million to cover inspections, consulting,and similar, but using the system the JMSA provides requires only ¥200,000 for the initial inspection and¥100,000 for renewal inspections.
By putting together the tools to help an enterprise create its own BCMS and preparing its own qualification
system, the association is providing its members with support for their own BCMS initiatives.

Optional
Japan Metal Stamping
Association

Metal stamping
enterprises

Consultancies(6) Issuance of certifications
Point-of-contact
services
Accreditation andauthorization services
Holding of seminars(1) Consulting seminars
System building(2) Accreditation screening
applications(3) Accreditation screening
requests(4) Industry accreditation screenings
Organizations commissioned to perform
accreditation and authorization services(5) Reports on screening
results

Accreditation screening services

Outline of the JMSA’s industry qualification system

13) Please refer to footnote 12 for details about the METI commissioned projects.

252

Construction
supportPart II The earning power of SMEs

Case

2-4-9

Okayama Prefectural Industrial Promotion
Foundation (OPTIC)The Okayama Prefectural Industrial Promotion Foundation (OPTIC) is a support agency for corporations and enterprises
located in Okayama Prefecture. The OPTIC is comprised of departments for general affairs, management support, and technicalsupport; the SME Support Section in the Management Support Department is charged with projects to promote BCPs and BCMs.
Facing the Seto Inland Sea as it does, Okayama Prefecture had little experience of such disasters of earthquakes or tsunami.
Even if they were aware of disaster prevention as an issue, local enterprises tended to not be aware of BCPs, let alone
implemented one. For that reason, the OPTIC had limited its activities as a support agency in this area to holding seminars.
The Great East Japan Earthquake of March 2011, however, provided a spark that kindled interest in BCPs nationwide.
With that, starting in fiscal 2012 the OPTIC began promoting and offering support for drafting BCPs to SMEs as a projectcommissioned by the prefecture. Specifically, the foundation held awareness-raising seminars. Five participating SMEs
were then selected to be model enterprises and then given assistance on drafting BCPs that hypothesized the occurrenceof a massive Nankai Trough earthquake. The BCPs they created were then posted to the foundation’s website.
In fiscal 2013, the OPTIC shifted the thrust of its program from “a BCP is a plan for dealing with disasters” to “a BCP
is a management strategy.” The program’s aim was to generate large numbers of companies with “profitable BCMs”
by emphasizing the security of implementation and effectiveness in corporate activities and encourage taking on newservices through cooperation among enterprises using business continuity as the entry point. Behind this move was
the thought that enterprises would not be able to stay in business if they could not increase profits amid a changing
management environment. Aside from this, the decision
was also made to focus on assistance with implementing
BCMs for the purpose of working toward BCPs that—rather
than being simply plans for coping with disasters—workin tandem with management strategy in such initiatives astrans-area cooperative (corporate cooperative) BC.14)
The OPTIC’s undertakings in terms of trans-area- andcorporate cooperation initiatives have included building
an “In This Together” BC Cooperation Network that would
provide a mechanism to stave off losing clients’ orders
by arranging for members to supplement one another indisasters, as well as providing support to group initiatives at
the municipality level (with Setouchi City’s effort providing
the model) aimed at creating a town able to weather disasters
and crises soundly through cooperation among enterprises,
the local government bureaucracy, and the local assembly.
Among the enterprises that the OPTIC has assisted are“In This Together” BC Cooperation
ones that concluded “In This Together” BC Cooperation
alliances with peer enterprises in other regions with the aimof providing for alternate production in times of disaster.
Some of these companies as a result have gone on to makethe most of those alliances on a regular basis in their work,
while others have acquired external certification (ISO22301)
for their BCMS to improve their effectiveness in emergencies,
and still others have newly incorporated BC ideas in their
existing networks of corporate alliances.
The OPTIC’s BCP and BCM support initiatives have been wellreceived. They have won laurels four years in a row at the BCAOAwards15) sponsored by the Business Continuity Advancement
Organization: the Grand Prize in fiscal 2012, Honorable Mention
in fiscal 2013, Special Award for Excellence in Execution in
fiscal 2014, and Honorable Mention in fiscal 2015. Five of thecompanies the foundation has assisted have also won awards
that put them on par with well-known major corporations andChronology of BCAO Awards for OPTIC
helped them to build networks with enterprises in other areas.
and Enterprises in the Prefecture

Section 2

A support agency that provides enterprises in the prefecture withassistance in drafting BCPs, and promotes tie-ups between mainly model
enterprises that have produced BCPs with enterprises in other regions

e

Imag

e

Imag

14) “BC” stands for business continuity.
15) Given to individuals and organizations that have contributed to or carried out the propagation of the BC concept in ways conducive to its
spread throughout Japan.

253

Chapter 4 Risk management, supporting the earning power

Section 3

Information security risks

As Part II, Chapter 3 indicated, enterprises are actively
implementing IT with such objectives as enhancing
productivity. On the other hand, as society becomesincreasingly information-based, the threats to information
security have become more varied, including targeted
attacks and unauthorized access from within. In January
2016, Japan introduced a social security / tax ID number
system (“My Number”). As a result, organizations may
possess a wide range of important information, including
specific personal information. This makes security
measures all the more important. In addition, information
security troubles can cause damage both direct (such1.

as loss of information) and indirect (loss of social
credibility). Incidents threatening the business continuityof enterprises have also happened when those enterprises
did not take appropriate measures. Therefore, enterprises
need to be very thorough about security when they use
IT.16)
Moreover, many enterprises see information security
risks as risks that could endanger their business continuity,
as Section 1 above showed. This section analyzes thecurrent state of information security risks at SMEs andthe issues that are involved.

State of information security█ Concept of information security

Information security is defined as “The act ofmaintaining the confidentiality, integrity, and availabilityof information.17) It may entail the authenticity,
accountability, non-repudiation, and reliability of
information.”18) In other words, the important thing forenterprises is how to protect their trade secrets, personal
information, and other information, and how to protect
the information systems that handle that information.
Moreover, the information that enterprises should protect
is not just electronic but also printed information andeven the products they manufacture. It is critical that theenterprise examine the characteristics of the information

assets19) it possesses and take appropriate information
security measures.

█ Information security measures

What is the status of measures taken to prevent
information security troubles? Fig. 2-4-29 compares
information security measures taken, by enterprise size.
On the whole, SMEs had taken measures at a rate about
20% lower than in the case of large enterprises. Less than
50% of SMEs said that they had a “Monitoring system”(e.g., they had implemented security monitoring tools).
It seems SMEs have not done much to take security
measures.

16) 2015 revision of Japan Revitalization Strategy17) “Availability” means that, when an authorized person wishes to use an asset under authorized conditions, that asset is ready to be used.
18) JIS Q 27001:2006
19) An “information asset” is something that has value as an asset and that the enterprise has selected as subject to control.

254

Part II The earning power of SMEs

Fig. 2-4-29 Information security measures taken, by enterprise size(%)

Source:Notes:

SMEs

Technology-based measures

Monitoring system

Evaluations

Recompiled from METI, Survey of Conditions in Information Processing.
1.	 The state of measures taken, by category, shows the total of those that answered “We have already taken” one or moremeasures in that category.
2.	 The following four items were presented as information security measure categories.
• System-based measures: risk analysis, establishment of security policy, specific measures based on an establishedsecurity policy, writing an information security report, writing a BCP, appointing a company-wide security
controller, appointing a security controller in each department, training employees in information security, checking
implementation of information security measures at business partners, preparing / strengthening internal controls• Technology-based measures: access control to important computer rooms, access control internally to importantsystems, data encryption, firewall against external connections, introduction of products with ISO/IEC 15408
certification, introduction of thin clients, introduction of biometric identification• Monitoring system: introduction of security monitoring software, constant security monitoring by outside specialist• Evaluations: use of information security measure benchmarks, periodic system audits by outside specialist, periodic
system audits conducted internally, periodic information security audits by outside specialist, periodic information
security audits conducted internally, periodic vulnerability diagnosis, periodic acquisition of vulnerability information,
periodic analysis of access logs, acquisition of information security management system certification

Next, let’s look at the trend in average per-company
information security measure costs20) each year
(Fig. 2-4-30). At large enterprises, the most frequentanswer was “Don’t know,” followed by “More than
¥10,000,000” (just under 20%). In contrast, at SMEs,
the most common reply was “Less than ¥500,000”

Section 3

System-based measures

Large enterprises(35.2%), followed by “¥500,000 − ¥1,000,000” (16.9%).
Here, information security measure costs include not
only payments to external contractors but also costs of
security training for employees, personnel costs, andso on. Therefore, there are many SMEs with low costs
associated with taking information security measures.

20) “Information security measure costs,” as used here, refers to costs for those information security measures that the enterprise takes. They
include the cost of security training for employees, purchasing security-related equipment and software, payments to external parties (e.g.,
for services ordered), and internal costs such as personnel costs when enterprise staff conduct surveys, examinations, and measures.

255

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-30 Trend in average cost per company for information security measures(SMEs)

Less than ¥500,000¥1,500,000 − ¥2,000,000
More than ¥10,000,000¥500,000 − ¥1,000,000¥2,000,000 − ¥4,000,000
Don’t know

¥1,000,000 − ¥1,500,000¥4,000,000 − ¥10,000,000
No costs

2010
2011
2012
2013

(Large enterprises)
2010
2011
2012
2013

Source:Recompiled from METI, Survey of Conditions in Information Processing.

█ Incidence of troubles

What kind of information security damages actuallyoccur at enterprises? Fig. 2-4-31 shows the rate at
which information security troubles21) occur at SMEs.
The incidence of information security troubles overall
was 16.1% in the most recent year, meaning there wastrouble at about one company in six. Next, looking at thetrends by category, “System trouble” rose 6.7 points overthe previous year to 67.6%. “Unauthorized access” rose
4.2 points to 7.2%. On the other hand, the incidence of“Computer virus” declined 6.5 points to 48.6%. Although

the damage caused by computer viruses declined, about
half of all enterprises had taken some damage. Enterprises
need to be very thorough in taking basic measures likeinstalling antivirus software and periodically updating it.
A breakdown of the most common types of trouble
experienced showed that for “System trouble,” “Systemshut down by internal factors” was to blame in 48.9% of
all cases of trouble. As for “Computer virus,” the cause
was “Virus caught from web site” in 23.5% of all cases(Fig. 2-4-32).

21) “Information security troubles” refers to any loss of information confidentiality, integrity, or availability.

256

Part II The earning power of SMEs

Fig. 2-4-31 Incidence of information security troubles at SMEs, by category
(%)

All

System trouble

Computer virus

Unauthorized access

Leak of important information

Other

Section 3

2010

Source:Notes:

2011

2012

2013

Recompiled from METI, Survey of Conditions in Information Processing.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The incidence of troubles, by category, shows the percentage of enterprises that answered they had had one or moretroubles in that category.

Fig. 2-4-32 Incidence of information security troubles at SMEs, by type of trouble[System trouble]
System shut down by internal factors
System shut down by external factors
Third-party mail relaying of spam email, etc.
DoS attack
Tampering with web site, files, data
[Computer virus]
Virus caught from web site
Virus caught from spam email
Virus caught from USB drive
Virus caught from other route
Virus caught from targeted cyber attack[Unauthorized access]Fake IP / email address
Unauthorized access by internal party
Unauthorized use of resources[Leak of important information]
Notebook PC or portable memory media stolen or lost
Information leak caused by internal party
Information leak caused by computer virus, etc.
Information leak caused by targeted cyber attack
Information leak caused by unauthorized accessInformation leak caused by contractor[Other]Source:Notes:

Recompiled from METI, Survey of Conditions in Information Processing.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The incidence of troubles, by category, shows the percentage of enterprises that answered they had had one or moretroubles in that category.

Next, let’s look at the cost of damages at SMEs where
information security troubles had occurred (Fig. 2-4-33).
Damage had occurred at 35.5% of enterprises overall.
Asked for the costs of the damages, enterprises mostcommonly said “Less than ¥500,000” (30.6%). Looking
at the incidence of damage by sales, 64.7% of enterprises

with sales of up to ¥1,000 million had taken somedamage. The smaller the scale of sales, the more likely
the enterprise took some damage. Enterprises withsmall-scale sales need to take adequate countermeasures,
because even damages with a relatively small cost can
impact management.

257

Chapter 4 Risk management, supporting the earning power

Fig. 2-4-33 Cost of damages from information security troubles at SMEs, by sales
Less than ¥500,000¥4,000,000 − ¥6,000,000
More than ¥10,000,000¥500,000 − ¥2,000,000¥6,000,000 − ¥8,000,000
Unknown¥2,000,000 − ¥4,000,000¥8,000,000 − ¥10,000,000
No costs

Up to ¥1,000 million(n=31)
More than ¥1,000 million,
up to ¥2,000 million(n=39)
More than ¥2,000 million,
up to ¥10,000 million(n=182)More than ¥10,000 million(n=108)
Unknown(n=30)

All

Source:Note:

Recompiled from METI, Survey of Conditions in Information Processing.
Cost of damages does not include such damages as system disruptions, etc., caused by earthquake.

█ Anticipation of information security troubles

Fig. 2-4-34 shows the percentage of security troubles
anticipated by enterprises in their handling of informationin their businesses. It shows that, on the whole, SMEs
anticipate security troubles at a lower rate than large
enterprises do. The most common answer from SMEs

258

(79.5%) was “Unauthorized access to system, takeoverof system or use of system to gather information,”
followed by “Leak of personal information” and “Leak ofenterprise or trading partner’s confidential information.”
This reveals that leaks of important information are seen
as a big risk.

Part II The earning power of SMEs

Fig. 2-4-34 Anticipated information security troubles
SMEs (n=3,185)

All (n=3,514)

Un

sy

Note:

Section 3

Source:Ten ampter eripri ngse’s with
we th
bs e
ite
Lo
s
or s oca cus r theus
ed tome ft ofor by tr r info persou ad
tsi ing rmat onaldei
co part on,
ntr neac r
torLarge enterprises (n=329)

au
tho
ste syste rizedmm
to or , ta acce
ga use ke ssothetr in of sy ver o ofor ste f
ma m
Le
tio
ak
n
(em of pplo ersonyees al inor forcu ma
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ak
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on ra
inf fide dingorm ntiati al
on
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h
cu efts
ca tome of peused r info rsonby rm al oem atio r
plo n,
ye
e
Le
ak
of
I
da
n
a
ma uth tern
ge ent ets f ica ba
rom tio nk
n d ingfremraud ata,
itta ulennc tesPen hyster icapri l deq se amuip ’s b ag
me us e t
nt, ine o thscecy ause s siteber a d by
tta
ck

(%)

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Looking at the nature of information security troubles
that have actually occurred, relatively many SMEs
mentioned “Leak of personal information” (10.4%) and“Unauthorized access to system, takeover of system or
use of system to gather information” (8.2%) (Fig. 2-4-35).
While “Physical damage to the enterprise’s business siteequipment, caused by cyber attack” and “Leak of Internet
banking authentication data, damages from fraudulent
remittances” did not occur at a high rate, there were acertain number of such cases, which have the potential tocause great damage. Care must be taken regarding cases
like these.

Fig. 2-4-35 Information security troubles that have actually occurred

Note:

T
en ampter eripri ngse’s with
we th
bs e
ite

All (n=3,376)

co

inf

Source:SMEs (n=3,058)

Leo ak
nfi r tra of ede din nt
ntie
al g pa rpris
inf
orm rtner e
ati ’sonLoor ss oca cus r theus
ed tome ft ofor by tr r info persou ad
tsi ing rmat onaldei
co part on,
ntr ne
ac r
tor
Le
ak
of
I
da
ma auth ntern
ge ent ets f ica ba
rom tio nk
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itta ulen
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Ph
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i
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e e pr ma
qu ise’ ge
ipm s b to
by ent, usin theecy
be caus ss
r a edtta
ck

Large enterprises (n=318)

orm Leati ak o
on f pe(or emp rson
cu loy al
sto ee
me s
rs)
Un
au
t
o
t
sy
ste syste horizmm eto or , ta d ac
ga use ke ceothesr in of sy ver o s
for ste f
ma m
tio
n
Lo
s
s
or
o
cu r thse
ca tome ft ofus
ed r info persby rm ona
em atio l
plo n,yee(%)

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

259

Chapter 4 Risk management, supporting the earning power█ Scale of personal information handled

Fig. 2-4-36 shows the number of units of personal
information handled by businesses annually, by industry
sector. Overall, the most common answer was “Lessthan 1,000 units” (54.8%), followed by “5,000 or moreunits” (19.9%). The retail trade is a sector that handles
a large amount of personal information, with 42.0%

of enterprises there answering “5,000 or more units.”
When the Act on the Protection of Personal Information
was revised,22) the scope of business operators handlingpersonal information grew23) to include those who keepa database24) and handle information for less than 5,000
individuals. These businesses25) have to practice stricter
personal information management.

Fig. 2-4-36 Number of units of personal information handled, by industry
Less than 1,000 units

1,000 − 4,999 units

5,000 or more units

Don’t know

Manufacturing

Wholesale trade

Retail trade

Services

Other

All industries

Source:Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.

█ Examination of information security risks
before they emerge

To what extent do enterprises examine theimpact of information security troubles in advance?
Fig. 2-4-37 shows the status of examination of impact if
an information security risk were to emerge, by amountof personal information handled. The percentage ofenterprises that answered “We have examined the impact

and review it regularly” was 47.2% among the group that
handled “5,000 or more units” of personal information,
27.4% among those handling “Less than 5,000 units,” and19.3% of those answering “Don’t know.” This indicatesthat enterprises that handle fewer units of personal
information, and those that do not know how many theyhandle, have not adequately anticipated in advance thedamage they might sustain.

22) Enacted September 3, 2015 and promulgated September 9, 2015.
23) Prior to the revision, businesses handling less than 5,000 units of personal information were not considered business operators handlingpersonal information.
24) A collection of personal information, systematically structured so that specific personal information can be searched. The regulations apply
whether the information is kept on paper or electronic media.
25) Regardless of whether the business is for-profit or not-for-profit. Includes sole proprietors.

260

Part II The earning power of SMEs

Fig. 2-4-37 Status of examination of impact if an information security risk were to
emerge, by amount of personal information handled(%)

5,000 or more units(n=671)

Source:We have examined the impact

Don’t know
(n=451)

We do not know what impact
there would be, have not anticipated it

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.

Fig. 2-4-38 shows the status of preventive measurestaken for information security, by amount of personal
information handled. Even enterprises that handle“5,000 or more units” of personal information (i.e., thosebusiness operators handling personal information underthe Act on the Protection of Personal Information even
before it was revised) have not necessarily done enough.
For example, just 62.5% said “We periodically update

Section 3

We have examined the impact
and review it regularlyLess than 5,000 units(n=2,237)

software and systems” and only 39.1% said “We haveestablished regulations on data disposal.” Moreover, on
the whole, those enterprises handling “Less than 5,000
units” and those answering “Don’t know” have not gotten
far with their preventive measures. There is a particularly
significant gap for the items “Access to important
information is restricted” and “We train employees.”

Fig. 2-4-38 Status of preventive measures taken for information security, by amount of
personal information handled(%)

Less than 5,000 units(n=2,341)

Don’t know
(n=489)

co
n

tro

lle

in Im
d b form port
at anyinf Acc pass ion i t
orm esw s
ati s to ord
on
im
is
We
res porta
tric nt
ha
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e
ak se
do cu imp
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We
tio arentpoo /so erils
ftw odare icallyanud s pdys ate
tem
We
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We
ye
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int
ain
inf and reg
orm m ula
W
tio
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co e pro tion uals ns
se
nn
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h
i
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ec bitur ntion t usag ityoeperso emp of ana loy ndac W
l d eece e cev s’ss
ice/ h hecksan
dli infor
ng ma
his tio
tor n
org
ies
for aniza W
ris tio e m
k p nsrev / s ainta
regen ysttio em inula We
n,
tio
h
etc s
a
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ve
.
on
es
da tabtlaiWe
dis she
po d
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sa
lat
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e
inf
c
orm onf
We ext ati iden
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list se gs, uid parti mesee
ex tc. lint,e
We erna writt s, chl o enha
rga b eckve
ni y aainf
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ati cat ed
on ion exterse/
cu pe narity rfo lan
au rm
y p Wedits
art haicu velar nopre t takme vent en
as iveures5,000 or more units(n=699)Source:Note:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Next, let’s compare the respondents’ answers on
the status of preventive measures they have taken
for information security, by whether or not they haveexamined the impact if information security risks were to
emerge (Fig. 2-4-39). Enterprises that had not examined
the impact of information security risks were behind261

Chapter 4 Risk management, supporting the earning powerin taking important but relatively inexpensive security
measures like “Important information is controlled bypassword” and “We train employees.” The above results
show that enterprises handling less than 5,000 units ofpersonal information did not prioritize security measuresin their management and had not made much progresson them, since many had not examined the impact of
information security troubles and had not anticipated thedamage if security troubles were to occur.

Fig. 2-4-39 Status of preventive measures taken for information security, by status of
examination of risk impact
We have examined the impact and review it regularly
We do not know what impact there would be, have not anticipated it

co

ntr

oll

I
ed infor mpo
by ma rtanpa tion t
ss
inf Accwo is
orm esrdati s tooni
is mpores rtaWe
tric ntted
so peri
ftw odare icaan lly u
d s pdWe
ys ate
iso
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inf
c
o
o
n
ex rmat fideter ion nti
Weanal p from l
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ain
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an eguld m atian ons
ua
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em
We
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pe o e e orso mp f ana loy ndWel d ee
ev s’
h
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cu e isrity mp
so lemftw
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org
,e d
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for aniza W
ris tio e m
k p nsrev / s ainta
en ystac W
tio em ince e c
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ss
h
etc s
/ h eck.
anidli nforng ma
reg
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ula Weiestio
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dis lishe
ve
po d
a
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sa
orm certi cqul
ati ficat iredon ion exterse/
cu pe naWe
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itte uidsn b eliy a nes,norg ext etc.
an ern ,iza alW
tio
pre e hnave
nti ve nveotme tak
as en
ure
s

(%)

We have examined the impact

Source:Note:

262

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Case

2-4-10

Hospitality One Co., Ltd.

A home care services startup seeking to develop its business with astrength in an information security structure that takes its industry to a
new level

Section 3

Hospitality One Co., Ltd. (employees: 30; capital: ¥5 million), based in Minato City, Tokyo, was foundedin 2008 as a company providing home care services not covered by long-term care insurance system. The
company provides home care services mainly to clients in their terminal phase, and among its duties handles
sensitive personal information including such medical information as patient case records. Handling personal
information by fax is commonplace in the industry. Sending faxes to the wrong number is a frequent
occurrence, an experience that Hospitality One, too, has had. The company took the misdelivery incident
quite seriously, and decided to launch an initiative to beef up information security by creating mechanismsthat would prevent it from recurring.
It had been proactive when it came to dealing with such labor management problems as the issue ofwork-life balance and with formulating a BCP, and so now to address this new concern the company decided
to take advantage of the support system available in Minato City and work to qualify for a PrivacyMark
certification from JIPDEC (previously known as Japan Information Processing and Development Center).
As part of the City’s program to provide assistance in initiatives to acquire ISO and other certifications,applicants can receive financial support to cover half (up to ¥500,000) of the costs related to applying,screening, registering, and hiring consultants. The thinking at Hospitality One was that qualifying to use
the PrivacyMark would also function as a “proactive” element that would help the relevant government
personnel and patients feel secure that this was a company operating at a high level when it came to
information security. There are very few home care stations around the country that have qualified for thePrivacyMark.
President Kei Takamaru explains, “Getting the PrivacyMark is one
means of improving the level of information security. The process
leading up to getting it is itself important.” As the company approaches
its 8th anniversary, the feeling at Hospitality One is that this process islinked to creating a corporate culture. The process of assigning staff to
the task and having them check internal regulations and proceduresof all sorts alerted those personnel and their peers to the information
security-related risks the company faces and raised awareness among
employees about the issue.
With home care businesses that use ICT services for distance careand the like poised to grow, Hospitality One believes that the fact it
is working to acquire the PrivacyMark will enhance its attractivenessas a care provider. Furthermore, President Takamaru has getting thecompany publicly listed on his mind, and in that event believes thatsuch a development would help its case as a means of solidifying theDocuments related to information security
company’s structures.

263

Chapter 4 Risk management, supporting the earning power2.

Benefits of and issues with information security measures█ Benefits of information security measures

What benefits can enterprises derive by working
on information security? According to Fig. 2-4-40, themost common answer was “We have raised employee
awareness” (50.6%), followed by “We have prevented
risks from emerging” (33.0%). In addition, about 10%of respondents chose answers that reflect an increase incorporate value, namely “We have reconsidered system
investment” and “We are better appreciated by trading
partners.” On the other hand, about 30% said “We havenot noticed any benefits.”

Fig. 2-4-40 Benefits of preventive measures taken for information security

Source:Note:

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Issues with information security systems

Fig. 2-4-41 compares the respondents’ answers on
measures they have taken for when information security
trouble occurs, by whether or not they had examined
the impact if an information security risk were to occur.
Enterprises answering “We have examined the impact
and review it regularly” were more likely to have taken

264

We
ha
pro ve infita cre
hig bility asedhe (e.
r s g.,
ale
s)
We
ha
ve
n
an ot noy b ticeenefit dsWehinfo ave lrm earn
atio edn a ousse r
ts
loc Weal a havnd e imcorpo prov
rat ede im ou
ag r
e
We
are
by bette
fina r a
nc ppriale
ins ciate
titu dtion

Wehasys ve retem coninv sidees red
tm
en
We
t
are
be
tte
(ve by tra r ap
nd din preors gc, cu par iated
sto tner
me s
rs)

We
risk havs fr e pom revem ente
erg d
ing

em W
plo e hye av
ea er
wa aisren edess(%)

measures. Of those answering “We do not know what
impact there would be, have not anticipated it,” 65.7%
said “We have not examined measures.” The results showthat enterprises that have not anticipated the damage frominformation security troubles are more likely to be behindin dealing with measures to take when security trouble
happens.

Part II The earning power of SMEs

Fig. 2-4-41 Measures for when information security trouble occurs, by status of
examination of risk impact(%)

We have examined the impact and review it regularly(n=1,021)

We have examined the impact(n=1,179)

We do not know what impact there would be, have not anticipated it(n=1,138)

Section 3

We have decided who
We have decided what
to report to or the person actions to take to respondin charge at other contact
when trouble occurs

Source:Note:

We have appointed
a chief information
officer (CIO)

We subscribe toinformation security
insurance

We have notexamined measures

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-4-42 shows what kind of external resources
the respondents had used for information security, byamount of personal information handled. Of thoseenterprises handling 5,000 or more units of personal
information, nearly 50% responded “We use an externalvendor / system company,” while 22.7% said “We takepart in trainings given by external organizations.” On theother hand, enterprises handling less than 5,000 units ofpersonal information and those that did not know how
many they handle were making little use of external
resources on the whole. More than 50% said they were
not using such resources, but it is important to make gooduse of such resources to make sure that security measures
are taken efficiently.

265Chapter 4 Risk management, supporting the earning power

Fig. 2-4-42 Status of usage of external resources, by amount of personal information
handled5,000 or more units(n=678)(%)

We use an externalvendor / system company

Source:Note:

We use a consultant
or other expert

Don’t know
(n=450)We take part in trainings
given by external organizations

We do not use
external resources

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

Next, let’s look at the issues with enterprises’
information security systems (Fig. 2-4-43). The mostcommonly mentioned issue was “Not enough skill / knowhow” (62.8%), followed by “Not enough manpower” and266

Less than 5,000 units(n=2,246)“Cost problems” (each just under 50%). This shows thatenterprises are strongly aware of their lack of information
on how to proceed with measures and their lack ofmanagement resources to carry out those measures.

Part II The earning power of SMEs

Fig. 2-4-43 Issues with information security system

Section 3

Not enoughskill / know-how

Source:
Note:

Not enoughmanpower

Cost problems

Not enoughunderstanding
internally

No one to go tofor advice outside
the enterprise

Not appreciatedby trading
partners

Not appreciatedby financial
institutions

Mizuho Research Institute, Ltd., Survey on Risk Management Initiatives at SMEs (December 2015), commissioned by the
SME Agency.
Total does not always equal 100% as multiple responses were possible.

This section has looked at the information security
measures at SMEs. It has demonstrated that SMEs,
especially businesses that handle few units of personal
information, have little awareness of the impact of
information security risks and are behind in taking
security measures. Taking measures for information
security is a management issue that enterprises cannot
avoid if they are going to use IT. Managers need to beaware of this and provide the strong leadership for theirenterprises to take measures as an organization. However,many enterprises sense that a lack of know-how andmanagement resources is a problem if they are to takeinformation security measures. Therefore, it is hoped thatthese enterprises too will actively use external resources
and programs available from support organizations topromote information security measures and use IT tobuild stronger enterprises.

267

Chapter 4 Risk management, supporting the earning power

Column 2-4-5 Information security promotion awareness raising
The lnformation-technology Promotion Agency, Japan (IPA) offers awareness-raising content
and seminars for SMEs across Japan to support their initiatives for information security.
Fig. Column 2-4-5

Overview of information security promotion awareness raising

Approx. 3.8 million SMEs throughout Japan
Send presenters
Provideinformation
to raiseawareness

Seek
adviceExecutive /managerTake part inworkshops[Community]
Security workshops

IT /security
trainer

Providecontent
Supportinternal
training

Generalemployees /staff

Take partin seminars
Learnknowledge /skillsSecurity presenters (SME support personnel)
Managementadvisors /assistants

Govt.
agencies
Economicorganizations
Local
governments,
etc.

Tax
accountants /certified social
insurance laborconsultantsITcoordinator /SMEconsultant

Local SME support
organizations
Collaborate(commerce and industry
groups, organizations of tax
accountants or certified social
insurance labor consultants)(2) Training
sessions
Collaborate

Collaborate
Security center

Dispatching
trainers

File noticeof, seek
advice on,
and learn
security
information,collect
information

Security presenter
conferences

Collaborate

Regional
financial
institutions(regional banks,
credit unions,credit associations)
Collaborate

Take part inseminars(1) [Nationwide]Workshop skill
development seminars

Skill-building support
Support to holda workshop

Develop teachingmaterials and contents
Host a seminar(3) SME’s information security
promotion committee / working group

Consulting service

Revise guidelines
Field surveys of SMEs

(4)

Information security measures
support portal site

(1) Conduct seminars and conferences throughout Japan to strengthen development of experts,
so that these individuals gain the practical knowledge needed to implement and support
information security measures at SMEs.
(2) Send information security instructors free of charge to training courses held by regional SME
support organizations.
(3) Revise the “Guidelines for Systematic Information Security Measures at SMEs,” conduct fieldsurveys to learn conditions at SMEs, and give direct instruction.
(4) Strengthen the functions of the “iSupport” portal site, which offers a wide selection of
information security content and tools to support SMEs.

268

Part II The earning power of SMEs

Case

2-4-11

AZ-COM Data Security Co., Ltd.

A company that has increased sales by obtaining external certification for
information security and actively investing in both tangibles and intangibles

Section 3

AZ-COM Data Security Co., Ltd. (employees: 60; capital: ¥50 million), based in Chichibu City, Saitama Prefecture,
as a fully-owned subsidiary of Maruwa Unyu Kikan Co., Ltd., is involved in comprehensive document management
services and business process outsourcing. The company provides comprehensive document management services
covering both analog (document preservation and delivery, as well as erasure of confidential information therein)and digital (electronic deliverables produced by data conversion using OCR26) technology, as well as on-demand
electronic data and image distribution services) needs.
AZ-COM does much business with financial institutions, and its efforts at acquire certifications, investing infacilities, and monitoring on-site conditions have also had a great impact on how it is viewed. It is evident fromthis that the company has created a sophisticated security structure. The Chichibu No. 3 Security Center is thecompany’s primary facility for financial institutions. The facility was put up as a prior investment matched to
specifications geared to such customers, and so the company acquired the ISO27001/JIS Q2700127) certification
for it. The building itself has the same construction as a data center, but the company invested approximately 1.5
times as much as it would for a normal depot for earthquake- and fire-resistant equipment as well as such internal
fixings as fiber optic circuitry and security cameras. Furthermore, aside from such tangibles, the company also put
together a business process that includes double- and triple-checking and to prevent human error instituted banson staff bringing in such personal items as mobile phones and from using paper and labels. For example, whena staff member wishes to make notes they are allowed to write only on the white board the company supplies
them with and from time to time have to erase those notes that are no longer needed. These measures served
both to highlight for customers the company’s information security structures while also protecting its employees.
AZ-COM’s investments in facilities and information security initiatives have had advantageous effects, and its sales
have increased in recent years.
Furthermore, for purposes of introducing the PDCA
cycle to its information security work, AZ-COM decided
Security Risk Reports would be submitted whenever a
close call28) occurred. The process entails a report being
submitted from the individual or unit concerned. The
personal information protection manager and chair of
the information security committee (who is also on theboard of directors) would add their comments to it andthen return it to the original reporter for review. Threeminor incidents occurred in 2015 that were reported
in this fashion, and each was quickly remedied. The
company also tests employees on information security
every year, and if there is a change in its systems it holds
Chichibu No. 3 Security Center
impromptu training sessions on a case-by-case basis.
Many enterprises in AZ-COM’s industry have alreadyqualified for JIPDEC’s PrivacyMark, and in some cases
they have been requested by business partners toacquire an ISMS certification as well. Management of
external consignors has an important place among suchinitiatives. The recipients of outside consignment might
be limited to enterprises that have the PrivacyMark, andwhen they do start doing business their partner mightmonitor facilities investments, the installation of security
cameras, and the like.
AZ-COM’s advanced initiatives in information security
are being pursued in group companies as well, and thecompany has taken on the role of providing guidance tothose companies on acquiring the ISMS certification andto affiliates on qualifying for the PrivacyMark.
White board for taking memos26) OCR stands for optical character recognition.
27) ISO27001 is an international standard for information security whose requirements include protecting information assets from various
threats and creating a comprehensive Information Security Management System (ISMS) for mitigating risk. JIS Q27001 is the corresponding
domestic standard.
28) A “close call” in this context means an incident that did not develop into a major disaster or accident, but was discovered at the brink of one
unsurprisingly even if connected.

269

Chapter 4 Risk management, supporting the earning powerCase

2-4-12

COMIT Co., Ltd.

A company that acquired external certification in information security
on its own, improved the way outsiders saw it, and is aiming to develop
further
COMIT Co., Ltd. (employees: 42; capital: ¥40 million), based in Minato City, Tokyo, was established in2003 by President Akihiko Tenma as a company involved in the development and operation of information
systems as well as the planning, development, and sales of information security services. It began to hire
new university graduates in 2007, and today as it reaches its 13th anniversary its workforce has grown to
42 employees. The company has a culture of willingness to try anything by itself. For example, when it was
ready adopt a thin client service, it looked into purchasing one from a major vendor but turned around anddeveloped one itself when it saw the costs were forecast to be higher than expected. Today, that service it
developed in-house is at the point where the company is ready to put it on sale as a product.
In light of its business continuity philosophy of wanting to protect the company for its employees and of
the fact that it provided services to financial institutions, COMIT reached the point where it decided it would
seek to qualify for the PrivacyMark as a way of boosting its credibility. Tenma himself took the lead in thisinitiative. He had frequently observed companies that went bankrupt after information leaks, and was ofthe view that his company must be protected.
Since he knew nothing at first about how outside certifications were acquired, he asked a consulting
company to handle it. However, their work was limited to a perfunctory assembly of documents. That
approach was limited to acquiring the certification, and Tenma decided this would not lead to the business
continuity issue that was his real intent. Consequently, he decided the effort would be handled in-house. In
this instance, he thought it important that the company carry out the initiative with realistic expectations.
The idea was to look closely in turn at the rules and stipulations laid out in the PrivacyMark framework, thePersonal Information Protection Act, and with respect to information security management system (ISMS)
certifications and similar, and clarify which ones exactly were relevant to the company. Specifically, he set
aside those stipulations that did not apply, considered which initiatives were possible, and then sorted out
the work. He got his employees to focus on the positive effects in seeing how the initiative was tied to
COMIT’s future as a company as they learned what they were capable of by carrying it out. He encouraged
an approach that was open to communication and maintaining positive thinking. Use of the PDCA cycle thatwas put together in these information security-directed efforts was expanded to all management activities,
leading to other initiatives such as the general affairs and accounting departments also putting together
annual plans and reassessing situations where problems had been discovered during the process executing
those plans. All this was linked to management improvements. In the end, the company qualified in 2008
to use the PrivacyMark, and in 2012 acquired an ISMS
certification.
COMIT’s initiative had an impact on othercompanies, as well. The things that employees frompartner companies learned at COMIT were wellreceived back in their home company workplaces,and executives at other enterprises in the industry
were prompted by what they heard about COMIT toobtain ISMS certification for their own businesses.
“A small company like ours has to be known for its
technical capabilities, work methods, and the low risk
it presents or potential clients will not choose it,” says
Tenma, whose aim now is to expand his company’sbusiness by raising its profile so its information
security initiatives are readily visible for all to see.
Employees at an in-house training session

270

Financing to support growth in SMEs

Section 1

Chapter 5
As we have seen in previous chapters, it is important that SMEs tolerate some risk and invest in
growth with the aim of cultivating sales channels and improving productivity, thereby stimulating
growth in Japan’s economy as a whole. And because it is vital that funding be supplied to financethis growth investment by SMEs, in this chapter we focus our analysis on the financial institutions
that are the principal funding suppliers for this sort of growth investment by SMEs.

Section 1

Changes in the structures of funding circulation

In this section, we take a medium- and long-term
perspective on the changes to the funding procurement
structures used by SMEs, and look at the changes in theeconomic environment and the changes to the supply

1.

of funding by financial institutions resulting from thechanges in the way those financial institutions deal withthe growing disparities in the profitability of enterprises.

Transitions in funding procurement structures according to enterprise size

█ Trends in cash-flow and ease of borrowing DIfrom financial institutions by enterprise size

When we look at the cash-flow situation for enterprises
since the collapse of the bubble, shifts in the financial
position DI for both SMEs and large enterprises havegenerally followed the economic cycles (Fig. 2-5-1).
While the financial position DI of large enterprises havebeen in positive territory if we exclude the recessionary

phase, the financial position DI of SMEs have rarely been
positive, even during period of economic expansion, andthe situation for SME cash-flows has generally been direcompared with large enterprises. The lending attitude DI
for financial institutions has also followed a similar trend
to the economic cycle, and the feeling among SMEs isthat borrowing from financial institutions is more difficult
for them than for large enterprises.

271

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-1

Cash-flow and ease of borrowing from financial institutions by enterprise size
Financial position DI (SMEs)
Financial institution lending attitude DI (SMEs)

Financial position DI (large enterprises)
Financial institution lending attitude DI (large enterprises)(Year)

Source:Notes:

BOJ, Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan).
1.	 Large enterprises here refer to enterprises with capital of ¥1 billion or more, and SMEs refer to enterprises with capitalof ¥20 million or more and less than ¥100 million.
2.	 The financial position DI was calculated by taking the proportion (%) of enterprises who responded that their recent
cash-flow situation was “Comfortable” and subtracting the proportion (%) who responded “Difficult”.
3.	 The financial institution lending attitude DI was calculated by taking the proportion (%) of enterprises who responded
that recent financial institution attitudes to lending were “Generous” and subtracting the proportion (%) who responded“Strict”.
4.	 The shaded sections of the graph indicate periods of economic recession based on the business cycle reference dates
from the Cabinet Office.

█ Trends in borrowings according to enterprisesize

Fig. 2-5-2 shows the total amounts of money lent toenterprises by Japanese banks according to enterprise size.
Taking the second quarter of 1993 as a reference, loans
to both SMEs and large enterprises shrank significantly
during the period from the collapse of the bubble to themid-2000s, decreasing around 30% by the middle ofthe 2000s. After that point, total loan amounts differ byenterprise size, with large enterprises weathering the
turbulence of the Lehman crisis to move into a generally
growing trend, paving the way for a recovery to 1993272

levels. After the Lehman crisis, SMEs generally declined
and their recovery stalled, leaving them no higher thantheir peaks of the mid-2000s, despite the underlying
growth trends during the economic expansion phase.
If we also consider the trends in the proportion of SMEs
as recipients of corporate loans from Japanese banks, theratio for loans to SMEs increased in the mid-1990s before
declining either side of the financial system instability
in the late 1990s. Subsequently, it again increased in the
mid-2000s, peaking in 2007 before it again went into
decline and then leveled off (Fig. 2-5-3).

Part II The earning power of SMEs

(2Q 1993 = 100)

Trends in loans from financial institutions by enterprise size
SMEs

Section 1

Fig. 2-5-2Large enterprises
Sept. 2008 Lehman crisis(Year)

Source:Notes:

BOJ, Monthly Report of Recent Economic and Financial Developments.
1.	 Loans include trust and overseas accounts.
2.	 Totals are only for Japanese banks.
3.	 Figures shown in the graph are for 2Q 1993, 2Q 2005 and 4Q 2015 respectively.

Fig. 2-5-3

Proportion of corporate loans given to SMEs(%)

(Year)

Source:Notes:

BOJ, Monthly Report of Recent Economic and Financial Developments.
1.	 Totals are only for Japanese banks.
2.	 Because the range of applicable enterprises changed markedly under the revisions to the Small and Medium-sizedEnterprise Basic Act, there is a discontinuity between March 2000 and the subsequent period.

273

Chapter 5 Financing to support growth in SMEs

█ Trends in leveraging and the ratio of borrowings
as a multiple of monthly turnover

Next, we look at the effects of these shifts in theprovision of financing on the degree of leveraging inenterprises and their ratio of borrowings as a multiple oftheir monthly turnover.
(1) Leveraging (Fig. 2-5-4)
Leveraging indicates the ratio of borrowings as aproportion of total assets and shows the extent to which
the assets owned by an enterprise are dependent on loans.
The higher the amount of leveraging, the greater theburden imposed by loan repayments, which can increase
the negative impacts on cash-flow. Interest rate rises canalso increase the amount of interest paid and heighten
the risk of cost increases. Conversely, improvements in
the ratio of equity to total assets due to factors such asincreased profits will reduce the amount of leveraging. In
this way, leveraging is used as an indicator of the overall
health of an enterprise.
Looking specifically at the manufacturing industries,
SMEs in manufacturing tend to have higher rates ofleveraging overall than large manufacturing enterprises.
Looking at the trends, both large enterprises and SMEs
show a slight downward trend, with an upward trend
between 2007 and 2009 that later reverted to the ongoing
decline. However, the rise between 2007 and 2009
differed slightly depending on the size of the enterprise.
For large manufacturing enterprises, their dependence onloans from financial institutions increased at the same rate
as for loans overall, while the increase in the dependenceof SMEs in the manufacturing industries on loans
from financial institutions was smaller than the rise in
overall dependence. However, because their loans cameprimarily from lenders other than financial institutions,
their leveraging actually increased.

274

Turning now to the non-manufacturing industries,
SMEs in non-manufacturing have a higher level ofloans overall than large non-manufacturing enterprises,
but when we restrict the sources solely to financial
institutions, SMEs have a lower level of borrowing thanlarge enterprises. Looking at these trends, they are muchthe same for SMEs in both manufacturing and nonmanufacturing, while for large enterprises in the nonmanufacturing industries, the overall trend is downwards
without the upsurge in the late 2000s.
The difference between the figures for loans overall
and loans from financial institutions is due to lendingby sources other than financial institutions, and in 2014leveraging by SMEs in manufacturing from sources
other than financial institutions was at 11.6%, while
the figure for SMEs in non-manufacturing was 11.7%.
The funding sourced from entities other than financial
institutions includes loans from parent companies andfrom representatives, and while we have no detailed
breakdown of such sources, the reasons may well bediverse and include situations where the SME is part of acorporate group and the parent company procures funding
collective function so as to optimize funding efficiency.
Another likely scenario may be where the SME cannot
secure a loan from a financial institution due to its poor
financial standing. What this reveals is that loans fromsources other than financial institutions are an important
way of procuring funding for SMEs.
To summarize: there is a declining trend among SMEs
in both manufacturing and non-manufacturing industries,
and there is a period in the latter half of the 2000s during
which SMEs increased their amount of leveraging throughloans from sources other than financial institutions.
Also, while the proportion of loans from sources otherthan financial institutions is steady or rising, loans fromsources other than financial institutions are an importantfunding avenue for SMEs.

Part II The earning power of SMEs

Trends in leveraging(Manufacturing)(%)

SMEs (loans overall)
SMEs (financial institution loans only)
Large enterprises (loans overall)Large enterprises(financial institution loans only)(FY)

Source:Notes:(Non-manufacturing)(%)

SMEs (loans overall)
SMEs (financial institution loans only)
Large enterprises (loans overall)Large enterprises(financial institution loans only)

Section 1

Fig. 2-5-4(FY)

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital less than ¥100 million.
2.	 Financial institution loans = Financial institution short-term loans + financial institution long-term loans + corporatebonds
3.	 Overall loans = Financial institution short-term loans + other short-term loans + financial institution long-term loans +other long-term loans + corporate bonds
4.	 Leveraging (financial institution loans only) = Financial institution loans ÷ Total assets
5.	 Figures shown in the graph are for FY1993, FY2005 and FY2014.

(2) Borrowings ratio as a multiple of monthly turnover(Fig. 2-5-5)
The ratio of borrowings as a multiple of monthly
turnover shows how much the amount an enterprise hasborrowed is as a multiple of the enterprise’s monthly
turnover. Whereas the amount of leveraging is calculated
solely from the balance sheet, the ratio of borrowings asa multiple of monthly turnover is calculated using theborrowings listed in the balance sheet and the sales shownin the profit and loss statement. This makes it possible
to see the level of borrowing relative to the scale of theenterprise’s sales. This is not a completely consistent
standard as the distribution of the figures differs dependingon the industry type and business model, but a high value
for this figure indicates a severe debt burden, whereas alow figure probably signifies a relatively easy debt burden.
When we look at the figures in detail, the situation in
the manufacturing industries is the same as for leveraging,with SMEs tending to have a higher ratio than large
manufacturing enterprises. The trends show a period in the
mid-2000s when the ratios declined across all enterprise
sizes, while in the latter half of the 2000s ratios again rose
before subsequently leveling off. For SMEs, the ratio forloans from financial institutions only went from 4.21x in
1993 to 3.49x in 2014, a drop of 0.72 points. Over the same
period, the ratio for all loans rose from 4.70x to 4.81x, anincrease of 0.11 points. In other words, while borrowings

from financial institutions decreased, borrowings fromsources other than financial institutions increased and theratio of borrowings as a multiple of monthly turnover did
not decline. For large manufacturing enterprises, the ratio
for all loans went from 3.89x in 1993 to 2.76x in 2014, adrop of 1.13 points, while the ratio for loans from financial
institutions only during that period decreased from 3.75x
to 2.17x, a fall of 1.58 points.
Unlike the manufacturing industries, the ratios in
the non-manufacturing sector were higher for large
non-manufacturing enterprises than for SMEs in nonmanufacturing. These trends show that the ratios generally
fell for both SMEs and large enterprises from 1993
through to the late 2000s, but that they rose again in 2008.
In summary, in the manufacturing industries themonthly turnover ratio was higher for SMEs than forlarge enterprises, while in non-manufacturing industries,
it was higher for large enterprises. Also, even where thetiming and magnitude of the variations due to enterprisesize and industry type differ, except in the case of SMEs inthe manufacturing industries, the general trend is for themonthly turnover ratio to decrease and the burden imposedby borrowings to lessen. However, the fall in borrowings
from financial institutions by SMEs in manufacturing isoffset by the increase in borrowings from sources otherthan financial institutions, with the result that there is nolessening of the debt burden.

275

Chapter 5 Financing to support growth in SMEs

Above, we have looked at the changes in the demand
for funding and the level of the debt burden borne byenterprises. Below, we will look at the fluctuations in

Fig. 2-5-5

Trends in the ratio of borrowings as a multiple of monthly turnover(Manufacturing)(Times)SMEs (loans overall)
SMEs (financial institution loans only)
Large enterprises (loans overall)Large enterprises(financial institution loans only)(FY)

Source:Notes:

2.

(Non-manufacturing)(Times)SMEs (loans overall)
SMEs (financial institution loans only)
Large enterprises (loans overall)Large enterprises(financial institution loans only)(FY)

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital less than ¥100 million.
2.	 Financial institution loans = Financial institution short-term loans + financial institution long-term loans + corporatebonds
3.	 Overall loans = Financial institution short-term loans + other short-term loans + financial institution long-term loans +other long-term loans + corporate bonds
4.	 Ratio of borrowings as a multiple of monthly turnover (financial institution loans only) = Financial institution loans ÷Monthly turnover
5.	 Ratio of borrowings as a multiple of monthly turnover (all loans) = All loans ÷ Monthly turnover
6.	 Figures shown in the graph are for FY1993, FY2005 and FY2014.

Factors behind enterprises’ demand for loans

There are two probable background drivers for the shifts
in demand for funding discussed in the previous section:(1) the “capital investment” and “investment in affiliatedcompanies” that are the root causes of the demand forfunding, and (2) changes in the “inter-enterprise credit”
that underlies demand for working capital. In this section,
we will continue our analysis by focusing on these two
aspects.

█ Trends in investment and loans for affiliatedcompanies and capital investment

Fig. 2-5-6 looks at the trends in capital investment
by enterprises, taking 1993 as a benchmark. In the
manufacturing industries, trends have followed the ups
and downs in the underlying market conditions, with
SMEs in particular showing more severe decreases incapital investment than large enterprises during economic
downturns. So while the level of capital investment among
SMEs is generally lower than for large enterprises, prior to
the Lehman crisis in 2007, capital investment levels were276

borrowings by these enterprises and the factors behind thevariations in the capital expenditure ratio.

higher for SMEs than for large enterprises. From 2010
onwards, the gap between SMEs and large enterprises has
narrowed and in recent years capital investment by SMEs
has actually exceeded that by large enterprises. However,as we saw in Part I, conditions have still not recovered to
the levels they were at prior to the Lehman crisis.
Looking at the non-manufacturing industries, large
enterprises were trending downward slightly until 2003,
after which they began to rise again and by 2007 hadreturned to 1993 levels. The Lehman crisis sent them intoanother decline and since 2010 they have remained atmuch the same level. SMEs repeatedly experience marked
rises and falls in line with the fluctuations in the economy,
but during periods of economic growth, we see a scenario
where SMEs increase their level of capital investment
more than large enterprises. In the 2010s when large
enterprises remained relatively level, capital investment
by SMEs shows a slight rising trend, continuing until
it climbs above the level for large enterprises as of thesecond quarter of 2014.

Part II The earning power of SMEs

Trends in capital investment

Section 1

Fig. 2-5-6(Manufacturing)(1Q 1993 = 100)

(Non-manufacturing)(1Q 1993 = 100)

SMEs

Large enterprises(Year/quarter)
SMEs

Large enterprises(Year/quarter)

Source:Notes:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital less than ¥100 million.
2.	 The index shows four-quarter backward moving averages.
3.	 Figures shown in the graph are for 2Q 2005 and 4Q 2015 respectively.
4.	 The shaded sections of the graph indicate periods of economic recession based on the business cycle reference dates
from the Cabinet Office.

Next, we look at investment in subsidiaries andaffiliated companies. Investment in affiliated companies
takes many forms, including parent companies loaning
business funding to a subsidiary, investment in overseas
subsidiaries and enterprise purchases through M&A
processes. Fig. 2-5-7 shows the trends in the amounts
of investments and loans per company for enterprisesthat engaged in investments in and/or loans to affiliatedcompanies.
(1) Investments and loans for affiliated companies in
Japan
There is an increasing trend for both SMEs andlarge enterprises. The magnitude of the increase varies
depending on the enterprise size, but particularly in thefirst half of 2000s, the trend among large enterprises far
outstripped that of SMEs. During that period, the gap

between SMEs and large enterprises widened and stayedwide, since the pace of the increase did not change for
either SMEs or large enterprises from the mid-2000s
onwards.
(2) Investments and loans for affiliated companies
overseas
As with investments and loans for affiliated companies
in Japan, the trend for both SMEs and large enterprises
was for increased investment. However, the nature of that
increase differs. Up until 2005, the rate of increase for
SMEs and large enterprises was about the same, but in 2005
the rate of increase for large enterprises accelerated and alarge gap opened up between SMEs and large enterprises.
So, this reveals that capital investment by both SMEs
and large enterprises is generally in step with the ups anddowns in the economy as a whole, but investments and277

Chapter 5 Financing to support growth in SMEs

loans to affiliated companies tend to increase regardlessof economic trends. Particularly between 2000 and 2005,
we see that large enterprises very actively invested inFig. 2-5-7

affiliated companies in Japan, whereas from 2005 onwards
they switched their focus and invested more actively inaffiliated companies offshore.

Trends in per-company balances in investments and loans for affiliatedcompanies(1) Investments and loans for affiliated companies in Japan(1995 = 100)

SMEs

Large enterprises(Year)(2) Investments and loans for affiliated companies overseas(1995 = 100)

SMEs

Large enterprises(Year)

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 SMEs are defined in accordance with the definitions in the Small and Medium-sized Enterprise Basic Act.
2.	 The figure shows the balances in investments and loans for affiliated companies by individual companies engaging ininvestments and loans to affiliated companies in Japan and overseas respectively.

█ Trends in inter-enterprise credit business andtheir impact on cash-flow in SMEs

Thus far, we have looked at the trends in borrowing asa means of procuring funding, but inter-enterprise credit
business is another important avenue for enterprises
seeking funding. Inter-enterprise credit transactions
refer to “accrued transactions” arising out of commercial
transactions conducted between businesses. Whenbusinesses procure the supply of goods and/or services,
they commonly pay for those goods or services after a
set time rather than making an immediate on-the-spot
payment. In this situation, purchasers generate accountpayables and payment notes, while vendors generate
an accounts receivable and notes receivable, effectively
setting up temporary loans by the vendors to thepurchasers. Because the purchasers are being granted
credit by the vendors, this is referred to as “inter-enterprise278

credit”. This sort of inter-enterprise credit particularly
affects SMEs due to their limited management resources.
Here, we will look at the trends in inter-enterprise credit
and analyze the effects of those trends on borrowing by
SMEs.
We begin by examining the inter-enterprise credit
trends by enterprise size and by industry type (Fig. 2-5-8).
The figure shows the accounts receivable and accounts
payable as multiples of the monthly turnover and shows
the correlations between sales and accounts receivable
and accounts payable respectively. We see a trend forboth accounts receivable and accounts payable to shrink
as a multiple of monthly turnover, as well as a contraction
in inter-enterprise credit. The decrease in the ratio of
accounts receivable as a multiple of monthly turnoveris particularly marked in the manufacturing industries.
There also appears to be growing gap between SMEs andPart II The earning power of SMEs

inventory and accounts receivable are not realizable ascash, they become advanced funding, while accounts
payable become funds that are advanceable. So where theadvanced funding is the larger sum, the need for working
capital arises. In the retail trade, the customers thatbusinesses deal with are generally ordinary consumers.
Sales are paid for in cash, but purchases are often madeusing inter-enterprise credit. In this situation, there is far
less need for advanced funding and the need for working
capital does not arise (Fig. 2-5-9). Also, where the need forworking capital arises in businesses, that required working
capital also increases as the businesses grow larger. But inbusinesses where there is no need for working capital in
the first place, even if the business grows in size there is
still no need for working capital.

Section 1

large enterprises in terms of the difference in the degree ofcontraction in the ratio of accounts payable as a multipleof monthly turnover.
Next, we will analyze the trends in enterprises’ required
working capital1) as a result of these types of interenterprise credit. The need enterprises have for working
capital arises when they require funding to bridge thegap between when goods and/or services are purchased
and the investment starts returning income. If we take the
manufacturing industries as an example, ordinarily there
is a chain of events from materials being purchased andused to manufacture products through to those products
being sold and generating revenue. When inter-enterprise
credit is used for that process, it generates accounts
payable, inventory and accounts receivable, but because

1) Here, working capital that is theoretically required by enterprises is referred to as “required working capital”, and the funding actually
procured from financial institutions for that required working capital is referred to as “working capital”. Consequently, required working
capital and working capital are not necessarily equivalent.

279

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-8

Trends in inter-enterprise credit business(1) Accounts receivable as a multiple of monthly turnover(Times)SMEs Manufacturing

SMEs Non-manufacturing

Large enterprises Manufacturing

Large enterprises Non-manufacturing(2) Accounts payable as a multiple of monthly turnover(FY)(Times)(FY)

Source:Notes:

280

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital less than ¥100 million.
2.	 Accounts receivable = Receivables + notes receivable + discounted notes payable, accounts payable = payables +payment notes
3.	 Accounts receivable as a multiple of monthly turnover = ((starting accounts receivable + ending accounts receivable)÷ 2) ÷ monthly turnover, accounts payable as a multiple of monthly turnover = ((starting accounts payable + ending
accounts payable) ÷ 2) ÷ monthly turnoverPart II The earning power of SMEs

Schematic of required working capital(1) Instances where required working capital arose and the size increased
Accounts receivable
200
Inventory
100

Accounts payable
150
A difference of 150
is advanced andthat amount of
required working
capital arises.

Size increase(1.2x)

Accounts receivable
240
Inventory120(2) Instances where required working capital did not arise and the size increased
Inventory
100

Accounts payable
150

Size increase(1.2x)

Inventory120

Accounts payable
180

Section 1

Fig. 2-5-9

A difference of 180
is advanced andthat amount of
required working
capital arises.
Required working
capital increases
due to larger size.

Accounts payable180

In businesses such as retail outlets where sales are to individuals, sales are in cash and no receivables arise.
Consequently, few businesses advance money and required working capital does not arise. The same is true evenwhen businesses grow.

Based on this required working capital model, we now
look at the trends in required working capital by enterprisesize (Fig. 2-5-10). Here, in order to look at required
working capital in terms of how many months of turnover
it represents, we analyzed the ratio of required working
capital as a multiple of monthly turnover. Required
working capital can also be referred to as the difference
between accounts receivable and accounts payable plus
inventory. So if we divide each of these by the monthly
turnover, we can then define the ratio of required working
capital as a multiple of monthly turnover as the difference
between the ratios of accounts receivable and accounts
payable as multiples of monthly turnover (the “site gap”)
plus the ratio of inventories as a multiple of monthly
turnover.
Looking at the ratio of required working capital asa multiple of monthly turnover in the manufacturingindustries, contraction of the site gap is canceled out by
increases in inventories, resulting in a fairly level trend.
But for large manufacturing enterprises, both the site
gap and the ratio of inventories as a multiple of monthly
turnover are contracting, causing a major shrinkage of theratio of required working capital as a multiple of monthly
turnover and a reversal of the SMEs and large enterprises

standings in 2002. From the late 2000s onwards, large
enterprises returned to growth, but even recently SMEs
have been performing better than large enterprises.
If we look at the ratio of required working capital asa multiple of monthly turnover in the non-manufacturingindustries, the trends in the site gap and the ratio of
inventories as a multiple of monthly turnover are
similar for both SMEs in non-manufacturing and large
non-manufacturing enterprises. From 1993 through tothe mid-2000s, the difference in the ratios of required
working capital as a multiple of monthly turnover steadily
contracted and then has remained steady since the latter
half of the 2000s.
To summarize, for both manufacturing and nonmanufacturing, large enterprises have a higher ratioof required working capital as a multiple of monthly
turnover, but the difference is shrinking and in the
manufacturing industries SMEs have now surpassed large
enterprises. So it may well be that the shrinkage in theratio of required working capital as a multiple of monthly
turnover for large manufacturing enterprises is placing agreater required working capital burden on SMEs in the
manufacturing industries.

281

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-10 Trends in the site gap, etc.
(1) Site gap

SMEs Manufacturing

SMEs Non-manufacturing

Large enterprises Manufacturing

Large enterprises Non-manufacturing(Times)(2) Ratio of inventories as a multiple of monthly turnover(FY)(Times)(3) Ratio of working capital as a multiple of monthly turnover(FY)(Times)(FY)

Source:Notes:

282

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital less than ¥100 million.
2.	 Site gap = Ratio of accounts receivable as a multiple of monthly turnover − ratio of accounts payable as a multiple ofmonthly turnover
3.	 Inventories = Products or goods + work in progress + raw materials or inventory
4.	 Ratio of inventory as a multiple of monthly turnover = ((starting inventory + ending inventory) ÷ 2) ÷ monthly turnover
5.	 Ratio of working capital as a multiple of monthly turnover = Ratio of accounts receivable as a multiple of monthly
turnover + ratio of inventories as a multiple of monthly turnover − ratio of accounts payable as a multiple of monthly
turnoverPart II The earning power of SMEs

█ Balance sheet trends according to enterprise size

Finally, we look at changes in inter-enterprise credit
and investments and loans in affiliated companies andcapital investment, as well as the correlations between
rises and fall in capital investment and working capital,
based on changes in balance sheets by enterprise size.
Specifically, by focusing on balance sheet trends at threepoints in 1993, 2005 and 2014 that mark the turning
points in lending to enterprises noted in Fig. 2-5-2, weanalyze the background to the funding demand at the time
(Fig. 2-5-11).

(1) Trends in asset scale
Among SMEs, balance sheets fell by ¥25.4 trillion(−4.5%) between 1993 and 2005, but increased by¥38.3 trillion (+7.1%) between 2005 and 2014.
Large enterprises rose ¥93.3 trillion (+17.4%) in
the period from 1993 to 2005 and rose still further by¥159 trillion (+25.2%) from 2005 to 2014, showing thatlarge enterprises in particular have grown markedly.

Section 1

Given these changes, we can speculate that, up until themid-2000s, large manufacturing enterprises significantly
reduced their ratios of accounts receivable as a multiple ofmonthly turnover by hastening the collection of accounts
receivable, but by delaying as far as possible the earlier
payment of accounts payable, they constrained the rate ofcontraction in the ratio of accounts payable as a multipleof monthly turnover and thereby minimized the site gap.
SMEs in the manufacturing industries used a very similar
approach to the large enterprises but were probably
unable to constrain the rate of contraction in the ratio of
accounts payable as a multiple of monthly turnover to theextent that large enterprises could, which meant that they
could not reduce the site gap to the same degree as large
enterprises.
In terms of the ratio of inventories as a multiple ofmonthly turnover, large enterprises in both manufacturing
and non-manufacturing were successful in significantly
reducing their ratios of inventory as a multiple of monthly
turnover by using more efficient management practices
to reduce the amounts of stock on hand. SMEs however
actually increased their inventory levels, particularly inthe manufacturing industries. While this is something thatdiversified products and micro-scale production requires
from small-lot mass-production, it probably increased theinventory burden.
In this way, required working capital declined for large
enterprises up until the mid-2000s and then returned to arising trend as of the late 2000s, while for SMEs, required
working capital decreased slightly through to the mid2000s and has shown sluggish growth in recent time.

(2) Required working capital
As revealed in the previous section, required working
capital is indicated by “accounts receivable − accounts
payable + inventories”. This can be further broken down
into the gap between incomings and outgoings shown as“accounts receivable − accounts payable” (the “receiptpayment gap”) and the inventories held in stock. The
receipt-payment gap for SMEs was ¥5.2 trillion in 1993,
rising to ¥15.2 trillion in 2005 and then to ¥18.4 trillion
in 2014. Inventories totaled ¥65.8 trillion in 1993, fell
¥18.9 trillion to ¥46.9 trillion in 2005 and then remained
fairly flat through to 2014 when they totaled ¥46.7 trillion.
As a result, required working capital, which was at¥71.1 trillion in 1993, fell ¥8.9 trillion to ¥62.2 trillion in2005 before recovering ¥2.9 trillion to reach ¥65.1 trillion
in 2014.
The receipt-payment gap for large enterprises
was ¥29.0 trillion in 1993, ¥20.4 trillion in 2005 and¥28.0 trillion in 2014, falling substantially in 2005
and then recovering somewhat subsequently, though
only in recent years has it climbed back up to 1993
levels. Inventories were at ¥62.0 trillion in 1993, fell
¥16.2 trillion to ¥45.8 trillion in 2005, but recovered¥2.2 trillion to reach ¥48.0 trillion in 2014. Consequently,
required working capital, which was at ¥91.0 trillion in
1993, fell ¥24.7 trillion to ¥66.3 trillion in 2005 and thenrose ¥9.6 trillion to reach ¥75.9 trillion in 2014.
In short, between 1993 and 2005, both SMEs and large
enterprises made efforts to reduce required working capitalby keeping less inventory. However, while the effective
reductions in required working capital made by SMEs
were diluted by an increase in their receipt-payment gap,
large enterprises were able to shrink their receipt-payment
gap, which allowed them to more effectively lower theirrequired working capital. Between 2005 and 2014, levelsof stock on hand did not change much for either SMEs
or large enterprises and the changes in required working
capital reflected pretty closely the variations in theirrespective receipt-payment gaps.

283

Chapter 5 Financing to support growth in SMEs

(3) Other investments, etc.
Other investments includes the many types of loans andfinancing extended to affiliated companies reviewed inFig. 2-5-7. For this reason, trends in the other investments
category largely reflect investments made in affiliatedcompanies.
Other investments by SMEs increased markedly from1993 to 2005, rising from ¥49.5 trillion to ¥70.1 trillion,
and rose again to ¥76.4 trillion in 2014. Among large
enterprises, the trend was one of continued large increases,
jumping from ¥83.6 trillion in 1993 to ¥170.8 trillion in2005 and then to ¥287.2 trillion by 2014.
(4) Net assets
The net assets category is made up of the enterprise’scapital and funds such as the accumulated profits
generated by the enterprise’s business activities. Capitalincreases through direct financial contributions such as

284

increased capitalization and the acquisition of additional
enterprises. Accumulated profits increase through theaccumulation of earnings by the enterprise.
Net assets for SMEs totaled ¥73.9 trillion in 1993,
rising to ¥112.3 trillion in 2005 and then to ¥182.1 trillion
in 2014. Capital rose particularly strongly from 1993 to2005, climbing by ¥30.0 trillion, and between 2005 and2014, there was strong rise of ¥67.8 trillion in accumulated
profits.
Net assets for large enterprises were at ¥147.0 trillion
in 1993 and rose to ¥246.8 trillion in 2005 before climbing
to ¥352.3 trillion in 2014. This reveals that as well aslarge increases in both “capital and capital reserves” and“accumulated profits, etc.”, with secured profits leading
to significant rises in internal reserves, enterprises also
procured funding through additional investments andother direct funding, thereby achieving large gains in their
net assets.

Part II The earning power of SMEs

(1) SMEs(Debts and net assets)
Accounts receivable

Inventory

Current assets, etc.

Tangible/intangible fixed assets

Other investments, etc.

(Trillion yen)
FY1993(2) Large enterprises

FY2005FY2014

Accounts payable
Loans from sources otherthan financial institutions
Capital and capital reserves(Trillion yen)
FY1993(Assets)
Accounts receivable

Inventory

Current assets, etc.

Tangible/intangible fixed assets

Other investments, etc.

FY2005Loans from financial institutions
Other debts
Accumulated profits, etc.
FY2005FY2014(Debts and net assets)

Deposits & savings(Trillion yen)
FY1993

Source:Notes:(Assets)

Deposits & savings

Section 1

Fig. 2-5-11 Balance sheet trends according to size

FY2014

Accounts payable
Loans from sources otherthan financial institutions
Capital and capital reserves(Trillion yen)
FY1993Loans from financial institutions
Other debts
Accumulated profits, etc.
FY2005FY2014

MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Large enterprises here refer to enterprises with a capital of ¥1 billion or more, and SMEs refer to enterprises with acapital less than ¥100 million.
2.	 Figures outside the frames indicate the totals for the Assets and Debts and net assets categories.

The above figure shows that from the collapse of the
bubble in 1993 through to 2005, large enterprises cut backtheir borrowings, particularly for capital expenditure,and drew on direct financing and internal reserves tofund investment in affiliated companies. Then, fromthe latter half of the 2000s through to the present, they
presumably increased their borrowings from financial
institutions, particularly for working capital, while further
accelerating their active investment by continuing to use
direct financing and internal reserves to fund investment
in affiliated companies.

From 1993 to 2005, SMEs restricted their own
borrowings by reducing their assets, focusing particularly
on reducing inventories and accounts receivable. Fromthe late 2000s through to recently, we can see that they
have raised their levels of cash within the scope of theirinternal reserves and progress with capital investment.
Based on this, we can probably say that the differencesin the scale of financial institution loans shown in
Fig. 2-5-2 between 2005 and 2014 are as follows:(1) Among SMEs, assets have remained much the same
while capital investment has been within the scope

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Chapter 5 Financing to support growth in SMEs

permitted by internal reserves and borrowings havenot increased greatly.
(2) Large enterprises have actively invested in affiliatedcompanies, especially overseas, and because that

3.

Trends in enterprise profits according to fluctuations in borrowings

So far, we have analyzed the trends in borrowings
according to enterprise size and the factors driving thosetrends. Below, we will focus on enterprises of the same
size and analyze the differences between enterprises who
increased their borrowings and those who decreased theirborrowings.

█ Trends in enterprises according to changes inborrowings

We begin by examining the trends in enterprises
according to their changes in borrowings. Fig. 2-5-12
shows how the respective proportions of enterprises havechanged according to whether they are borrowing more or
borrowing less. Among large enterprises, the proportionsof enterprises who increased their borrowings and those
who decreased borrowings were roughly equivalent up
until the beginning of the 1990s. But as of the mid-1990s,
the number of enterprises with decreased borrowings roseand the trends in the two categories began to diverge.
Among SMEs, the proportion of enterprises decreasing286

investment funding exceeds the amounts available
through direct financing and the increase in internal
reserves, they have raised their level of borrowing
from financial institutions.

their borrowings was high as of the mid-1980s, and likelarge enterprises, there was a trend for the divergence
to increase. Thus, regardless of the enterprise size,
the number of enterprises decreasing their borrowings
from financial institutions from the mid-1990s onwards
increased by corresponding amounts relative to enterprises
with increased borrowings.
However, when we look at these enterprises solely interms of changes in borrowings, we are not taking into
account the amounts by which those borrowing changed,
which is why the trends here differ from the trends inborrowing according to enterprise size discussed in theprevious section. This is because, in many instances,an enterprise procuring funding does so all at once, byprocuring all the funding they need for a year at the sametime, for instance. So it is important to note that the simple
fact that a high proportion of enterprises are reducing theirborrowings does not necessarily equate to a reduction in
total borrowings.

Part II The earning power of SMEs(%)

SMEs Enterprises with increased borrowings

Large enterprises Enterprises with increased borrowings

SMEs Enterprises with decreased borrowings

Large enterprises Enterprises with decreased borrowings

Section 1

Fig. 2-5-12 Trends in the proportions of enterprises with increased borrowings and thosewith decreased borrowings(Year/quarter)

Source:Notes:

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
1.	 SMEs are defined in accordance with the definitions in the Small and Medium-sized Enterprise Basic Act.
2.	 Data compiled is only for companies with borrowings from financial institutions at the end of the year (the total for
corporate bonds and long-term and short-term financial institution loans).
3.	 The shaded sections of the graph indicate periods of economic recession based on the business cycle reference dates
from the Cabinet Office.

█ Financial situations of enterprises with increased
borrowings and those with decreased borrowings

Next, we look at the differences in the profitabilityof enterprises with increased borrowings and those withdecreased borrowings. Here, we take the rate of ordinary
profit as an indicator of profitability. Fig. 2-5-13 shows
the changes in average ordinary profit rates according
to changes in borrowings. For both SMEs and large
enterprises, we can see that enterprises with decreased
borrowings had higher profitability than those withincreased borrowings. This is presumably due to the factthat enterprises with higher profitability accumulate moreinternal reserves and are able to repay loans more quickly.
Also, where enterprises have decreased borrowings, both
SMEs and large enterprises have equivalent ordinary
profit rates, and enterprises that have high rates of returnand have reduced their borrowings maintain the sameprofit levels even if they change in size.
When we look at the difference between the rates ofreturn for enterprises with increased borrowings and thosewith decreased borrowings, it is larger for SMEs than forlarge enterprises. And if we then look at that trend basedon the enterprise size, the difference for large enterprises
declined from 2% at the start of the 1980s to around 1%
by the latter half of that decade. It again rose to around
2% during the bubble era before slowly falling again
through to the late 2000s. It again rose to the 2% mark at
the time of the Lehman crisis in 2008, and then fell again
and is now in the range mid-way between 1% and 2%. We
see the same sort of trends for SMEs also, but the figuresuggests that almost any kind of economic downturn
magnifies that difference in the case of SMEs.
This difference in profit rates between enterprises
with decreased borrowings and those with increased
borrowings could be considered as an indicator of risk
tolerance levels by financial institutions. In other words,
increasing lending to enterprises with low profit rates
relative to enterprises that are reducing borrowings andhave high profit rates will broaden the gap in profit rates
between the two. So we can presume that the growth inthat difference is the result of risk permitted by financial
institutions. If we look at Fig. 2-5-13 with this in mind, therisk tolerance of the financial institutions that should be
supporting SMEs through economic downturns increases,

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Chapter 5 Financing to support growth in SMEs

and during periods of economic growth that risk tolerance
weakens. So over the long term, that difference of over
2% in the late 1990s has now weakened to a little over

1%. However, just recently there is an increasing trend,
which may be a sign that risk tolerance is again rising.

Fig. 2-5-13 Average ordinary profit rates according to changes in borrowings(Large enterprises)(%)

Enterprises with increased borrowings
Enterprises with decreased borrowings
Difference between enterprises with decreased borrowings and enterprises with increased borrowings(Year/quarter)(SMEs)(%)

Enterprises with increased borrowings
Enterprises with decreased borrowings
Difference between enterprises with decreased borrowings and enterprises with increased borrowings(Year/quarter)

Source:Notes:

288

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
1.	 Here, SMEs are defined in accordance with the definitions in the Small and Medium-sized Enterprise Basic Act.
2.	 Borrowings here refers to the total amount for corporate bonds and long-term and short-term financial institutionloans.
3.	 Ordinary profit rates are seasonally-adjusted using backward moving averages for the 4 quarters.
4.	 The shaded sections of the graph indicate periods of economic recession based on the business cycle reference dates
from the Cabinet Office.
5.	 Values for ordinary profit rate that exceeded 100% or were less than −100% were treated as erroneous and excluded.

Part II The earning power of SMEs

Trends in debt-free enterprises and enterprises with changed loan conditions

As we saw in the previous section, enterprises withincreased borrowings have different levels of profitability
from enterprises with decreased borrowings, and thatdifference is particularly marked among SMEs. Somehigh-profit enterprises accumulate large internal reserves
and are able to progress the repayment of their borrowings,
eventually repaying all their loans and becoming debtfree enterprises. However, some low-profit enterprises areforced to increase borrowings by procuring funding during

periods of business expansion. If the profitability of thoseenterprises declines, the burden placed on them by theirloan repayments increases and they experience cash-flow
difficulties. In that situation, they have to renegotiate theconditions of their loans. In this section, we analyze thetrends among enterprises that are no longer in debt (debtfree enterprises) and enterprises that revise the conditionsof their loans (enterprises with changed loan conditions)(Fig. 2-5-14).

Section 1

4.

Fig. 2-5-14 Profitability schematic for debt-free enterprises and enterprises with changed
loan conditions(Profitability)
Increased borrowing

Decreased borrowing

Debt-freeProfitDebt-free enterprises(Years in business)

Loss

Enterprises changing loan conditions

Increased borrowing

Borrowing unchanged█ Conditions where the proportion of debt-freeenterprises increases while enterprises withchanged loan conditions are unchanged

The differences between debt-free enterprises andenterprises with changed loan conditions arise from theirdiffering profitability. This difference in profitability also
arises among enterprises of the same size and again tends
to widen2). This sort of difference in profitability is linked
to increases and decreases in borrowings and may also
give rise to differences in the size of the burden placed onenterprises by their borrowings. To examine the burden
imposed by borrowings, we will look at the trends in thedebt ratio of enterprises that have taken out loans with

Loan condition changes(rescheduling)financial institutions (Fig. 2-5-15). In 1984, there weremany enterprises with a debt ratio of 30% or less, but by
1999 the number of enterprises with debt ratios of lessthan 30% had declined, while those with ratios above
30% had increased. More recently in 2014, the proportionof enterprises with debt ratios below 30% was slightly
higher than in 1999. This probably indicates that, of theenterprises in the debt ratio range with the highest numberof enterprises in 1984, high-profit enterprises reduced
their borrowings and became debt-free, while low-profit
enterprises did not pay down their borrowings and foundtheir debt ratios increasing.

2) For information on the growth in the profitability gap among enterprises of the same size, see the 2015 White Paper on Small and Medium
Enterprises in Japan, Part I, Chapter 3 (P.51―52).

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Chapter 5 Financing to support growth in SMEs

Fig. 2-5-15 Trends in the SME debt ratio distribution(Concentration)(Concentration: %)(Debt ratio: %)(Accumulated concentration)(Concentration: %)(Debt ratio: %)Source:Notes:

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 SMEs refer to enterprises with a capital less than ¥100 million.
2.	 The data collected here excludes debt-free enterprise with no borrowings from financial institutions.

█ Increases in debt-free enterprises

Next, we look at the debt-free enterprises thathave resulted from these changes to the debt ratio.
Fig. 2-5-16 shows the trends in the proportion of “debtfree enterprises3)” that have no borrowings from financial
institutions. There is a rising trend in the proportion ofdebt-free enterprises for both SMEs and large enterprises,with more than 40% of large enterprises becoming debtfree by 2014. Looking at the past 30 years, SMEs had alarger proportion of debt-free enterprises for a long time,
but after the Lehman crisis the proportion of debt-freeenterprises flat-lined, and in recent years the proportionof debt-free businesses has been higher among large
enterprises.

3) Where no other specific description is provided, “debt-free” in this chapter indicates simply that the enterprise has no borrowings fromfinancial institutions. It must be noted that here, “debt-free enterprises” may also include enterprises that have borrowings from managers oraffiliated companies.

290

Part II The earning power of SMEs

(%)

SMEs

Section 1

Fig. 2-5-16 Proportion of debt-free enterprises according to enterprise size
Large enterprises(FY)

Source:Notes:

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Here, debt-free enterprises refer to enterprises that have no borrowings from financial institutions at the end of thecurrent and previous periods.
2.	 Large enterprises here refer to enterprises with a capital of more than ¥100 million, and SMEs refer to enterprises witha capital of ¥100 million or less.

█ Composition of debt-free enterprises by industry
type

We will also examine the composition of debt-freeenterprises according to the industry type. Fig. 2-5-17
compares the composition of debt-free SMEs by industry
type with the overall composition of all SMEs byindustry type4). Looking at the figure, we can see that the

proportion of debt-free enterprises in “Construction”,“Manufacturing” and “Wholesale and retail trade” islower than the proportion for all SMEs. On the other
hand, there is a higher proportion of debt-free enterprises
in “Information and communications”, “Real estateand goods rental and leasing” and “Scientific research,
professional and technical services”.

4) It must be noted that this graph is compiled based on individual data from the Financial Statements Statistics of Corporations by Industry,
Annually, so this data may differ from the breakdown of enterprise numbers for each industry type listed in the attached statistical data.

291

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-17 Comparison of the industry-type breakdown for debt-free SMEs with the
breakdown for all SMEs
Mining and quarrying of stone
and gravel

Construction

Manufacturing

Electricity, gas, heat supply
and water

Information and communications

Transport and postal activities

Wholesale and retail trade

Real estate and goods rental
and leasing

Scientific research, professional
and technical services

Accommodations,eating and drinking services

Living-related and personal services
and amusement services

Education, learning support

Medical, health care and welfare

Services, n.e.c.

Enterprises
overallDebt-freeenterprises

Source:Notes:

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Of the general industries in the Financial Statements Statistics of Corporations by Industry, figures are compiled for
SMEs in the non-primary industries, excluding “Agriculture”, “Forestry”, “Fisheries” and “Finance and insurance”.
2.	 SMEs refer to enterprises with capital of ¥100 million or less.

█ Trends in enterprises with changed loan
conditions

Below, we will focus on enterprises with changed loan
conditions. Among SMEs, the number of enterprises withchanged loan conditions cannot be identified accurately, but
is taken to be between 300,000 and 400,0005). Fig. 2-5-18
shows the situation for factors such as changes to lending
terms and conditions in private financial institutions, as
published by the Financial Services Agency (FSA). Thisshows the trends in the numbers of SMEs who submitted
applications to financial institutions for loan conditions
to be changed, and in the number of instances where
the financial institutions changed the lending conditions

in response to an application. The figure shows that the
number of applications submitted to financial institutions
by SMEs for loan conditions to be changed increasedin the period from the second half of 2009 when the
Lehman crisis arose, rising to 700,000 in the second halfof FY2010. The effects of improved economic conditions
in recent years have seen the number of applications
fall, and the figure for the second half of 2014 was over
500,000. If we also look at the proportion of applications
that were acted upon, we see the effects of the Financing
Facilitation Act6), with 90% or more of applications being
enacted. Since FY2013 when the Act was completed, highlevels of 95% or more have continued.

5) Quoted from the Financial Services Agency (FSA), Minutes of the Joint Meeting of the 28th meeting of the Financial System Council andthe 16th meeting of the Sectional Committee on Financial System.
6) The Act concerning Temporary Measures to Facilitate Financing for Small and Medium-Sized Enterprises, etc. Under the Act, financial
institutions shall make every possible effort to take steps such as modifying lending conditions in response to applications from SMEs andapplicants for housing loans.

292Part II The earning power of SMEs

No. of applications(Thousands)

2H 2009

Source:Notes:

1H 2010

2H 2010

1H 2011

2H 2011

No. of implemented

1H 2012

2H 2012

1H 2013

Implementation rate

2H 2013

1H 2014(%)

Section 1

Fig. 2-5-18 Situation for changes to lending conditions by private financial institutions

2H 2014(FY)

Materials formulated by the Financial Services Agency (FSA).
1.	 2H 2009 refers to the period from December 2009 to March 2010.
2.	 The implementation rate is calculated from the number of applications and the number of implemented instances in
the relevant period.
3.	 The number of instances is based on individual loans received.

█ Utilization of Revitalization Support Councils

In this section, we move on to look at the utilization of the
Revitalization Support Councils7), which were establishedto support SMEs who require financial assistance, suchas enterprises with changed loan conditions. Fig. 2-5-19
shows the trends in the number of enterprises consultingwith Revitalization Support Councils and the number ofrevitalization plans formulated. When the Councils werefirst established, there were around 3,000 consultations
each year, but in FY2010 and FY2011, that number
dropped to around 2,000 before rising steeply again in

FY2012 to reach a total of 3,421 consultations in FY2014.
The number of revitalization plans formulated also
increased suddenly in FY2012, and 2,484 revitalizationplans were formulated in FY2014. The main reasonsfor this were the formulation of an exit strategy for
the Financing Facilitation Act8), including a target ofproviding support for the drafting of 3,000 revitalizationplans per year formulation and the enacting of legislationto accelerate and simplify the provision of support forrevitalization plan formulation.

7) The Revitalization Support Councils were established by approved support agencies, such as Chambers of Commerce and Industry, that had
been sanctioned as agents to deliver revitalization support programs under the Article 127 of the Industrial Competitiveness Enhancement
Act, and were set up within those approved support agencies. Starting in February 2003, SME Revitalization Support Councils were set
up progressively nationwide, and there is currently one council in each of 47 prefectures throughout Japan. Specialists with knowledge
and experience in business revitalization (staff from financial institutions, certified public accountants, certified public tax accountants,
lawyers, SME management consultants, etc.) are permanently appointed as General Managers or Assistant General Managers and thecouncils provide consultations for SMEs experiencing difficulties. The services provided include advice and support policies aimed at
finding solutions, referrals to support agencies and, in some cases, introductions to lawyers (primary responses). Where enterprises meet set
requirements (business viability, etc.), the councils support them in formulating revitalization plans (secondary response).
8) A policy package that provides management support to SMEs under the final extension to the SME Financing Facilitation Act (April 2012).
These policies were developed in consultation with the relevant ministries and agencies to ensure faster and more targeted delivery of threemeasures to strengthen the initiatives in the final extension to the SME Financing Facilitation Act aimed at promoting management reforms
and business revitalization in SMEs. The three measures were: (1) more effective delivery of consulting services by financial institutions;(2) enhanced functions and cooperation with the Enterprise Turnaround Initiative Corporation of Japan (ETIC) and the SME Revitalization
Support Councils; and (3) other measures to facilitate the support management reform and business revitalization.

293

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-19 Trends in the number of consultations with Revitalization Support Councils
and the number of revitalization plans completed
No. of enterprises advised

No. of regeneration plan formulations completed(Instances)(FY)

Source:Materials formulated by the SME Agency.

Next, if we look at the proportions of enterprises
consulting with Revitalization Support Councils byindustry, “Manufacturing”, “Wholesale and retail trade”
and “Construction” together make up 72.3% of the total.
When we compare this to the proportions of enterprises
across the major industrial categories in Japan, we cansee that the proportion of enterprises in the manufacturingindustries is extremely high (Fig. 2-5-20). Also, when294

we look at the financing methods used in the completed
revitalization plans, the overwhelming bulk (94.5%) opt
for “Rescheduling by financial institutions”, with thepredominant solutions proposed by financial institutions
being changes to lending conditions, such as capital
repayment deferral and extensions to the repayment
period (Fig. 2-5-21).

Part II The earning power of SMEs

Manufacturing
Accommodations, eating and drinking services

Wholesale and retail trade
Transport and postal activities

Construction
Services and others

Section 1

Fig. 2-5-20 Proportions of enterprises consulting with Revitalization Support Councils byindustry

Proportion ofenterprises
consulting

Proportion ofenterprises
consulting bymajor industry
category

Source:
Note:

MIC, 2014 Economic Census for Business Frame; materials formulated by the SME Agency.
The proportions of consulting enterprises are cumulative totals up to the second quarter of FY2015.

Fig. 2-5-21 Financing methods in completed revitalization plan proposals
Rescheduling byfinancial institutions

Debt forgiveness applied

Consultative capital loans

Capital subordinated loans
by financial institutions(debt debt swaps)
Debt equity swaps fromfinancial institutions
or suppliers

Source:Note:(%)

Materials formulated by the SME Agency.
Figures are as at the second quarter of 2015

█ Trends in entry and exit rates

Fig. 2-5-22 plots the divergence in the average entry
and exit rates looked at by industry type, and shows thatthe respective average rates for “Manufacturing” and“Construction” diverge considerably from the average
for all industries, indicating that rejuvenation in thoseindustries is stagnating. The exit rate for “Wholesale andretail trade” is also higher than the average for all industry
types while its entry rate is lower than the all-industry
average, with closures happening faster than in otherindustries, presumably because the market is contracting.

Fig. 2-5-23 shows the rates of change in the startup andclosure rates by industry from 2012 to 2014. This showssome revival in startups with recent entry rates in positive
territory for all industries, but there are differences inthe size of the variations in each industry, with relatively
low growth in the entry rates in “Manufacturing”,“Construction” and “Wholesale and retail trade”. There
are also many industries with declining exit rates due tothe effects of the recent shift towards economic expansion
in Japan.

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Chapter 5 Financing to support growth in SMEs

In this way, the “Manufacturing”, “Construction”
and “Wholesale and retail trade” industries, which makeup the majority of the businesses seeking consultations
with Revitalization Support Councils, are faced withstructural issues including stalled rejuvenation efforts andmarket contraction. Simply providing temporary financial
assistance to these sorts of enterprises through changes
to lending conditions is unlikely to help them much inreforming their own management, and more fundamental
revitalization support may be required.

Fig. 2-5-22 Divergence in average entry and exit rates by industry(Divergence from average exit rate: %p)
Accommodations,eating anddrinking services

Finance and insurance

Transport andpostal activities

Wholesale andretail trade

Information andcommunications

Education, learning support
Scientific research, professional and technical services

Manufacturing
Construction

Real estate andgoods rental
and leasing

Mining andquarrying ofstone and gravel

Services, n.e.c.

Medical, health careand welfare

Living-related and personal services
and amusement services

Compound services(Divergence from average entry rate: %p)

Sources: MIC, 2014 Economic Census for Business Frame; MIC, METI, 2012 Economic Census for Business Activity.
Notes:
1.	 The figure shows the divergence by each industry from the average entry and exit rates for all industries.
2.	 The size of each circle shows the ratio of sales in each industry as a proportion of total sales for the non-primaryindustries.
3.	 The average entry rate for all industries is 4.6%, and the average exit rate is 6.1%. Note also that for “Electricity, gas,
heat supply and water”, the divergence from the average entry rate is 15.1%p and the divergence from the average
exit rate is −0.6%p, but these are not shown on the above graph.

296

Part II The earning power of SMEs

Section 1

Fig. 2-5-23 Changes in entry and exit rates by industry (2012 — 2014)(Changes in exit rate: %p)

Exit rateincrease

Living-related andpersonal services andamusement services

Transport andpostal activities
Wholesale andretail trade

Real estate andgoods rental and leasing

Medical, health care and welfare

Education, learning support
Scientific research,
professional andtechnical services

Manufacturing
Construction
Exit rate
decrease

Compound services

Entry rate
decrease

Entry rateincrease

Services, n.e.c.

Financeand insurance

Information andcommunications

Accommodations, eating and drinking services
Mining and quarrying of stone and gravel(Changes in entry rate: %p)

Sources: MIC, 2009 and 2014 Economic Census for Business Frame; MIC, METI, 2012 Economic Census for Business Activity.
Notes:
1.	 For industry entry rates and exit rates, the figure shows the rates of change in the figure from 2012 to 2014.
2.	 The size of each circle shows the ratio of sales in each industry as a proportion of total sales for the non-primaryindustries.
3.	 The rate of change in entry rate for “Electricity, gas, heat supply and water” is 18.9%p, and the rate of change for exits
is 1.6%p, but this is not shown on the graph.
4.	 The average entry rate for all industries is 4.6%, and the average exit rate is 6.1%.

5.

Trends in the use of credit guarantee schemes

Below, we discuss trends in the use of the credit
guarantees offered by credit guarantee corporations thatwere established to help SMEs cope with cash-flow
issues. When SMEs take out loans with private financial
institutions, the loans are guaranteed by credit guarantee
corporations so as to facilitate funding procurement by
SMEs. In this section, we will look at the trends in theusers of such credit guarantee schemes and factors suchas the loan balances.

█ Numbers of credit guarantee users and theirbalancesshows the number of credit guarantee users and thenumber of SMEs as a proportion of credit guarantee users.
The figure shows that the number of credit guarantee
users rose until 1999, reaching 2.222 million at its peak.
Subsequently the number declined slowly and mostrecently stood at 1.412 million. The proportion of SMEs
among credit guarantee users was 32.3% in 1990 and had
climbed to 45.9% by 1999. It then declined through themid-2000s before leveling off after the Lehman crisis, andwas most recently at 37.1%.

We will begin by looking at the situation around theuse of credit guarantee corporations by SMEs. Fig. 2-5-24

297

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-24 Trends in the numbers and proportions of credit guarantee users(10,000 companies)

Companies using credit insurance

Proportion of companies using

(%)

(FY)

Sources: Recompiled from MIC, Establishment and Enterprise Census, 2009 and 2014 Economic Census for Business Frame; MIC,
METI, 2012 Economic Census for Business Activity; materials of Japan Federation of Credit Guarantee Corporations.
Note:Here, “Proportion of companies using” refers to the number of SMEs using credit guarantees as a proportion of the total
number of SMEs.

Fig. 2-5-25 shows the trends in credit guarantee
balances and the loans to SMEs as a proportion of the total.
The emergency guarantee program introduced to combat
the financial system instability that arose at the end of the
1990s significantly boosted the credit guarantee balanceat the time and also led to a similarly large increase in the298

rates of credit guarantee lending. Subsequently there wasa gradual decline in the 2000s until the rate again rose with
the Lehman crisis. The improved economic conditions inrecent years have again lowered credit guarantee balances
to the levels of the mid-1990s, with the figure for end of
FY2014 standing at ¥27.7 trillion.

Part II The earning power of SMEs

(Trillion yen)

Credit guarantee balance (left axis scale)

Ratio of credit guarantee lending (right axis scale)(%)

Section 1

Fig. 2-5-25 Trends in credit guarantee balances and ratio of credit guarantee lending(FY)

Sources: Prepared by the SME Agency based on Japan Federation of Credit Guarantee Corporations, Current Status of Credit
Guarantee Corporations; Bank of Japan, Monthly Report of Recent Economic and Financial Developments.
Note:
Here, “Ratio of credit guarantee lending” refers to the total credit guarantee balance as a proportion of the amount oflending to SMEs.

█ Trends in credit guarantee users

Next we look at the situation of enterprises that use
credit guarantees when procuring funding (Fig. 2-5-26).
This examines those SMEs who use credit guarantee
schemes for new borrowings in the fourth quarter, andlooks at whether they opt for borrowings with credit
guarantees, or use “proper” financing9) from financial
institutions, or both. The figure shows that more than half
the enterprises used a combination of credit guarantees

and proper financing from financial institutions in the
1990s, so that risks were shared between credit guarantee
corporations and financial institutions. Later, during the
instability in the financial system in the late 1990s andthrough to the Lehman crisis in 2008, an increasing
proportion of users opted to use only borrowings thatcame with credit guarantees or borrowings without credit
guarantees, indicating an increasing polarity in theirfinancing choices.

9) Here, proper financing refers to financing where the financial institution does not use guarantees from third-party agencies such as credit
guarantee corporations.

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Chapter 5 Financing to support growth in SMEs

Fig. 2-5-26 Use of credit guarantees for new borrowings among enterprises using credit
guarantees(%)

Guaranteed borrowing only

Both guaranteed and unguaranteed borrowing

Unguaranteed borrowing(Year)

Source:Note:

Prepared by the SME Agency based on Japan Finance Corporation (JFC), Survey on Financial Status of SMEs with
Guarantees.
This survey is directed at enterprises who use credit guarantees and classifies the respondents into enterprises who,
for new borrowings in the fourth quarter, use only unguaranteed borrowings, those who use both guaranteed andunguaranteed borrowings, and those who use only guaranteed borrowings. The survey then calculates the proportions ofenterprises in each category.

█ Trends in credit guarantee users with changed
conditions

Fig. 2-5-27 looks at SMEs who use credit guarantee
corporations and shows the number of enterprises withchanged conditions and the number enterprises withchanged conditions as a proportion of all the enterprises
who use credit guarantees. Looking at the figure, we
can see a rise in the number of enterprises with changed

conditions after the Lehman crisis, rising to 202,000 in
FY2012. But in recent years there has been a gradualdecline, with the number falling to 185,000 in FY2014.
Enterprises with changed conditions as a proportion of
credit guarantee users climbed similarly from 6.4% in
FY2007 to 13.3% in FY2012, but then remained more orless steady and stood at 13.1% in FY2014.

Fig. 2-5-27 Trends in enterprises with changed conditions among credit guarantee users(10,000 companies)

Businesses with changed conditions

Proportion with changed conditions

(%)

(FY)

Source:300

Materials formulated by the SME Agency.

Part II The earning power of SMEs

Finally, we examine the proportion of credit
guaranteed loans as a proportion of the loans given to
SMEs by region. Fig. 2-5-28 (1) shows credit guaranteedloans as a proportion of the lending to SMEs by regional
financial institutions. The proportion is high in the Tohoku
region, particularly in Akita and Yamagata prefectures. If
we also look at the fluctuations in the credit guarantee
balance between 2011 and 2015, we see that the balancefell significantly everywhere other than the Tohoku
region (Fig. 2-5-28 (2)). This, as we saw in Fig. 2-5-25,

is because even though there was a decreasing trend in
credit guarantee balances and rates of credit guaranteed
lending in Japan as a whole, measures such as the Great
East Japan Earthquake Recovery Emergency Guarantee
following the Great East Japan Earthquake had the effectof strengthening the need for borrowing backed by credit
guarantees in the Tohoku region especially. By contrast,
the rates of credit guaranteed lending decreased in the
Chugoku, Shikoku and Kyushu regions, with the generaltrend shifting from east to west.

Section 1█ Current status of credit guarantees by region

Fig. 2-5-28 Trends in credit guarantees by region(1) Proportion of credit guaranteed loans given to SMEs

Source:Notes:

6.

(2) Rates of variability in credit guarantee balances from 2011 to 2015

Prepared by the SME Agency based on data published by regional financial institutions and credit guarantee corporations.
1.	 Proportion of credit guaranteed loans = Credit guaranteed lending/lending to SMEs
2.	 Lending to SMEs is calculated as the average figure for FY2013 and FY2014, totaled for each prefecture based on the
figures published by the respective financial institutions. Note also that personal lending, such as housing loans, issubtracted from the lending to SMEs published by the financial institutions.
3.	 Credit guaranteed lending is calculated as the average balance at the financial institutions for each prefecture for
FY2014.
4.	 The trends in credit guarantees show the fluctuation rate for credit guarantee balances at credit guarantee corporations
from the end of March 2010 to the end of March 2015.

Trends in loan-deposit ratios and non-performing loan ratios at financial institutions

In the previous section, we focused on borrowings
by enterprises, but in this final section we will examine
the trends the financial institutions that are the principal
providers of funding.

█ Trends in loan-deposit ratios by business type

We begin by looking at the trends in the loan-deposit
ratio. Fig. 2-5-29 shows the trends in the loan-deposit
ratio10) according to the type of financial institution.

The trend in recent years has been for loan balances toincrease, but because deposits have increased even more,
the loan-deposit ratio has decreased markedly, withparticularly large declines in commercial banks, credit
unions and credit cooperatives. The ratio at regional banks
and second-tier regional banks has been steady in the last
few years, and while deposits at commercial banks, credit
unions and credit cooperatives have trended strongly, thetrend just recently is for gradual decrease.

10) “Loan-deposit ratio” indicates the ratio of lending balance over deposit balance. Financial institutions make profits by lending out deposits
they have collected, and when the loan-deposit ratio is lowered, a funding surplus is generated.

301

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-29 Trends in the loan-deposit ratio according to financial institution type(%)

Commercial banks

Regional banks

Second-tier regional banks

Credit unions

Credit cooperatives(Year)

Sources: Prepared by the SME Agency based on the Japanese Bankers Association, Deposit & Lending Bulletin for All Banks;
Shinkin Central Bank Regional SME Research Institute, Credit Union Statistical Report; National Central Society of Credit
Cooperatives, Main Accounts in All Japan Credit Cooperatives.
Notes:
1.	 The lending balance is the amount of the bank account lending balance at each of the financial institutions.
2.	 The deposit balance is the total of the bank account deposit balance + negotiable deposit balance + receivables
balance at each of the financial institutions.

█ Loan-deposit ratios by region

Next, we look at various indicators at financial
institutions in each region. Fig. 2-5-30 shows the changes
in the loan-deposit ratios at regional financial institutions

302

from FY2006 to FY2014 by prefecture. The changes
between FY2006 and FY2014 show that, with the
exception of some parts of Kyushu, loan-deposit ratios
fell overall.

Part II The earning power of SMEs

(FY2006)

Section 1

Fig. 2-5-30 Trends in loan-deposit ratios at regional financial institutions(FY2014)

80
75
70
65
60
55

Source:Notes:SME Agency data
1.	 Loan-deposit ratio = Lending balance at financial institutions / Total of deposits at financial institutions + negotiable
deposits + receivables
2.	 Totals shown are published figures for regional financial institutions (regional banks, second-tier regional banks, credit
unions and credit cooperatives).
3.	 Figures are compiled based on head offices. Figures for branches in other prefectures are also included in theprefecture where the head office is located.

█ Trends in non-performing loan ratios by business
type

Below, we look at the trends in non-performing loan
ratios11) (Fig. 2-5-31). In the period of financial systeminstability in the early 2000s, non-performing loan
ratios temporarily increase, but subsequently went intoa downward trend year on year. The financial situationfor enterprises temporarily worsened during economic
shocks such as the Lehman crisis, but even at those times
non-performing loan ratios at financial institutions did notincrease significantly, and the management of financial
institutions remained sound.

11) “Non-performing loan ratio” indicates the ratio of claims disclosed under the Financial Revitalization Law over the total credit exposure.
This ratio is used as an indicator of the health of financial institutions.

303

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-31 Trends in the non-performing loan ratio according to financial institution type(%)

Commercial banks

Regional banks

Second-tier regional banks

Credit unions

Credit cooperatives(FY)

Source:Prepared by the SME Agency based on data published by the FSA.

█ Trends in non-performing loan ratios by region

Next, we look at the trends in non-performing loan
ratios according to region (Fig. 2-5-32). As mentioned
above, non-performing loan ratios continued their304

downward trend even through events such as the Lehman
crisis, and when we look at the trends in non-performing
loan ratios in individual regions, we see very little
difference between the regions.

Part II The earning power of SMEs

(FY2006)(FY2014)

Section 1

Fig. 2-5-32 Trends in non-performing loan ratios at regional financial institutions(by prefecture)

10
9
8
7
6
5
4
3
2

Source:Notes:

Prepared by the SME Agency based on FSA, Key Management Indices for Small and Medium Regional Financial
Institutions.
1.	 Non-performing loan ratio = Total risk management loans at each financial institution/Total lending at each financial
institution
2.	 Totals shown are published figures for regional financial institutions (regional banks, second-tier regional banks, credit
unions and credit cooperatives).
3.	 Figures are compiled based on head offices. Figures for branches in other prefectures are also included in theprefecture where the head office is located.

Summary of Section 1
In this section, we have focused on borrowings byenterprises, analyzing their fluctuations and the underlying
causes. Large enterprises, while increasing theirinvestment in affiliated companies, including offshore
ventures, are currently increasing their borrowings
from financial institutions. However, we also saw thatinvestment by SMEs has been limited to the scope allowedby their internal reserves, and borrowings from financial
institutions continue to be relatively unchanged.
We compared enterprises of the same size and noted
that, while differences in profitability have resulted insome high-profit enterprises becoming entirely debt-free,
there are also significant numbers of low-profit enterprises
dealing with cash-flow difficulties who have had to takesteps such as renegotiating their borrowing conditions.

And in looking at the differences in profitability between
enterprises increasing their borrowings and thosedecreasing their borrowings, we also examined the risk
tolerance applied by financial institutions. This revealed
that risk tolerance has declined gradually since 1990, but
the recent upturn in economic conditions has resulted inrisk tolerance returning to a rising trend.
As the profit environment for enterprises improves,their investment needs also increase. In the face of thisappetite for investment, it is important that financial
institutions also pay attention to the growth of enterprises
and move positively to provide funding. In the next
section, we will analyze the situation around this supplyof growth investment funding from financial institutions
to SMEs.

305

Chapter 5 Financing to support growth in SMEs

Section 2
1.

The importance of funding growth in SMEs

Need for growth funding for SMEs and the funding sources█ Identifying the stages of enterprise growth andthe management issues

In this section, we will use the Survey of Fund Raising
by Small and Medium Enterprises12) to analyze the needfor a supply of funding that targets SME growth stages andrisks. The analysis will be in terms of the growth stagesfor SMEs and the status of borrowings from financial

institutions. Here, the four growth stages of enterprises
are the “startup stage”, “growth stage”, “maturation stage”
and “in decline” (Fig. 2-5-33). Enterprises face different
management issues at each of the respective growthstages and are likely to invest in a range of management
resources to address those issues.

Fig. 2-5-33 Schematic of the enterprise growth stages(Profitability)

Maturation stage

Growth stage
In decline

Startup stage(Years in business)

We will begin by looking at the management issues
faced by SMEs. Fig. 2-5-34 shows the management issues
accompanying the growth of SMEs, and it shows that
“Employee retention” (54.2%) and “Market development”(50.1%) both rank above the 50% mark, indicating thatmany enterprises have problems with increasing theirsales and holding on to staff. The “Capital investment”,“Business succession”, “Product/service development”
and “Financial position” responses all drew scores in the
mid-20% range, suggesting that some enterprises also faceissues to do with their growth stage and financial status.

12) Survey of 20,000 enterprises and 5,800 main financial institution branches conducted by the Mizuho Research Institute Ltd. in December
2015, commissioned by the SME Agency. The response rate was 23.5% for enterprises and 52.8% for financial institutions.

306

Part II The earning power of SMEs

Fig. 2-5-34 Management issues posed by growth
(%)

sio

n

ers

an

pli

xp

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Ov

ers

ea

se

fs
no
Re

ten

tio

ec
sr
es
sin
Bu

Sk

ills

de

on

ve

str

lop

uc

me

tio

n

nt

n
itio
os
lp
cia
an
Fin

od
u
de ct/sve ervlop ic
me e
nt

uc
ss
es
sin
Bu

Pr

ion
ce

tm
es
Ca

pit

al

inv

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ev
td
rke
Ma

ss

en

en
pm

nti
ete
er
ye
plo
Em

Note:

t

t

on

Section 2

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

In terms of the “Financial position”, which is closely
related to the topic of this chapter, Fig. 2-5-35 (1) showsthe enterprises who felt they had management issues
with their financial position according to their growthstage. The proportion of respondents reporting cashflow management issues tended to decline as enterprises
moved from the startup stage through the growth stage
and into the maturation stage of growth. Though it
increases in decline stage. If we also look at the averageordinary profit and debt ratios according to enterprisegrowth stage, average ordinary profit rates are in negative
territory (−2.37%) in the startup stage, but rise to 4.55%
in the growth stage before slowing slightly to 4.28% in thematuration stage. When enterprises enter the in decline

stage, ordinary profit drops markedly to 1.78% (Fig.
2-5-35 (2)). So this shows that enterprises are in the redin the startup stage and go into the black as operations
start to stabilize in the growth stage. Profit ratios thendecline slightly as growth slows in the maturation stage
and fall still further as enterprises go into decline. Debt
ratios, which are at 38.9% in the startup stage, decline asenterprises progress through the growth stages, fallingto 30.5% in the maturation stage before rising again to33.1% as enterprises go into the in decline stage, when
the debt burden is again growing. When we consider the
status of ordinary profit rates and levels of debt burden
relative to enterprise growth stages, we see the trends inthe awareness of SMEs of their “financial position”.

307Chapter 5 Financing to support growth in SMEs

Fig. 2-5-35 Average ordinary profit and debt ratios according to the growth stage ofenterprises who see their financial position as a management issue(1) Enterprises that see their financial position as a management issue according to growth stage(%)

Startup stage

Growth stage

Maturation stage

In decline(2) Average rates of ordinary profit and debt ratios according to enterprise growth stage
(%)

–
–

Source:Note:

Average rates of ordinary profit(left axis scale)(%)–
Startup stage

Growth stage

Maturation stage

In decline

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Totals are calculated for enterprises with ordinary profit rates and debt ratios that are both in the −100% to 100% range.

█ The necessity of growth funding to resolve
management issues and sources of that funding

Next, Fig. 2-5-36 shows the results of a survey ofwhether or not enterprises need to procure funding when
they are planning future investment to resolve these sorts
of management issues. The figure shows that over 60% of
enterprises who currently have loans replied “Necessary”

308

Average rates of debt ratios(right axis scale)or “Sometimes necessary”, indicating that they clearlyneed to procure funding to resolve their problems. On
the other hand, close to 80% of enterprises who do notcurrently have loans chose the “Not necessary” response,
showing that debt-free enterprises have little intention of
procuring funding from financial institutions for future
investment.

Part II The earning power of SMEs

Fig. 2-5-36 Intentions to procure funding from financial institutions to resolve growthrelated issues
Necessary

Sometimes necessary

Not necessary

Section 2

Enterprises withloans from financial
institutions

Enterprises withoutloans from financial
institutions

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

We now turn to the sources of funding that is procured
for investments aimed at resolving growth-related issues.
Fig. 2-5-37 shows sources of the funding needed toresolve growth-related issues according to the statusof borrowings from financial institutions. Over 80%of the enterprises who routinely borrow from financial
institutions responded that their funding source is “Loansfrom financial institutions”, followed by “Internal
reserves” and then “Personal funds of managers, etc.”.
However, the highest proportion of debt-free enterprisesthat do not have borrowings from financial institutions
responded “Internal reserves”, followed by “Personal
funds of managers, etc.” and then “Loans from parent

companies or subsidiaries”. This shows that enterprises
who already borrow from financial institutions actively
seek out funding from external sources, whereas debtfree enterprise prioritize internal sources when procuring
funding. Across all enterprises, hardly any selected the“Investment (additional funding)” response, showing that
SMEs have little need for direct financing and primarily
opt for indirect financing. Thus, SMEs that have difficulty
procuring funding directly from the market have astrong ongoing need to procure funding from financial
institutions, whereas debt-free enterprises rely heavily on
in-house funding such as internal reserves and have little
need for borrowings from financial institutions.

309

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-37 Sources of funding needed to resolve growth-related issues
Enterprises with loans

Note:

r
he
Ot

dd
fun ition
din al
g)

t (a
en
tm
es
Inv

Lo
othans f
er romtha sn ou
ins finan rces
titu cia
tio l
ns

yp
la
bo ced
nd
s
tel
iva
Pr

rom
ins finan
titu cia
tio l
ns
sf
an
Lo

an
s
co frommp
su pan arenbs ies t
idi
ari ores

Outward-looking

Lo

es
erv
res
al
ern
Int

Source:Pers
ma onalna funge ds
rs, ofetc.

Inward-looking(%)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Understanding of the management issues ofenterprises

Finally, we will look from the perspective of enterprises
at the extent to which financial institutions actually
understand the management issues faced by enterprises.
No more than 10% of the responding enterprises repliedthat financial institutions “Fully understand” their
management issues (Fig. 2-5-38). If we also include the“Understand somewhat” responses, then 50−60% of
enterprises felt that financial institutions understand their
management issues. The proportions of “Understandvery little” and “Do not understand” responses were highamong enterprises in the startup stage and enterprises
in decline. These differences in the understanding ofmanagement issues according to enterprise growth stage

310

Debt-free enterprises

probably arise out of the level of day-to-day interactions
between enterprises and financial institutions and thenature of the information they exchange. Fig. 2-5-39
shows the frequency of enterprises’ face-to-face meetings
with the main banks according to the growth stage of
those enterprises. It shows that the frequency of meetings
with financial institutions increases until enterprises
reach the maturation stage and then declines once theenterprises enter the in decline phase. We can surmisethat this weakening of the relationship between an
enterprise and its financial institution is linked to thelowered understanding by the financial institution of theenterprise’s management issues. Below, we move on toan analysis that focuses on the points of contact between
enterprises and financial institutions.

Part II The earning power of SMEs

Fig. 2-5-38 Financial institutions’ understanding of the management issues of enterprises
Fully understand

Understand somewhat

Understand very little

Do not understandDo not discuss company issues
with financial institutions

Other

Section 2

Startup stage

Growth stage

Maturation stage

In decline

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

Fig. 2-5-39 Frequency of meetings with main banks according to growth stage
At least twice a month

Once a month

Once every three months

Once every six months

Once a year

Hardly everStartup stage

Growth stage

Maturation stage

In decline

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Figures were totaled only for enterprises with borrowings from financial institutions.

311

Chapter 5 Financing to support growth in SMEs

2.

Relationships between SMEs and financial institutions█ Everyday contacts between SMEs and financial
institutions

Below, we look in more detail at the everyday
contacts between financial institutions and SMEs. Firstly,
Fig. 2-5-40 shows the types of main bank according to thevolume of enterprise sales. The most popular choice ofmain bank among responding enterprises was “Regionalbanks, second-tier regional banks”, with little change inthe proportion of the responses regardless of the enterprisesales volumes. We can also see that, while the proportionof enterprises selecting “Commercial banks” as their mainbank increases as sales volumes rise, the proportion who
select “Credit unions, credit cooperatives” grows smaller.

Fig. 2-5-40 Main bank types according to sales volume
Commercial banks
Credit unions, credit cooperatives

Regional banks, second-tier regional banks
Governmental financial institutions
Other¥100 million
or less(n=808)Over ¥100 million
to ¥500 million(n=908)Over ¥500 million
to ¥1 billion(n=454)
Over ¥1 billion
to ¥5 billion(n=899)Over ¥5 billion(n=508)Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

Next, we look at how well acquainted enterprises
are with main bank management staff for the different
types of bank (Fig. 2-5-41). The enterprises with thehighest proportion who responded “Acquainted up to
branch manager level” are those with “Regional banks,
second-tier regional banks” as their main bank, followed
by enterprises with credit unions or credit cooperatives
as their main bank and then enterprises with commercial
banks as their main bank. However, roughly half ofthe enterprises who nominated governmental financial
institutions as their main bank responded that they had
never met the branch manager, with 24.2% responding“Only acquainted with person in charge”, which is the312highest proportion compared with other bank types. If wealso look at the frequency of face-to-face meetings at mainbanks, the frequency is lowest for “Commercial banks”,
with “Regional banks, second-tier regional banks” being
more frequent and “Credit unions, credit cooperatives”
the most frequent (Fig. 2-5-42). Also, the proportionof enterprises who have meetings with governmental
financial institutions once a month or more is below
40%, whereas that proportion for the other bank types
is 50−70% of enterprises, showing that governmental
financial institutions clearly have relatively infrequent
personal meetings with enterprises.

Part II The earning power of SMEs

Fig. 2-5-41 Face-to-face meetings with main bank management staff by bank type
Acquainted up to branch manager level

Acquainted up to assistant/deputy branch manager
or section manager level

Only acquainted with person in charge

Hardly acquainted at all

Section 2

Commercial banks(n=666)

Regional banks,
second-tierregional banks(n=1,431)

Credit unions,credit cooperatives(n=559)Governmental
financial institutions(n=99)

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Figures were totaled only for enterprises with borrowings from financial institutions.

Fig. 2-5-42 Frequency of face-to-face meetings with main banks according to bank type
At least twice a month

Once a month

Once every three months

Once every six months

Once a year

Hardly everCommercial banks(n=663)

Regional banks,
second-tier regionalbanks(n=1,433)

Credit unions,credit cooperatives(n=556)

Governmental
financial institutions(n=98)

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Figures were totaled only for enterprises with borrowings from financial institutions.

These differences in meeting frequencies among thedifferent bank types are most likely the result of factors
such as differences in the number of clients assigned per
public liaison officer and the different number of branches

depending on the type of financial institution type. The
reasons for this may well be that credit unions and credit
cooperatives deal with more small enterprises thancommercial banks and regional or second-tier regional

313

Chapter 5 Financing to support growth in SMEs

banks, and each branch covers a smaller area. Fig. 2-5-43
shows the number of branches according to financial
institution type. In terms of the numbers of financial
institutions, the credit unions are the most numerous with
267, but in terms of the number of domestic branches andemployees, regional banks top the list with 7,491 branches
and 130,818 employees. When we look at the number ofclients and the financing balance per individual publicliaison officer in the area of lending to SMEs, the trend
is for client numbers to be higher but financing balances

to be smaller at smaller financial institutions. However,the numbers of clients and the financing balances are bothmarkedly higher at governmental financial institutions.
This is most likely due to the fact that, whereas a lot of
the work at private financial institutions is in areas otherthan financing, such as handling deposits and dealing withinvestment trusts and insurance products, governmental
financial institutions specialize in the financing business,so financing work makes up a large proportion of theirbusiness.

Fig. 2-5-43 Number of branches according to financial institution type(1) Numbers of financial institutions, branches in Japan and employees according to financial institution typeNo. of financial institutions

No. of branches in Japan

Commercial banks

5

2,732

No. of employees
93,416

Regional banks

64

7,491

130,818

Second-tier regional banks

41

3,057

44,889Credit unions

267

7,398

109,258

Credit cooperatives

154

1,709

20,120Governmental financial institutions

2

252

11,339(2) Loan balance and no. of clients per public liaison officer
No. of clients (companies)

Loan balance (¥100 million)

Commercial banks

42.2

43.0

Regional banks

47.0

32.6

Second-tier regional banks

55.3

25.9

Credit unions

62.6

19.9

Credit cooperatives

66.1

14.4

Governmental financial institutions

100.6

122.6

Sources: Prepared by the SME Agency based on data published by the Japanese Bankers Association, the Shinkin Central Bank
Regional SME Research Institute, the National Central Society of Credit Cooperatives, and the Mizuho Research InstituteLtd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissioned by the SME Agency.
Notes:
1.	 The totals for the number of financial institutions, number of branches in Japan and number of employees were
calculated as at the end of March, 2015.
2.	 The numbers per public liaison officer are calculated from a survey of branches included in the Survey of Fund Raising
by Small and Medium Enterprises targeting financial institutions.
3.	 In the case of governmental financial institutions, total values were calculated for the Japan Finance Corporation and
the Shoko Chukin Bank, whose clients are predominantly SMEs.

█ State of information exchange between SMEs
and financial institutions

Next, we will look at the nature of the informationthat is exchanged during face-to-face meetings between
SMEs and financial institutions, taking the perspectivesof the enterprises and the financial institutions separately.
We begin by analyzing the information received byenterprises from financial institutions (Fig. 2-5-44 (1)).
Many enterprises responded “Information on financial
affairs/products” or “Local situation”, and when we break
the responses down by growth stage, enterprises in thegrowth stage or maturation stage generally received more
items of information than enterprises in the other growthstages.

314

Fig. 2-5-44 (2) shows the results from the perspectiveof financial institutions talking about the information
they provided to SMEs. Overall, the results are similar
to the responses from enterprises, with many financial
institutions choosing the “Information on financial affairs/
products” or “Local situation” responses. But over 40%
of financial institutions also responded “Solutions tomanagement issues” or “Industry trends”, which is one
point where their responses differ from those of SMEs.
When we look at the results by financial institution
type, there are also some major differences. Manyregional banks, second-tier regional banks, credit unions
and credit cooperatives responded “Local situation”,
whereas a high proportion of commercial banks andPart II The earning power of SMEs

“Management issues”, with few enterprises explicitly
airing their management issues with financial institutions(Fig. 2-5-45 (1)).
Then, if we look at the results from the perspectiveof financial institutions, the highest proportion offinancial institutions selected the “Funding requirements”
response, followed by “Status of finances/income andexpenditure” and then “Trends in competing banks”(Fig. 2-5-45 (2)). The “Funding requirements” and“Trends in competing banks” responses diverge fromthose selected by the enterprises, and this is probably
because financial institutions would naturally identify thefinancing needs of enterprises during their conversations,whereas the enterprises themselves might not be awarethat they were providing any information. When we lookat the results by financial institution type, almost 100% of
governmental financial institutions responded “Status offinances/income and expenditure”. And the proportion ofcommercial banks and governmental financial institutions
who checked “Management issues” is higher than forother types of financial institution.

Section 2

governmental financial institutions opted for “Situationelsewhere in Japan/financial situation”. The “Internationalsituation” response was also exceptionally popular withcommercial banks. Also, whereas commercial banks,regional banks, second-tier regional banks, credit unions
and credit cooperatives all rate highly for the “Industry
trends” response, only governmental financial institutions
are outstandingly high for “Information on government
policy”. So from this we can conclude that because
different types of financial institution cover different
regions and types of business, they tend to specialize inthe types of information they provide to clients. For thisreason, when enterprises are gathering information fromfinancial institutions, it is probably most effective for themto obtain that information from a financial institution thatspecializes in that area.
Next, we move on to an analysis of the information thatenterprises provide to financial institutions. Looking firstly
from the perspective of enterprises, the highest proportionof enterprises responded “Status of finances/income andexpenditure”, followed by “Future business outlook”.
Less than 30% of enterprises provide information about315Chapter 5 Financing to support growth in SMEs

Fig. 2-5-44 Information gathered by enterprises from financial institutions(1) Information gathered by enterprises from financial institutions

orm
go atiove
rnm n onpo entlicy

In decline

Inf

ga
Le

Ind

Maturation stageSma oluti
na onsge
m to
iss entuesWmo aysret
wit sm o dea
h f oot l
ins inan hly
titu cia
tio l
ns
Inf
fin ormancia ationlao
pro ffair n
du s/
cts

try

tre

nd

s

Growth stage

us

ern
a
sit tiona
ua
tio l
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Int

Sit
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ap lsean/fin whersitu ancia eatio l
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Lo

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ls

itu

ati

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Startup stagelor
inf taxa
orm tio
ati n
on

(%)

(2) Information financial institutions provide to enterprises

Note:

316

orm
go atiove
rnm n onpo entlicy

Governmental financial
institutions

Inf

Credit unions, credit
cooperativesS
ma oluti
na onsge
m to
iss entuesWmo aysret
wit sm o dea
oohl
ins finan thly
titu cia
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Inf
fin ormancia ationlao
pro ffair n
du s/
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lo
r
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orm tio
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ga
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s
nd
tre
us
try

ern
a
sit tiona
ua
tio l
n
Int

Sit
ua
in J tion e
ap lsean/fin whersitu ancia eatio l
n

on
ati
itu
ls
ca
Lo

Source:Regional banks, second-tierregional banks

Ind

Commercial banks(%)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Fig. 2-5-45 Information provided to financial institutions by enterprises(1) From enterprises’ viewpoint
(%)

SMEs

Section 2

Status of finances/income andexpenditure

Future businessoutlook

Industry trends

Trends incompeting banks

Fundingrequirements

Management
issues(2) From financial institutions’ viewpoint
Commercial banks

Regional banks, second-tier regional banks

Credit unions, credit cooperatives

Governmental financial institutions(%)

Status of finances/income andexpenditure

Source:Notes:

Future businessoutlook

Industry trends

Trends incompeting banks

Fundingrequirements

Management
issuesMizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Data from the perspective of financial institutions was totaled based on the “Always check” responses for the
information that financial institutions check when meeting with enterprises.
2.	 Total does not always equal 100% as multiple responses were possible.

█ Programs by financial institutions that promoterisk preparedness in enterprises

So we have seen that financial institutions, throughtheir day-to-day interactions with SMEs, understand theparticular characteristics of those enterprises. The factthat financial institutions deal with many enterprises gives
them the ability to make comparisons between enterprises
and identify their strengths and weaknesses. So one

317

Chapter 5 Financing to support growth in SMEs

would expect that financial institutions would make fulluse of their consulting functions to promote solutions
that address the weaknesses and other issues that they
have pinpointed. In this section, we look at programsby financial institutions that will support enterprises
in developing measures to handle risks, which is one
way in which those financial institutions can use theirconsulting functions to address weaknesses in enterprises(Fig. 2-5-46).
If we look at the trends for financial institutions
generally, many financial institutions promote measures
aimed at business succession and market development,such as “Securing new sales destinations” and “Retentionof staff for business succession”, which are raised as
management issues by enterprises themselves.
Looking at the trends by financial institution type, ahigh proportion of credit unions, credit cooperatives andgovernmental financial institutions opted for “Cooperation
with outside specialists/agencies”, suggesting anapproach that actively promotes cooperation with third318

parties in situations where enterprises cannot resolve their
management issues themselves.
A high proportion of commercial banks nominated“Hedging against exchange rate and interest fluctuations”,
which may well be because commercial banks can offer
financial derivative products that present specific solutions
for the risks posed by the exchange rate and interest rate
fluctuations triggered by changes in the economic or
financial environment.
Many regional banks, second-tier regional banks
and commercial banks chose “Utilization of insurance”,
which is probably because regional banks and commercial
banks, through their large networks of branches andextensive employee base, can work with businesses
such as insurance companies within their own corporategrouping to offer a wide range of proposals.
To summarize, we see that the different financial
institution types are using their particular characteristics
to promote measures to deal with risks in sectors where
they have specialist capabilities.

Part II The earning power of SMEs

Fig. 2-5-46 Programs by financial institutions that promote risk preparedness inenterprises
Commercial banks(n=121)

Regional banks,
second-tierregional banks(n=1,226)

Credit unions,credit cooperatives(n=1,540)

Governmental
financial
institutions(n=55)

Earthquake-proofing and fire-prevention
measures at factories and branches, etc.

11.3

9.9

17.1

5.8

38.2

Distribution of operations
at factories and branches, etc.

5.3

9.9

8.8

1.9

14.5

Layout reviews inside factories, etc.

7.2

3.3

7.7

6.9

12.7

Reviews of distribution routes

8.5

16.5

9.8

6.9

7.3

Enhancement of
product quality management systems

16.0

14.9

19.5

13.2

20.0

Security enhancements for in-house systems

8.4

14.0

12.2

4.7

16.4

Enhancement of
in-house management systems

32.5

55.4

38.2

25.5

50.9

Review of business procedures

10.8

9.1

13.0

9.4

7.3

Employee multi-skilling

10.1

9.1

9.8

10.2

16.4

Employee awareness-raising

25.3

13.2

20.1

30.7

18.2

Normalization of
the employee age composition

10.2

5.0

9.1

11.3

16.4

Utilization of employeeswith specialist knowledge

7.7

5.0

9.4

6.6

7.3

Retention of staff for business succession

61.8

66.1

66.5

57.5

72.7

Cooperation with outside specialists/agencies

49.7

33.9

48.5

51.6

60.0

Securing new sales destinations

67.1

62.0

70.2

65.1

61.8

Diversification of supply lines

20.7

24.0

25.5

16.6

18.2

Wider distribution of sales destinations

43.8

33.1

45.1

43.9

36.4

Normalization of business terms

28.5

18.2

30.1

27.7

36.4

Hedging against
exchange rate and interest fluctuations

19.1

50.4

33.9

3.8

40.0

Utilization of insurance

30.9

45.5

56.1

10.2

20.0

Enhancement of
in-house accounts management systems

39.7

31.4

44.2

35.9

63.6

Drafting of medium-term management plans

46.9

45.5

49.1

43.6

96.4

Source:Notes:

Section 2

Total(n=2,946)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1. Items that scored 50% or higher are shaded in red and items that scored 10% or below are shaded in blue.
2.	 Total does not always equal 100% as multiple responses were possible.

█ Problems with strengthening relationships
between enterprises and financial institutions

Finally, we will look at the problems that hamper thestrengthening of relationships between enterprises andfinancial institutions. Fig. 2-5-47 shows the factors thatenterprises see as necessary for deepening the relationships
between enterprises and financial institutions. The“Orderly handover of company information during

turnover of responsible staff” and “Acquisition of inhouse industry knowledge by responsible staff” responses
were both popular choices. This suggests that they feel
that, by carefully passing along the information on
enterprises that has been built up during their everyday
dealings within the institution, and by more thoroughlyfamiliarizing the responsible staff with the industry inwhich each enterprise operates, financial institutions

319

Chapter 5 Financing to support growth in SMEs

can provide them with more in-depth information on
topics such as enterprise trends and the future outlook.
The “Increase/expansion of time/opportunities to meetwith responsible staff” response tends to become lesspopular as enterprises progress through the growth stages,

indicating that enterprises in the startup stage and growthstage want more opportunities for meetings between theircompanies and financial institutions so as to enhance
the financial institutions’ familiarity with their business
operations.

Fig. 2-5-47 What SMEs feel is needed to deepen their relationships with financial
institutions(%)

SMEs (n=3,626)

Orderly handoverof company
information during
turnover of
responsible staff

Source:Note:320

Acquisitionof in-houseindustryknowledge by
responsible staff

Increase/
Increased
Acquisition by
expansion ofopportunities
responsible staff
time/opportunities
to meet withof knowledge ofto meet withsuperiors, not just company products
responsible staff
responsible staff
and services

Improvedawareness of
SME business

Other

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Case

2-5-1

Eltes Co., Ltd. (Minato City, Tokyo)

Eltes Co., Ltd. (employees: 70; capital: ¥504.89 million), based in Minato City, Tokyo, is an internet risk
management consultancy. Specifically, the company provides services that focus on detecting “social risks”—
flurries of negative comments of a critical or malicious sort on the internet (described in Japanese as enjō,or “inflammatory”)—and suggesting strategies for dealing with those risks that become apparent in “bigdata” such as that from social network services13). It also provides services for detecting internal fraud whose
purpose is to prevent data security incidents arising from internal factors.
When the company moved to its current Minato City headquarters in 2013, it began doing business with
Mizuho Bank’s Shinbashi-Chuo Branch. It also reworked the terms on financing previously received fromother financial institutions to more favorable conditions. Eltes was operating in the red when it inaugurated
its relationship with Mizuho, but by carefully explaining its business model the company was able to get
across to the bank its situation and prospects.
In explaining that business model, Eltes set up any number of scenes to generate comprehension of its
president’s ideas. Through them, it carefully laid out the course it plans to pursue as a company in termsof what it would be making and how it would recover its debts. It also used the approach of creating
explanatory documents that made it easy to see how the deficit the company had reckoned was a transientcondition. These were appended to the circular distributed within the bank, and if read would again convey
the company’s situation and approach. By taking the defensive step of explaining how the company has adisposition to operate and going on the offense with having the president explain its business, Eltes got its
business model across to its partners.
When it comes to doing business with financial institutions, Eltes President Takahiro Sugawara, says, “youcommonly hear the criticism that 'banks won’t lend SMEs money.' However, it seems to me that in quite afew instances the problem might well be with how the SMEs present themselves. The important thing is
to put your explanation into the language of the banks. You just don’t get things across if you simply talkabout what you’re thinking.” Sugawara’s point, then, is that a business enterprises/companies, too, needs toimprove their approach when a financial institution doesn’t understand the nature of its business.
This approach of a company giving a thorough explanation of itself also demonstrates effects when it
comes to business matching through its bank. In the case of Eltes, the company understood that since thecompany’s business is a service not visible to the eye, so it is not possible for a bank by itself to understandabout Eltes. For that reason, it had the bank participate in strategy sessions to get an even deeper
understanding of the company. There, Eltes shared details about the orders it had successfully fulfilled,
the way it deals with customers, and sales techniquesthat had been worked for it, as well as information
about the industries and business categories it was
targeting. Doing this made it easier for the bank tosearch out matches for the company and increased
the frequency with which introductions to potential
clients led to actual negotiations.
As this example illustrates, it is crucial for acompany to carefully explain its own business as anundertaking of its own in order to deepen relations
with its financial institutions. The company can
expect such an undertaking to result in the financial
institutions understanding them better. Furthermore,this will lead to getting more finely tuned businesssupport from those institutions, and help improve its
capacity to earn profits.

Section 2

An enterprise that has forged friendly relationships with financial
institutions by carefully explaining the details of its businessEltes President Sugawara delivering a talk at a forum

13) For example, Facebook, Twitter, Instagram, and other similar networks for sharing information among members.

321

Chapter 5 Financing to support growth in SMEs

3.

Necessity of feasibility assessments█ Items to consider when making financial
decisions

Below, we look in more detail at financial institutions’lending activities with respect to SMEs. Fig. 2-5-48
shows the items that financial institutions consider whenlending to SMEs and the items other than security or
guarantees that SMEs want to be considered when theyreceive financing from financial institutions. SMEs andfinancial institutions had matching responses for their top
two choices, with both selecting “Financial details” and“Business stability and growth”. The subsequent choices

for SMEs were “Repayment performance and businesspractices” and “Sales capability and relationships withexisting customers”, whereas for financial institutions
the responses were “Management and people skills ofrepresentatives” and “Assets in reserve of the company
and management”. From this, we see that while SMEs
prioritize business practice between themselves andtheir customers and financial institutions, for financial
institutions the emphasis is on the resources of managers,
showing that SMEs and financial institutions have quite
different viewpoints.

Fig. 2-5-48 Items other than security or guarantees that financial institutions consider
and items other than security or guarantees that SMEs want to be considered
Items enterprises want tobe taken into account(n=2,230)

Items financial institutions
take into account(n=3,010)
Business stability and growth
Financial details
Repayment performanceand business practices
Sales capability and relationships
with existing customers
Management and people
skills of representatives
Technical ability, development skills
and other intellectual property
Existence of a management
plan and its details
Recognition in the community
Assets in reserve of thecompany and management
Existence of successors
for representatives(%)

Source:Notes:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 For the above items, enterprises provided multiple responses and financial institutions ranked their top five choices.
2.	 Total does not always equal 100% as multiple responses were possible.

█ State of financing method use and preferred
future use

Next, we look at the financing methods currently
used by SMEs. Fig. 2-5-49 shows the financing methods
currently being used by SMEs and the financing methods
they would prefer to use for future borrowings. The figure
shows that the most frequently used method at present is

322

(%)

“Financing methods using guarantees by representatives,etc.”, followed by “Credit guaranteed by credit guarantee
corporations” and then “Financing with real estate as
security”. Popular choices as preferred financing methods
for future borrowings were “Credit guaranteed by credit
guarantee corporations” and “Financing not guaranteed
or secured using feasibility assessments” (“Financing

Part II The earning power of SMEs

based on feasibility assessments”). From this, we see thatthe need for guaranteed financing from credit guarantee
corporations is deeply rooted, but that the need forfinancing based on feasibility assessments is growing
when compared with its current level of use.

Notes:

Int
elle
ctu
al p
rop
ert
yfina base
nc d
ing

g
cin
an
fin
ed
as
t-b
se
As

an
c
ac ingco by
unts liquid
rec ateiv ing
ab
le

Fin

int

fin
an
oth cing
erw
ba ithnks

Future desired financing methods(n=1,651 – 2,202)

Jo

Fin
an
cin
gn
o
fea
sib or se t gua
ility cu ran
as red teesessm usin d
en g
ts

F
us inanrep ing g cingres uar meen ant tho
tat ee ds
ive s b
s,
etc y
.
Cr
ed
it g
cre uara
dit nteco guar ed b
rpo an y
rat teeionsSource:Finaes ncintat g
e a wits s h reec
uri alty

Current financing methods used
(n=1,763 – 2,470)(%)

Section 2

Fig. 2-5-49 Financing methods currently used by SMEs and preferred financing methods
for future borrowings

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Figures were totaled only for enterprises with borrowings from financial institutions.
2.	 Total does not always equal 100% as multiple responses were possible.

Next, Fig. 2-5-50 shows the financing methods
currently prioritized by financial institutions and thosethey would like to prioritize in future. This shows that thehighest priority is currently given to “Credit guaranteedby credit guarantee corporations” followed by “Financing
not guaranteed or secured using feasibility assessments”
and then “Financing with real estate as security”. The
most popular choice for financing method to be prioritizedin the future is “Financing not guaranteed or secured

using feasibility assessments”, followed by “Financing byliquidating accounts receivable” and then “Asset-based
financing”.
This shows that, while financial institutions currently
use credit guarantee corporations, they are putting more
effort into financing based on feasibility assessments
and intend to give feasibility assessment-based financing
greater priority in the future. In this respect, their policies
are coming into line with the future needs of SMEs.

323

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-50 Financing methods currently prioritized by financial institutions and financing
methods to be prioritized in future
Financing methods currently prioritized

Financing methods to be prioritized in future

Source:Notes:

Int
elle
ctu
al p
rop
ert
yfina base
nc d
ing

g
cin
an
fin
ed
as
t-b
se
As

an
c
ac ingco by
unts liquid
rec ateiv ing
ab
le

Fin

fin
an
oth cing
erw
ba ithnksintMizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Data is totaled for the top five responses chosen.
2.	 Total does not always equal 100% as multiple responses were possible.

So, while SMEs tend to prefer their business viability
to be assessed on the basis of factors other than security
or guarantees when receiving financing, such as thegrowth of the business or sales capability, financial
institutions tend to prioritize company or management
assets in reserve as the basis for making credit decisions.
This reveals a mismatch in the perceptions of enterprises
and financial institutions. However, in the case of futurefinancing methods, enterprises have high expectations forfinancing based on feasibility assessments, while financial
institutions themselves intend to promote financing
grounded in feasibility assessments. So it seems likelythat in the future, enterprises and financial institutions
will bring their respective perceptions into line and willboth progress the adoption of feasibility assessment-based
financing.

█ Financial institutions’ reasons for refusing tofinance enterprises’ investment plans

Fig. 2-5-51 shows situations where enterprises haveconsulted with financial institutions on investment
plans designed to resolve their management issues, and

324

Jo

Fin
an
cin
gn
o
fea
sib or se t gua
ility cu ran
as red teesessm usin d
en g
ts

Fin
a
es ncintat g
e a wits s h reec
uri alty

F
us inanrep ing g cingres uar meen ant tho
tat ee ds
ive s b
s,
etc y
.
Cr
ed
it g
cre uara
dit nteco guar ed b
rpo an y
rat teeions(%)

the financial institutions refused to finance the plan. Of
all the enterprises surveyed, 15.8% responded that they
had had financing refused by a financial institution.
Looking at the reasons for the refusals, 56.7% responded“Company’s poor income and expenditure situation” and42.3% chose “Too many existing loans”, indicating thatmany enterprises were refused support for reasons to dowith existing business issues. The results also show that
relatively few enterprises were refused funding for reasons
to do with new business, with 12.3% responding “Noprospects of new business profits” and 3.1% opting for“No business expertise and plans are unachievable”. Thisshows that when financial institutions screen and decideon financing for new investments by an enterprise, theyplace more emphasis on the financial status and income/expenditure situation of the enterprise than they do on
the content of the new business investment plan. Thismeans that, even when enterprises have investment plansfounded on excellent ideas, they find it difficult to obtainfinancing from financial institutions if their financial
status and income/expenditure situations are poor.

Part II The earning power of SMEs

Fig. 2-5-51 Experiences of refusal by financial institutions of investment plans to resolve
management issues

Experienced

Not experienced(2) Reason the financial institution refused financing(n=383)

Section 2(1) Experiences of financing denied byfinancial institutions when planninginvestment aimed at resolving
management issues

Company’s poor income
and expenditure situation
Too many existing loans
Insufficient funds on hand
No security
No prospects of
new business profits
No business expertise andplans are unachievable(n=2,458)

Other

(%)

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

325

Chapter 5 Financing to support growth in SMEs

Case

2-5-2

Hatagoya & Company (Taito City, Tokyo)

An enterprise that procures capital without personal guarantees from its
president by being forthcoming with information releases
Hatagoya & Company (employees: 150; capital: ¥100 million), based in Taito City, Tokyo, manages and operates the
52-branch Family Lodge Hatagoya mini-hotel chain. These are overnight-stay hotels patterned after U.S.-style motels andassume their guests are largely people coming by car. Hatagoya’s hotels cut down on value-added features as much as
possible, and other than lodgings provide no services like restaurants or leisure facilities. As a consequence, there usually
are only two full-time staffers on site and they handle everything from front desk duties to cleaning the rooms. The
hotels’ guests support the chain’s no-frills service policy, and as much as 60 percent are repeat customers.
The company employs the “leased direct management” approach for the majority of its hotels, wherein they get theowner of the land to shoulder building construction costs and then leases it from them for 20 years. At the time Hatagoya
was founded, the odds of finding a landowner who would agree to this approach were minimal owing to the company’s
lack of a track record or evidence of credit worthiness. In 1995, it built its first hotel with its own financing, but no bankwould take it on as a business customer. Around this time, the company learned about the Green Sheet Brand system14).
After putting its house in order as required, in December 1999 it registered as a Green Sheet Brand and successfully
obtained around ¥100 million in financing through a public stock offering. Furthermore, in 2000 it received funds throughthe New Growth Business Development Special Finance System from Japan Finance Corporation for Small and Medium
Enterprises (currently, Japan Finance Corporation), which led to it building relationships with financial institutions. What’smore, Hatagoya’s sales were solid, it continued to pay its debts without a hitch, and its registration as a Green Sheet brandfurther improved its creditworthiness. As a result, in December 2000 it finally received its first proper loan.
The first hotel the company opened using the leased direct management approach was its Numata branch. The natureof the financing required was different from that with the two other approaches used previously, direct management on
owned property and direct management on rented property. With the two previous approaches, the company owned
the building and (in the former) the land. Both regardless required considerable finances, but with the leased direct
management approach the facilities investment is rather small. The operating capital required for carrying over throughthe quiet winter months became the main burden.
Thereafter, Hatagoya continued to expand its operations as it gradually opened new hotels, and starting from roughly 2009
it became able to solicit financing from the financial institutions with which it did business without the joint guarantee of
top executive personally (hereafter, “personal guarantee”). However, the responses from financial institutions did not change
regardless of its repeated proposals. Then, in October 2011 the winds shifted when Hatagoya received a merit award fromthe Tokyo Chamber of Commerce and Industry in its “Bravery in Management Prize”15) competition. The company’s businesshad earned recognition from a third party, and financial institutions that had not done business with it previously now came
knocking at its door. Some of these new institutions responded to the company’s proposals for financing without the president’s
personal guarantee. Hatagoya entered business relationships not dependent on the president’s personal guarantee with four
new financial institutions as a result, but three institutions that the company had already been doing business with for many
years still refused to provide loans without such a guarantee. Hatagoya President Makoto Kai comments, “I understand that
financial institutions that had not done business with us previously would be cautious when they undertook new loans, but
the fact that banks we had been doing business with for a long time were adamant about refusing to give us loans without
the personal guarantee.” In Kai’s view, debt guarantees dependent on a company's top executive personally can inhibit acompany’s volition to develop in a healthy way. Financial institutions by virtue of having done business with an enterprise formany years understand its business quite well, and wonder about taking the risk of doing business without that guarantee.
The three banks that Hatagoya initially had done business with ended the relationship for a time, but in 2015 they resumed
their ties without the personal guarantee. With this, Kai built the relationship with those institutions that he had imagined.
Building such relationships not based on personal guarantees arosefrom the company being actively forthcoming with information andtestimonials from third parties that combined to enhance the company’s
creditworthiness. In addition to those items that Hatagoya was legallycompelled to disclose as registered Green Sheet brand company, it alsoof its own volition made public information about the availability ratios
and profit-loss statuses for each of its hotels. It also made it possible
for certified public tax accountants and audit corporations to confirm
the company’s financial situation whenever they wanted. Hatagoya
expects to use this highly transparent approach to business and great
credit worthiness as fodder for obtaining further growth financing toachieve its goal of expanding of its network to cover the country by
Hatagoya’s Tsuyama branch, opened in September 2015
developing potential customers and opening new hotels.
14) The Green Sheet Brand system was established in July 1997 by the Japan Securities Dealers Association so brokerages could buy and sellshares in non-listed companies fairly and smoothly. The objective of this system is to facilitate procuring capital for non-listed companies
and securing a venue for investors to redeem their funds. As such, it operates with a status different from that of stock exchange markets
operating based on the Financial Instruments and Exchange Act. The system will be phased out on March 31, 2018.
15) The “Bravery in Management Prize” is awarded by the Tokyo Chamber of Commerce and Industry to small and medium enterprises orgroups that boldly take on challenges in difficult business environments. It recognizes SMEs that come up with unique products and services
using innovative or creative technologies, techniques, ideas, or business approaches. The system rewards decisions to make major changes
in management irrespective of past practices, and such actions as “taking on major risks,” “overcoming significant barriers,” “trying to break
the bounds of conventional wisdom,” and “pursuit of higher ideals.”

326Part II The earning power of SMEs

Column 2-5-1 Trends in management guarantees in financial institution
dealings

Fig. Column 2-5-1 (1)Section 2

In this section, we have been discussing the need for financing that does not rely unduly on
security and/or guarantees, but is based on assessments of the feasibility of enterprises by financial
institutions. But here, we will look at the trends in the use of management guarantees for borrowings
from financial institutions. (1) of Fig. Column 2-5-1 (1) shows the proportions of enterprises who
provide management guarantees according to enterprise sales volumes. Over 80% of enterprises
with sales of ¥2 billion or less provide management guarantees, but as the sales volumes increase,the proportion of enterprises offering management guarantees declines, until the level finally
drops below 50% among enterprises with sales in excess of ¥10 billion.
Next, if we look at future borrowing intentions, we see that, across all sales volumes, less than 50%
of enterprises want to borrow funds where a management guarantee is provided. As sales volumes
increase, the proportion of enterprises who do not want borrowings with management guarantees
provided also increases, climbing to 70% or higher for enterprises with sales of ¥3 billion or more,indicating quite negative intentions towards management guarantees (Fig. Column 2-5-1 (1)).
Trends in management guarantees by sales volume(1) Current status of loans that use management guarantees
Currently receiving loans

No current loans, but have received loans in the past

Have never received a loan

¥500 million or lessOver ¥500 million to ¥1 billion
Over ¥1 billion to ¥2 billion
Over ¥2 billion to ¥3 billion
Over ¥3 billion to ¥5 billion
Over ¥5 billion to ¥10 billion
Over ¥10 billion(2) Future intentions regarding loans that use management guarantees
Wish to

Do not wish to¥500 million or lessOver ¥500 million to ¥1 billion
Over ¥1 billion to ¥2 billion
Over ¥2 billion to ¥3 billion
Over ¥3 billion to ¥5 billion
Over ¥5 billion to ¥10 billion
Over ¥10 billion

Source:Notes:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015),
commissioned by the SME Agency.
1.	 Figures were totaled only for enterprises with borrowings from financial institutions.
2.	 Figures were totaled for SMEs as defined in the Small and Medium-sized Enterprise Basic Act and also forlarge enterprises.

Thus, there is considerable divergence between the intentions of enterprises and their actualuse of management guarantees for borrowings. Such management guarantees have the effect ofenhancing credit and imposing discipline on management, which can facilitate the procurement offunding. However, it can also act as an impediment to developments such as particularly dramatic
business expansion by management and faster business revitalization. With this situation in mind,
the Guidelines for Personal Guarantees Provided by Business Owners were formulated and cameinto effect as of 1 February 2014.

327

Chapter 5 Financing to support growth in SMEs

The "Guidelines for Personal Guarantees Provided by Business Owners” stipulate the following
with regard to management guarantees:(1) In situations where the relationships between corporations and individuals are clearly segregated,consideration should be given to not requesting management guarantees.
(2) Even where a sizable personal guarantee is provided, when it has been decided to shut down
the business or implement early business revitalization, consideration should be given in thebankruptcy proceedings to measures such as providing ¥990,000 in free assets, an amountequivalent to set living expenses and the ability to continue living in a “modest” home.
(3) Any debt balance that cannot be repaid when the guarantee obligation is discharged should in
principle be forgiven.
These and other measures are designed to eliminate the abuse of management guarantees andto stimulate activity by enterprises.
In future, it is expected that these guidelines will be widely adopted and retained as part offinancing practices.

328

Part II The earning power of SMEs

█ Programs to improve lending decision-making
capacity and their effects

Section 2

So as to progress financing based on feasibility
assessments, as anticipated by SMEs, financial
institutions must increase their capacity to make good
lending decisions. Fig. 2-5-52 shows a range of measures
aimed at improving the capacity of financial institutions
to make lending decisions when offering finance to
SMEs. Virtually every type of financial institution
chose “Training in financial data analysis”. A fairly highproportion are also engaged in “Training in understanding
management”, but the proportions for credit unions andcredit cooperatives are relatively low when comparedwith commercial banks and regional banks. Measures forthe “Establishment of department to collect and analyze

information” on industry and technology trends are
better implemented the larger the financial institution,
whereas the smaller the financial institution, the betterthe implementation of “Cooperation with outside industry
or technical specialists or agencies”. This is presumably
because the larger the financial institution, the more likely
it is to establish a specialist department, whereas thesmaller the financial institution, the more effort it puts into
improving its lending decision-making capacity throughcooperation with outside specialists and agencies. Among
credit unions and credit cooperatives, which are limitedby their structures, cooperation with external bodies islikely to be important, but the level of cooperation incredit cooperatives is lower than in regional banks or
credit unions.

Fig. 2-5-52 Measures to increase capacity for making decisions on lending
Commercial banks(n=125)

Regional banks, second-tierregional banks(n=1,248)

Credit unions(n=1,270)

Credit cooperatives(n=307)

Governmental financial
institutions(n=56)(%)

Training in
financial data
analysis

Source:Note:

Training inunderstanding
management

Training incustomernegotiations

Establishment of
department tocollect and analyze
information on
industry trends

Establishmentof department tocollect and analyze
information ontechnology trends

Cooperation withoutside industry
or technicalspecialists oragencies

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-5-53 shows the external industry andtechnical specialists and agencies with which financial
establishments cooperate. The cooperation partners
differ depending on the type of financial institution.
Commercial banks cooperate actively with private sectorbusinesses such as consulting firms and marketing firms,
while credit unions cooperate actively with public-sector
agencies such as industry support agencies and industry
promotion agencies, as well as the Organization for Small& Medium Enterprises and Regional Innovation, Japan(SMRJ). Regional banks, second-tier regional banks andgovernmental financial institutions vary somewhat in theoptions they chose, but generally cooperate with bothprivate sector businesses and public-sector agencies.
To summarize, commercial banks, regional banks,
second-tier regional banks, and governmental financial
institutions all actively cooperate with other companies.
When we look at their cooperation partners, regionalbanks, second-tier regional banks and governmental
financial institutions actively cooperate with bothprivate sector businesses and public-sector agencies, butcommercial banks actively cooperate with private sectorbusinesses in particular.

329

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-53 Outside industry and technical cooperation partners helping to improve
decision-making capacity
Commercial banks(n=15 – 25)(%)

Consulting/Marketing firms

Source:Notes:

Regional banks, second-tierregional banks(n=414 – 484)

Industry
support/promotion
agencies

Organization for
Small & Medium
Enterprises andRegionalInnovation, Japan

University
researchlaboratories

Credit cooperatives(n=61 – 76)

Inclusiveindustry
research
facilities

Governmental financial
institutions(n=13 – 23)

Government’s
New Energy
public experimental and Industrial
and researchTechnology
institutes
Development
Organization (NEDO)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Totals were calculated for cooperation partners for financial institutions who responded “Cooperation with outsideindustry or technical specialists or agencies” in Fig. 2-5-52.
2.	 Total does not always equal 100% as multiple responses were possible.

Next, Fig. 2-5-54 shows the effects of these measures.
The “Helped to boost loans to past clients”, “Helpedin acquiring new clients” and “Helped increase ourshare of past clients” responses were all ranked high,indicating that, by improving the assessment abilities

330

Credit unions(n=394 – 463)

of the responsible officers, relationships between staff
and existing customers were strengthened. It also seems
likely that the measures assisted in increasing the amountof financing provided to enterprises and that the improved
skills helped in the acquisition of new clients.

Part II The earning power of SMEs

Fig. 2-5-54 Effects of measures to increase capacity for making decisions on lending(%)

Commercial banks(n=122)

Regional banks, second-tierregional banks(n=1,245)

Credit unions(n=1,260)

Credit cooperatives(n=304)Governmental financial
institutions(n=55)

Note:

di
na
ne cquiwclie ringnts
No
sp
dis but ecift
fro ing ena ic emf
co uish bled fects
mp ou us ,eti rse tonglba ves
nk
s
No
no
tic
ea
ble
eff
ec
ts

lpe
He

loa Hens lpeto d topa
st booclie stnts
Hesh lpedare inof creapa
st se oclie urnts
se He
rvi lpeloa ces o d exns the pansa (incr r tha dvin ea n
gs se
,e d
tc.
)
Im
pro
ve
d
of thepa ratstclie ings
nts
He
pro lpedfit
ma norm
rgi alin o zen l the
oa
ns
Eff
ec
no tivenp
erf in m
orm inim
ing izinloa gns

Section 2

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-5-55 shows the measures aimed at increasing
the capacity of financial institutions to make lending
decisions and the effects of those measures, lookedat according to the status of initiatives to provide
financing based on feasibility assessments. This looks
at the measures designed to increase the capacity offinancial institutions to make lending decisions and theeffects of those measures, based on whether or not thefinancial institutions currently prioritize “Financing notguaranteed or secured using feasibility assessments” inFig. 2-5-50. If we start by examining the details of themeasures, there is very little difference for the “Training
in financial data analysis” response. But for the otheritems, the proportions are higher for financial institutions
that currently prioritize feasibility assessments, with aparticularly marked difference for the “Cooperation withoutside industry or technical specialists or agencies”
response, showing that cooperation with outside agencies
often plays a part in promoting financing that is basedon feasibility assessments. When we look at the effectsof these measures, financial institutions that currently
prioritize feasibility assessments report that most items arevery effective. When compared with financial institutions
that do not currently prioritize feasibility assessments,
there are many items where the respective proportions offinancial institutions experiencing effects differ by morethan 10%.
These results indicate that, in order to prioritize
financing based on feasibility assessments, not only
training in financial data analysis but also other measures,
including setting up departments to collect and analyze
information on technology and industry trends and,
where necessary, cooperating with outside industry or
technical specialists and agencies, are effective in helping
to generate outcomes such as expanded dealings withpast clients and the cultivation of new business partners.
So the feasibility assessment-based financing that SMEs
want could also be something that financial institutions
actually find desirable.

331

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-55 Measures aimed at increasing lending decision-making capacity andtheir effects according to the status of initiatives for providing feasibility
assessment-based financing(1) Measures to increase capacity for making decisions on lendingCo oo
tec utsid pera
hn e i tion
ica ndl s ust withor pecia ry orag
en lists
cie
s

tab
li
lle depa shmect
an rtme nt o
tec info d a nt f
hn rm nal toolo atio yze
gyntre on
nd
s

Es

co

Es
tab
li
lle depa shmect
an rtme nt oindf
nind form anal t to
us atio yze
tryntre onndsFinancial institutions that do not currently
prioritize feasibility assessments (n=1,181)

coin
ne custgo om
tia
tio er
ns

ng
Tra

ini

ng
da in finta
an ancia
aly l
sis

ini
Tra

un Tradin
ma ersta ing
na nd in
ge ingment

Financial institutions that currently prioritize
feasibility assessments (n=1,809)(%)(2) Effects of measures to increase capacity for making decisions on lending

Source:
Note:

332

di
na
ne cquiwclie ring
nts
lpe
He

se

No
sp
dis but ecif
fro ting ena ic emf
co uish bled fects
mp ou us ,eti rse tonglba ves
nk
s
No
no
tic
ea
ble
eff
ec
ts

Financial institutions that do not currently
prioritize feasibility assessments (n=1,171)H
rvi elpeloa ces o d exns the pansa (incr r tha dvin ea n
gs se
,e d
tc.
Im
)
pro
ve
dt
h
of
pa e ratstclie ings
nts
He
pro lpedfit
ma norm
rgi alin o zen l the
oa
ns
Eff
ec
no tivenp
erf in m
orm inim
ing izinloa gns

Financial institutions that currently prioritize
feasibility assessments (n=1,800)

loa Hens lpeto d topa
st booclie stnts
Hesh lpedare inof creapa
st se oclie urnts(%)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Case

2-5-3

Morita Komuten Co., Ltd. (Tanba City, Hyogo Prefecture)

Morita Komuten Co., Ltd. (employees: 22; capital: ¥80 million), based in Tanba City, Hyogo Prefecture,
is a contractor that handles mostly private projects that have included building commercial and geriatriccare facilities and doing seismic reinforcement work. The company once mainly focused on getting orders
for public projects, but shifted to its policy of targeting private projects since around 2000 when President
Kogaki took over. The drop in public investment lay behind this move. Competing enterprises sought todiversify their own businesses by focusing on general home construction, but Morita Komuten devoted
its energies to getting orders for in the area of non-housing work where it was strong. What specifically
happened was the veteran of major general contractor joined Morita. The company used his network todevelop relationships that enabled it to get a steady stream of orders from a major home improvement
center to build new branches. Today, Morita pursues business opportunities across wider area, gettingorders everywhere from Shizuoka to Kumamoto.
Morita has become able to get orders from major clients like this because its average costs and shortproject times satisfy its customers. When it comes to its relationship with the home improvement center clientin particular, Morita is also trusted by the architect’s office that designs the stores. Excessive administrative
costs are kept down because that office does not need to frequently check what is happening at the projectsites, and as a result a deeply trusting relationship has arisen among the three enterprises.
While Morita was highly trusted by its private business partners for its considerable technical prowess,there was a time when the once-steady business relationship it had with its main bank worsened. Morita
had gotten the bank to provide working capital for short-term operations that would be generated byreimbursements, but when large amounts of payments went uncollected Morita switched the portion ofthat financing meant for construction over to working capital for long-term operations. While the company
subsequently made steady progress on paying that long-term operations financing, it was no longer able toget the bank to provide the short-term operations financing it once had. This had an effect on Morita’s cash
flow. It was under these circumstances that Morita applied for short-term operations financing from theHyogo Prefecture Credit Cooperative (“Hyogo Credit”), an institution with which it had long done business.
The cooperative provided the funds. Morita thereafter continued to do this business with the cooperative,
and the relationship grew stronger.
In 2014, Hyogo Credit provided Morita with an introduction to the Hyogo SME Technological andManagerial Capability Evaluation Program. Morita used the program to get a report evaluating its
capabilities in those two areas. The report contained an easy-to-understand description of Morita’s business,
and also included an objective description of the company’s strengths and weaknesses.
Based on this report, Morita was able to get a sense of where it fit into its industry. It also got anunderstanding of the issues it faced such as training successors and client selection. The company thentook steps to addresses the highlighted issues, dealing with successor training by making adjustments to its
staffing practices and its organizational structure and with client selection by maintaining the amount oforders it sought to get while putting emphasis on getting ones with higher rates of return. All in all, Morita
worked hard to improve its profit margin.
Furthermore, starting in fiscal 2013 Hyogo Credit had made Morita a recipient for business support ona priority basis because Morita had improved its results and had an excellent approach to doing business.
However, in evaluating Morita’s business feasibility Hyogo Credit determined that its viability was of sort
peculiar to the construction business. The cooperative therefore suggested the Evaluation Program toMorita so it would have the objective assessment of specialists as a reference. The report that resulted
confirmed that—through its pursuit of a business that called for technical capabilities, process control skills,
and management abilities—Morita had the basic competencies required to a high degree as well as an
excellent balance among them, giving it competitive superiority. The improved understanding of Morita’sbusiness feasibility that resulted also played a factor in Hyogo Credit’s August 2014 decision to consolidate
new financing to the company with existing loans including those from other financial institutions and give
Morita a major boost toward improving its financing overall. Also, in February 2015 Morita took advantage
of Hyogo Credit’s “Technology Assessment Support Loan” program to procure new working capital. Suchsupport led the cooperative to replace the financial institution that had once been Morita’s main bank, andthey have built an excellent relationship with Hyogo Credit now taking on that main bank role.

Section 2

An enterprise that used the Hyogo SME Technological and Managerial
Capability Evaluation Program to broaden the scope of capital it procures333

Chapter 5 Financing to support growth in SMEs

Looking back on the relationships his company has had with its main banks, President Kogaki says,“Before, whenever I went to visit the director of our bank I would be questioned for Morita’s decision to
get orders from clients in other prefectures. I had had a relationship with that bank that predated Morita’sfounding and I had thought they understood us, but perhaps there was a basic difference in our thinking
about how we handled our business.” Kogaki further pointed out that there was a big difference in theinformation Morita was able to get from its financial institutions. “We got a variety of information from
Hyogo Credit, such as how to use public financing and evaluation programs. I think the disparity in terms of
the levels of information provided is explained by the fact Hyogo Credit and our old main bank have very
different standards and attitudes in terms of how they look at the world.”
For Morita, getting an assessment of its business provided the opportunity to expand the scale offinancing it procured. In addition, it has used the advice it has gotten from Hyogo Credit in its effort toimprove operations by, for example, drafting a management improvement plan and bringing in specialists
provided by the Small and Medium Enterprise Management Consultant Association.
For the enterprise here, the Hyogo SME Technological and Managerial Capability Evaluation Program
had the merit of enabling it to be objective to understand its strengths and weaknesses and work on
improving its management. For the financial institution, it allowed it to better understand the enterprise’s
viability. The program seems to have had the effect of deepening mutual understanding between the two.
One may anticipate that the demand for such mechanisms for outside parties to evaluate businesses will risefurther from both enterprises and financial institutions.

e

ImagSample of technological and managerial capability evaluation report334

Part II The earning power of SMEs

Case

2-5-4

Kure Credit Union (Kure City, Hiroshima Prefecture)

Kure Credit Union, based in Kure City, Hiroshima Prefecture, is a financial institution that proactively works
together with local government to assertively move forward with providing financing to SMEs based on evaluationsof their business feasibility.
The metropolis that serves as Kure Credit’s operational base had developed as a coastal industrial city. It prospered
as a center for manufacturing industries, bringing together business in fields related to shipbuilding, steelmaking,and automobiles. However, local SMEs there today face a difficult environment owing to shrinking and aging of the
population and the emptying out of the city’s core business districts. Many of the local manufacturing SMEs previously
operated by filling requests from major manufacturers. A considerable number also possessed hidden technologies
and expertise, and wanted to shed their reliance on subcontracting in their quest to find new avenues for growth.
Under these conditions, Kure Credit thought it might be possible to provide the support and appropriate loans
to companies that would lead to growth by digging into and evaluating the strengths in such areas as technologicalprowess and know-how of the SMEs with which it did business. Toward that end, it took the lead in approaching
Hiroshima Prefecture about implementing an SME Technological and Managerial Capacity Evaluation Program
like the first one ever introduced in Japan by Hyogo Prefecture.
Kure Credit was prompted to make this approach by an exchange of information it undertook in fiscal 2012 with the
Hyogo Prefecture-based Tanyo Shinkin Bank. In the meeting, that credit union introduced Kure Credit to both Hyogo’s
evaluation program and the concept of intellectual asset-based management. Officials from the Hiroshima Prefecture
Bureau of Industry and Labor with which Kure Credit has long had a relationship also attended the meeting. They got
to hear directly from people who had used the program and developed a concrete image of how it operated. The
prefectural officials also came away from the meeting with a favorable attitude toward creating such a program locally,
resulting in fiscal 2013 in the establishment of the Hiroshima Prefecture SME Technological and Managerial Capacity
Evaluation Program. The Hiroshima Industrial Promotion Organization (HIPO), a public interest foundation, was tasked
with operating the program. Kure Credit loaned staff to HIPO and they actively contributed to setting up the program.
The Hiroshima evaluation program was designed with reference to the one Hyogo had set up. The basic
mechanisms are the same. Specialists are dispatched to a company, they conduct an evaluation that includes
qualitative aspects, and they issue an assessment. However, some aspects of the Hiroshima program are different,
including the share of support provided for the costs incurred in using the program and the fact that HIPO staff
will also attend interviews conducted at a given company.
In conjunction with the program’s founding, Kure Credit developed its own financial product, the SME
Technological and Managerial Evaluation Loan (“Kure-shin Core Competence”). It provides this financing support
for companies when they use the evaluation program. The system had been used 126 times from its start-up in2013 to the end of February 2016 among all financial institutions in the prefecture, with Kure Credit accounting
for around 20 percent of that figure.
Indispensable to proactive use of the evaluation system is Kure Credit’s main and branch offices working together
when it comes to providing assistance. The Corporate Business Support Group at the credit union takes the initiative—
with staff from the main office also sitting in—when it comes to introducing the program to enterprises for which
they believe using the program will be beneficial. Kure Credit takes a meticulous approach to those enterprises that
do apply to the program, working to ensure the process is a smooth one by dispatching staff from the main office tohelp write the application and reduce the burden on whichever office is the company’s main contact. Furthermore,
staff from both the main office and the local office involved will go to the company to attend interviews conductedby the external evaluation organization for its assessments. Credit union staff will also offer feedback after theassessment has been issued. In collaboration with HIPO, Kure Credit will also dispatch professionals and take anothersteps to help address any issues that have been brought to light in the assessment. Behind Kure Credit’s drive topromote the evaluation program is the credit union’s belief that the program’s purpose is not to encourage companies
to take out loans but rather that it serves to help its business partners to grow and solve the problems they face.
In Kure Credit’s eyes, promoting the program is connected to improving companies’ powers of discernment. The
credit union had already made it a practice to visit companies personally when vetting them. Having specialists goalong raises awareness in the sense of realizing matters can be seen in another way and broadens the perspective.
Circular memos, too, serve toward digging deeper at the nature of a company’s business.
SMEs, meanwhile, have few opportunities to get evaluated by third parties; the program therefore has the
merit of letting them get an objective third-party evaluation at low cost. Such assessments allow the company toget sense of strengths and weakness it may not have known it had. The assessments can be used in the future as
resources for making decisions when drafting management strategies (action plans, etc.), and as a public relations
tool for dealing with financial institutions and business partners. Furthermore, use of the evaluation program
has created connections with public institutions in the form, for example of getting ongoing advice from theHiroshima Yorozu Support Center and the Hiroshima Institute of Invention and Innovation.

Section 2

A credit union that collaborates with the Hiroshima Industrial Promotion
Organization to proactively provide financing based on businessfeasibility evaluations

335

Chapter 5 Financing to support growth in SMEs

Higashi-Hiroshima City-based Corporation Pearlstar Inc. (employees: 7; capital: ¥10 million) was the first enterprise
to make use of both the evaluation program and the Kure-shin Core Competence loan program. The specialist
examiners took note of the manufacturing technology and know-how Pearlstar has accumulated over the years, aswell as how it made the most of a widespread network that includes universities and hospitals, and rated its technology
highly. The fact that Pearlstar used the program was also publicized in the media, raising the profile of the company’s
technological prowess among business partners and financial institutions and helping to build firm relationships oftrust. Furthermore, use of the program also helped the company to form connections with public institutions, such asgetting ongoing advice from coordinators at the Higashi-Hiroshima Society of Commerce and Industry.
Thus, for Kure Credit, getting actively involved in designing this program by proactively approaching local government
has strengthened the systems it has for evaluating the business feasibility of an enterprise. The SMEs that have used havealso bolstered their trust-based relationships with financial institutions thanks to the publicity about their technologicaland management prowess. The efforts of this credit union are expected to be mirrored around the country.

4.

Fund-raising environment for debt-free enterprises█ Characteristics of debt-free enterprises

As we saw in Section 1, the proportion of debt-freeenterprises is increasing and given that trend, it is likelythat the differences in profitability among SMEs will
widen. Here, we look in more detail at the characteristics
of debt-free enterprises. We begin by looking at thedifference in profitability between debt-free enterprises
and enterprises who have borrowings from financial
institutions. Fig. 2-5-56 shows the trends in the ordinary
profit rates of SMEs according to their status as regards
borrowings. The figure confirms that, at almost any timein the past 30 years, debt-free enterprises have had higher
ordinary profit rates than enterprises with borrowings. It
also allows us to examine how high the ordinary profit
rates of debt-free enterprises are. However, when we
look at the difference in the ordinary profit rates of debtfree enterprises and enterprise with borrowings, it has
been steadily decreasing despite repeated rises and falls
through the latter half of the 1980s. It fluctuated around
2% in the 1990s and since the 2000s has trended aroundthe 1% mark, clearly showing a trend for the difference todecline in the medium- and long-term.

Fig. 2-5-56 Trends in SME ordinary profit rates according to borrowings status(%)

Enterprises with loans

Debt-free enterprises

Difference(Year/quarter)

Source:Notes:

MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.
1.	 SMEs are defined in accordance with the definitions in the Small and Medium-sized Enterprise Basic Act.
2.	 Borrowings here refers to the total amount for corporate bonds and long-term and short-term financial institution loans.
3.	 Ordinary profit rates are seasonally-adjusted using backward moving averages for the 4 quarters.
4.	 The shaded sections of the graph indicate periods of economic recession based on the business cycle reference dates
from the Cabinet Office.
5.	 Values for recurring profit margin that exceeded 100% or were less than -100% were treated as erroneous and excluded.

Fig. 2-5-57 compares the fluctuations in ordinary profit
rates over a 5-year period for debt-free enterprises andenterprises with loans from financial institutions. It showsthat the trend for debt-free enterprise has fewer peaks thanthat of enterprises with loans, but that the variations arelarger in degree. It also shows that enterprises with loans
generally make up a higher proportion of the enterprises

336with an average ordinary profit rate that is 2.5% or less,whereas debt-free enterprises generally comprise a higher
proportion of enterprises with rates above 2.5%. Thisshows that debt-free enterprises overall have higher ratesof ordinary profit and higher profitability than enterprises
with borrowings from financial institutions.

Part II The earning power of SMEs

Fig. 2-5-57 Fluctuations in ordinary profit rates according to status of borrowings fromfinancial institutions
Enterprises with loans(Concentration: %)10

8

Debt-free enterprises

Section 2

9

Mean value
for enterprises
with loans
1.90%
Mean value
for enterprises
without loans
2.92%

7
6
5
4
3
2
1
-9.
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5o
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-7 r mo les tha 5
or
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5 o e to ess -7.
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r-5
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tha 0o
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9.5 mor e to than 8or e to less 8.5motlre ess hant9toles han 9
st
ha .5
n1
0

0

(Ordinary profit rate: %)Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Panel data was compiled for a 5-year period from 2010 to 2014 and the average ordinary profit rates calculated forthat period.
2.	 Here, debt-free enterprises refer to enterprises that have had no borrowings from financial institutions for the past five
years.

Fig. 2-5-58 shows the proportion of debt-freeenterprises according to the number of years since they
were established. We can see that more than 50% of allenterprises established 20 years ago or less are debt-free,
but as they age, that proportion declines. This is likely tobe due to the fact that financial institutions, when offering
financing to SMEs, place a lot of emphasis on the stabilityof the enterprise, as we saw in Fig. 2-5-48. This resultsin the emergence of financial relationships between
enterprises and financial institutions as the enterprises
become stable.

Next, we look at the reasons why debt-free enterprises
do not borrow from financial institutions. Fig. 2-5-59
shows the reasons why debt-free enterprises do not need toborrow from financial institutions. The highest proportionof enterprises (69.7%) responded “No need to borrowfunds”, followed by “Parent or affiliated companies’
intention” (23.4%). This suggests that, for debt-freeenterprises, the intentions of their parent company oraffiliated companies mean that there are enterprises within
the group that are procuring funding, and given their highlevels of profitability, many enterprises can meet the costs
of investment funding with their internal reserves.

337

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-58 Proportion of debt-free enterprises according to years since establishment(%)

10 years or less

Source:11−20 years

21−30 years

31−40 years

41−50 years

51 years or more

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.

Fig. 2-5-59 Reasons why debt-free enterprises do not borrow from financial institutions(%)

No need toborrow funds

Source:Note:

Parent or affiliatedcompanies’ intention

Able to borrowat better terms
than loans fromfinancial institutions

Daily dealings
with financial
institutions are
too much trouble

Other

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Next, Fig. 2-5-60 looks at average ordinary profit rates
according to the number of years since establishment andthe status of borrowings from financial institutions. If westart by comparing debt-free enterprises and enterprises

338

Procedures forborrowing fromfinancial institutions
are too complicatedwith borrowings generally, debt-free enterprises generally
tend to have higher average rates of ordinary profit, andas the enterprises age, that difference grows larger. If wethen look at enterprises with borrowings from financial

Part II The earning power of SMEs

institutions and take the enterprises with debt ratios in thehighest 25% and the lowest 25%, enterprises with highdebt ratios have a heavier debt burden and low profits. But
if we look at the enterprises with a light debt burden andlow debt ratios, they generally have a higher average rate ofordinary profit than debt-free enterprises. So presumably
by borrowing from financial institutions in order to makeinvestments, they achieve better profitability than debtfree enterprises.

(%)

Debt-free enterprises

10 years or lessAll enterprises with loans

11−20 years

21−30 years

Enterprises with loans(bottom 25% by debt ratio)

31−40 years

Enterprises with loans(top 25% by debt ratio)

41−50 years

Section 2

Fig. 2-5-60 Rates of ordinary profit according to years since establishment and status ofborrowings from financial institutions

51 years or more(Years since establishment)

Source:Notes:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
1.	 The average rate of ordinary profit is calculated as the average for enterprises with ordinary profit rates from -100% toless than 100%.
2.	 Debt ratios in the lowest and highest 25% refers to the respective totals for enterprises with borrowings from financial
institutions where their debt ratio (financial institution loans as a proportion of total assets) is in the bottom 25% andhighest 25%. Enterprises in the bottom 25% can be said to have low debt ratios and a relatively light debt burden, andenterprises in the top 25% can be said to have high debt ratios and a relatively heavy debt burden.

█ Necessity for investment by debt-free enterprises

Next, we look at trends in capital investment.
Fig. 2-5-61 looks at investment ratio proportions
according to the number of years since establishment andthe status of borrowings from financial institutions. If wecompare debt-free enterprises with enterprises that haveborrowings from financial institutions, we see that debtfree enterprises generally have lower rates of investment.
Also, investment rates trend downwards as the number ofyears since establishment rises, and capital investment as aproportion of total investment also declines as enterprises
age. This is probably because younger enterprises invest
in new growth, but as enterprises age and management
becomes more stable in the process, they tend not to makeany more large investments.
While this indicates that excessive dependence
on borrowings curtails profitability, a certain amountof borrowing that is invested in growth results inenterprises that achieve higher profitability than evendebt-free enterprises. Because debt-free enterprise havehigh profitability on average, they are expected to havelittle interest in taking on new investments that involverisk. However, to increase profitability in the face ofa contracting market due to an aging and shrinking
population, it is important that enterprises invest actively
and they should be giving serious consideration to
procuring funding from financial institutions when theneed arises.

339

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-61 Investment ratio proportions according to years since establishment andstatus of borrowings from financial institutions
Debt-free enterprises(%)

10 years or less11−20 years

21−30 years

All enterprises with loans

31−40 years

41−50 years

51 years or more(Years since establishment)

Source:Note:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
Here, investment rate refers to the amount of capital investment as a proportion of total assets (total tangible and intangible
fixed assets).

We now examine who supports debt-free enterprisesin this sort of growth investment. If we begin with theconsultation and research partners that SMEs seekout with the aim of investing in growth, most often
it is “Certified public tax accountants, accountants,etc.”, followed by “Financial institutions” (Fig. 2-5-62).
Next, we look at the frequency of meetings with mainbanks according to whether or not the enterprises haveborrowings from financial institutions. The proportion ofenterprises who responded “At least twice a month” or“Once a month” was a total of 63.8% among enterprises
with borrowings and 24.5% among debt-free enterprises

340(Fig. 2-5-63). In other words, while the main consultation
partners for growth investment by SMEs were certified
public tax accountants, certified public accountants andfinancial institutions, the tenuous nature of relationships
with financial institutions among debt-free enterprises
suggests that they rely particularly heavily on certified
public tax accountants and certified public accountants
as consultation partners. So we can anticipate that, fordebt-free enterprises, certified public tax accountant andcertified public accountants will play a significant role insupporting growth.

Part II The earning power of SMEs

Fig. 2-5-62 Consultation and research partners when engaging in risk-taking behavior

Notes:

de
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ee
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ac x ac tified
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Section 2

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Refer to Part II, Chapter 2 for details of the survey.

Fig. 2-5-63 Frequency of meetings with main banks according to status of borrowings
from financial institutions
At least twice a month

Once a month

Once every three months

Once every six months

Once a year

Hardly everDebt-free enterprises

Enterprises with loans

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

341

Chapter 5 Financing to support growth in SMEs

Case

2-5-5

Futaba Tsushinsha Co., Ltd.

A debt-free enterprise that with assistance from financial institutions isinvesting in growth through business diversification
Futaba Tsushinsha Co., Ltd. (employees: 67; capital: ¥30 million), based in Chuo City, Tokyo, has been
diversifying its business due to a corporate split-up and making investments aimed at growth. The company
is an advertising agency targeting magazines with a particular strength in women’s magazines. Founded in
1948, the agency has a long history and is extremely well-known its area of expertise, combining personnel
and know-how as its particular technologies. The company has operated since its founding on a debt-freeenterprise—one that does not take out loans—by pursuing business that makes the most of its strengths.
The turning point for Futaba came as a result of the recessionary phase that ensued from the Lehman
crisis, with the company recording its first deficit since its founding. Some of Futaba’s peer enterprises evenwent out of business, and the company sensed the need to think about the nature of its businesses to copewith a changing environment. First, it thought about diversification as a way of putting its owned assets togood use and got into the real estate rental business. It also launched a new franchise-style café business.
As Futaba was in the process of diversifying its operations, it split its core businesses up into two companies.
Futaba Tsushinsha Co., Ltd. would operate as an advertising agency, while Futaba Holdings Co., Ltd., would
handle the real estate rental and restaurant businesses.
The company had been pushing forward on its diversification program while also having its eyes set
on splitting itself in two. However, at this juncture it got advice from Tokyo Small and Medium Business
Investment and Consultation Co., Ltd. (SBIC). The SBIC, which has expertise in financial policy, had also madean investment in Futaba when it began its diversification process. The investment also had positive effects,
but for Futaba the most beneficial thing was having the chance to consult with SBIC about the issues arisingfrom diversification and future strategies.
Futaba had begun looking into talking with SBIC in May 2013 about the split-up. SBIC worked up a scheme
proposal for Futaba and moved forward on studying the possibility with the potential tax advantages inmind. That August, Futaba also brought in a certified public accountant and a certified welfare consultant
from a consultancy that SBIC had introduced the company to, and with them established a committee
to study a split-up with the president, corporate auditor, and principal administrative officers as the core
members. The committee met 12 times at a rate of once a month and came up with a final company split-up
scheme. Thanks to this scrupulous follow-up on the part of SBIC the split-up was accomplished without ahitch. Both Futaba companies have been operating well as initially imagined, and both income and profits
have risen for five years in a row.
Futaba Tsushinsha President Hiroshi Ohkawa gave SBIC’s consulting abilities high marks. “When you’re
working things out with a bank, people from every
section of the bank join in on the meeting. This means
talks require a lot of effort and time. In contrast, withSBIC I can get advice about everything including
legal, financial, and taxation matters pretty muchfrom just one person. That is very satisfying,” hesays. Meanwhile, he also holds out the expectationthat financial institutions will change how they deal
with their business customers. “Banks have peoplerich in experience, too,” he says. “These people mightneed to push themselves forward so they can handle
various consultations with businesspeople.”Thus, it would appear that the kinds of support thatdebt-free enterprises seek for their investments is not
only loans and funds for operational use but also theability to provide consultations that a businessperson
One of the shops from the company’s new café businesscan rely on.

342

Part II The earning power of SMEs

5.

Fund-raising environment for enterprises with changed loan conditions█ Details of the condition changes

First, we look at the accepted details arising from thechanged conditions (Fig. 2-5-64). The commonest change(37.9%) is “Capital payment deferral”, followed by“Extension of repayment period by more than 1 year” andthen “Extension of repayment period by 1 year or less”.
In total, 54.7% of enterprises responded that they had
extended their repayment period, showing that the bulkof the condition changes amounted only to a temporary
easing of the repayment terms.

Section 2

In Section 1, we discussed the rise in enterprises
with changed loan conditions who had renegotiated theconditions of their borrowings from financial institutions,
together with the fact that those enterprises withchanged loan conditions were repeatedly changing thoseconditions. Here, we analyze the fund-raising situation for
those enterprises with changed loan conditions based on
the Survey of Finance Fact-finding After Expiration of the
SME Finance Facilitation Act16).

Fig. 2-5-64 Details of condition changes accepted by financial institutions
Capital payment deferral
Extension of repayment
period by more than 1 year
Extension of repayment
period by 1 year or lessInterest rate reduction
Capital debt reduction
Debt equity swaps fromfinancial institutions
Capital subordinated loans
from financial institutions(debt debt swaps)
Other

(%)

Source:Notes:

Research Institute of Economy, Trade and Industry (RIETI), Survey of Finance Fact-finding After Expiration of the SME
Finance Facilitation Act.
1.	 Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.
2.	 Total does not always equal 100% as multiple responses were possible.

Fig. 2-5-65 shows the loan balance rankings of thefinancial institutions who first accepted the conditionchanges. The highest proportion of enterprises (85.5%)
responded “First financial institution for loan balance”.
While one assumes that the first financial institution for theloan balance would almost invariably be the enterprise’s

main bank, the main bank’s decision on whether to accept
the condition changes would also be likely to influenceother banks’ stance on supporting the enterprise, which
could also be why it is the main bank that first accepts theenterprise’s condition changes.

16) Survey of 20,000 enterprises conducted by Tokyo Shoko Research, Ltd. in December 2014, commissioned by the Research Institute of
Economy, Trade and Industry (RIETI). The response rate was 30.0%.

343Chapter 5 Financing to support growth in SMEs

Fig. 2-5-65 Loan balance rankings of financial institutions who first accepted conditionchanges

First financial institution forloan balance
Second financial institution forloan balance
Third and subsequent financial
institutions for loan balance(%)

Source:Note:

RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.

Next, we look at the attitudes adopted by financial
institutions after accepting the changed conditions(Fig. 2-5-66). Most enterprises (61.8%) responded“Sympathetic and provided support”, showing that
financial institutions responded sympathetically to morethan half of the enterprises. However, 24.8% responded“Did not offer to lend new funding” and 24.3% chose“Demanded us to formulate and implement a strict
management reform plan”, which shows that someenterprises were unsatisfied with the financial institution’s
attitude.

Fig. 2-5-66 Attitudes of financial institutions after accepting condition changes
Sympathetic and provided support
Did not offer to lend new funding
Demand us to formulate andimplement a strict management
reform plan
No change
Tightened lending conditions
Did not offer advice(%)

Source:Notes:RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
1.	 Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.
2.	 Total does not always equal 100% as multiple responses were possible.

These responses by financial institutions to loan
condition changes could well have a major impact on
the continued survival of enterprises. Fig. 2-5-67 looks
at the likely scenarios if the condition changes had not
be accepted. In all, over 70% of enterprises responded
that there would have been very significant impacts, with344

52.8% choosing “Constrained cash-flow bankrupted us
and we went out of business” and 19.0% selecting “Forced
to undergo major restructuring and sell off assets”. And
the proportion of enterprises who responded “Little or noharm” was just 8.1%. Under the Financing Facilitation
Act, where SMEs and micro-businesses consult with

Part II The earning power of SMEs

financial institutions, they are required to make every
effort to provide appropriate and thoroughgoing financial
intermediary functions and respond in detail to theactual circumstances. Consequently, it is likely that the
Financing Facilitation Act is effective in significantly
affecting the survival of enterprises.

Fig. 2-5-67 Likely scenarios should condition changes not be accepted

Section 2

Constrained cash-flowbankrupted us and wewent out of business
Forced to undergo
major restructuring
and sell off assets
Used up our reserves,
but suffered no major
damageUsed the credit guarantee
system and governmental
financial institutions

Little or no harm(%)

Source:Notes:RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
1.	 Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.
2.	 Total does not always equal 100% as multiple responses were possible.

█ Multiple changes to conditions

Next, we will focus on those enterprises who
renegotiated their loan conditions multiple times. Of theenterprises whose condition changes were accepted byfinancial institutions, roughly half (50.4%) responded thatthey had successfully changed their loan conditions morethan once. The most popular reason given for having tochange the conditions multiple times was “Changes torepayment conditions predicted at the outset” (58.3%),
suggesting that the original changes to the repayment
conditions were just temporary condition changes forthe enterprise and did nothing more than temporarily
resolve a cash-flow issue for the enterprise. However,

44.7% of enterprises responded “External environment
deteriorated more than expected”, which confirms thatfor those enterprises, the multiple condition changes were
the result of drastic changes in the external environment.
Specifically, these were the Lehman crisis in 2008 and
the Great East Japan Earthquake in 2011, two events thateach precipitated an unprecedented economic crisis anddamage to Japan’s economy within a short time of eachother. This shows that many enterprises had to change
their repayment conditions multiple times either as a resultof issues with the original condition changes or due to theimpact of disastrous changes in the external environment.

345

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-68 Reasons for changing conditions multiple times(1) Past experience of multiple changes
to conditions from the samefinancial institution
Yes(2) Reason for multiple changes to conditions
Changes to repayment
conditions predicted
at the outset

No(%)

External environment
deteriorated morethan expected
Original plan was
unworkable
Management capabilities
were insufficient
Did not get the support
we expected fromfinancial institutions(%)

Source:Note:

RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.

█ Formulation of management reform plans whenconditions are changed

When financial institutions accept condition changes
proposed by enterprises, many of the institutions require
the enterprises to present a management reform plan.
This is because, as information for deciding whether or
not to continue supporting an enterprise in the future, thefinancial institutions need to know the future management
prospects of that enterprise. Fig. 2-5-69 shows thesituation with respect to presenting a management reform
plan the first time conditions were changed.

(1) Enterprises who presented a management reform plan
The proportion of enterprises who presented amanagement reform plan is 75.6%, just over threequarters of all enterprises surveyed17). In addition, 61.1%
of enterprises had presented a management reform planby the time the conditions were changed.
(2) Financial institutions when management reform plans
are formulated
Next, if we look at the role played by financial
institutions when management reform plans areformulated, 67.2% of enterprises responded “Drafted by
the company and approved by the financial institution”,
showing that a high proportion of enterprises draft theirown management reform plans. On the other hand, the“Drafted equally by the company and the financial
institution” and “Drafted by the financial institution andapproved by the company” responses scored 26.8% and4.0% respectively, showing that around one quarter ofenterprises had the assistance of financial institutions as
they formulated their management reform plans.
(3) Involvement of the financial institution’s head officein formulating management reform plans
If we also consider the extent to which the financial
institutions’ head offices are involved in the formulationof these management reform plans, 31.8% of enterprises
responded “Documentation exchanged via the businessbranch” and 26.6% opted for “Minimal, but there was a
direct visit”. However, 24.7% responded “Not aware of
any head office involvement”, which shows that aroundthree-quarters of the enterprises surveyed enjoyed somelevel of involvement by the financial institution’s head
office.

17) Of the enterprises whose condition changes were accepted by financial institutions, roughly a quarter (24.4%) did not present a management
reform plan, but the reasons for that were not explored by the survey. However, there is a range of likely reasons, including cases where
enterprises are considering presenting a future plan before even a year has elapsed since the condition change, cases where the financial
institutions did not require a plan to be presented because ample security or credit guarantees were provided, cases where documentation
was provided to the financial institutions but, due to the simplicity of the content, the enterprise failed to recognize the documents as amanagement reform plan, and cases where limitations on the respective human and physical resources of the financial institution and theenterprise prevented a plan from being presented.

346

Part II The earning power of SMEs

(4) Management reform plan details
Looking at the content of these management reform
plans, 45.6% were “Restructuring” and 57.2% were“Measures for process innovation”, showing that
reducing costs by cutting back on staff and reviewing

the current production and supply methods for products
and services are given priority over measures that would
create new added value, such as developing new businessand developing new products or new services.

Section 2
347

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-69 Status of management reform presentation and the role of financial institutions
in formulating plans(1) Status of management reform plan drafting/presentation
Presented before conditions
were changed

Within 2 weeks of conditions
being changed

More than 2 weeks and up to one monthafter conditions were changed

More than 1 month and up to 6 months
after conditions were changed

More than 6 months after
conditions were changed

Not presented

1. Status ofmanagement reform
plan presentation(2) Role of financial institutions in formulating management reform plans (multiple responses)(%)

Drafted by the company Drafted equally by
and approved by thethe company andfinancial institution
the financial institution

Drafted by thefinancial institution
and approved by
the company

Financial institution
coordinated withother financial
institutions

Not aware of any
particular role
played by financial
institutions(3) Level of involvement by the financial institution’s head office in formulating management reform plans(multiple responses)(%)

Documentation exchanged
via the business branch

Minimal, but there
was a direct visit

Several direct visits

Not aware of any head
office involvement(4) Management reform plan details (multiple responses)(%)

Businessdiversification

Source:Notes:

348

Restructuring

Management
turnoverMeasures for
Measures for
product innovation process innovation

Other

RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
1.	 Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.
2.	 Product innovation refers to developing or supplying new products and services or significantly improving existingproducts and services. Process innovation refers to introducing new methods for manufacturing products or supplying
services or significantly improving the existing methods.
3.	 Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

█ Those assisting in the formulation of management
reform plans

Section 2

Next, we examine other organizations and agents who
lend assistance when these management reform plans arebeing formulated. Fig. 2-5-70 shows partners, other than
the financial institutions that accepted condition changes,
who provided advice or assistance in the formulation ofmanagement reform plans. The highest proportion ofenterprises (50.0%) replied “Certified public accountant,certified public tax accountant”, followed by “Other

financial institution that approved condition changes”(37.8%). In the previous discussion of consultation
partners for undertaking investment, many enterprises
nominated the “Certified public accountant, certified public
tax accountant” and “Financial institutions” responses.
In this situation where enterprises are formulating amanagement reform plan when renegotiating repayment
conditions, once again it is safe to say that “Certified
public accountant, certified public tax accountant” and“Financial institutions” play an important role.

Fig. 2-5-70 Consultation partners when formulating management reform plans
Certified public accountant,certified public tax accountant
Other financial institution thatapproved condition changes
Financial institution that did
not change conditions
Credit guarantee corporations
Societies and Chambers ofCommerce and Industry
Industry bodies
Parent company
Main customer at the time
Main supplier at the timeGovernment service desk
(prefectural, municipal, etc.)
Manager’s family/friends
Other
(%)

Source:Notes:RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
1.	 Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.
2.	 Totals were calculated for consultation partners other than the financial institutions who first accepted changed
conditions.
3.	 Total does not always equal 100% as multiple responses were possible.

█ Business condition changes after conditions werechangedFinally, we will look at the shifts in business sentimentresulting from these changes to repayment conditions andanalyze what caused those shifts (Fig. 2-5-71).

(1) Changes in business sentiment since conditions werechangedIf we look first at the changes in business sentiment,
17.1% chose “Improved” and 42.0% opted for “Slightly
improved”, making a little less than 60% of respondents
recording an improving trend in business conditions.
However, less than 20% saw business conditions asgetting still worse, with 6.1% choosing “Worsened” and11.2% selecting “Slightly worse”.

(2) Reasons business sentiment changed(own company’s measures)
Asked for the reasons why their business conditions
changed, the highest proportion of enterprises wherebusiness conditions improved and enterprises wherebusiness conditions worsened answered “Lowered costs”
and “Costs increased” respectively, suggesting that thefactor that has the greatest impact on business conditions
is whether or not costs decrease. The other highly rated
responses are “Management and staff now feel more at
risk/Management and staff do not feel more at risk” and“Management reform plan provided useful guidance/
Management reform plan was not sufficient”. From this,we see that management and employees feel at risk facedwith worsening business conditions and the situation
precipitated by the changed repayment conditions, so they349

Chapter 5 Financing to support growth in SMEs

have to formulate highly feasible management reform
plans so that employees can all work together to reformthe business with the aim of reducing costs.
(3) Reasons business sentiment changed (relationshipwith financial institutions)
If we also look at the relationship with financial
institutions, the highest proportion (50.7%) of enterprises
where business conditions improved chose “Were able
to get any kind of advice from financial institutions”,
whereas for enterprises where business conditions
worsened, the commonest response (70.7%) was “Did notprocure funding for the future from financial institutions”.
Whereas enterprises where business conditions worsened

350

felt that a lack of funding was the cause of the worsening
business conditions, enterprises where business conditions
improved thought the fact that they were able to get adviceof various sorts from financial institutions was the reason
why their business conditions improved.
There is no doubt that funding for growth is absolutely
essential if an enterprise is going to improve their businesssituation. But it is also the case that being able to get advice
from financial institutions, not just financial assistance,and receiving the management support services provided
by financial institutions to resolve the management issues
shared during their consultations, also provide a quickroute to improved business conditions.

Part II The earning power of SMEs

Fig. 2-5-71 Business sentiment after condition changes and the reasons for its fluctuations(1) Changes in business sentiment since conditions were changes
Improved

Slightly improved

Unchanged

Slightly worsened

Worsened

Section 2

Enterprises
with changed
conditions(2) Reasons conditions improved/worsened (own company’s measures)(Enterprises where business conditions worsened)(Enterprises where business conditions improved)
Lowered costs

Costs increased

Sold assets

Did not sell assets

Reduced personnel
costs by restructuring

Did not reduce personnel
costs by restructuring

Made new investments

Did not make newinvestments

Management and staff
now feel more at risk

Management and staff
do not feel more at risk

Management reform plan
provided useful guidanceManagement reform plan
was not sufficient

Hired staff from outside

Could not acquire good staff

Conducted the main
business withoutworrying about cash-flow

Could not conduct themain business due tocash-flow concerns
(%)

(%)

(3) Reasons conditions improved/worsened (relationship with financial institutions)(Enterprises where business conditions worsened)(Enterprises where business conditions improved)
Procured funding
for the future fromfinancial institutions

Did not procure funding
for the future fromfinancial institutions

Obtained informationthat was useful for
management fromfinancial institutions

Did not obtain informationthat was useful for
management fromfinancial institutions

Were able to get any
kind of advice fromfinancial institutions

Our relationship withfinancial institutions
became less close(%)

Source:Notes:(%)

RIETI, Survey of Finance Fact-finding After Expiration of the SME Finance Facilitation Act.
1.	 Data totals are for enterprises whose changes were first accepted after the Financing Facilitation Act was enacted.
2.	 Total does not always equal 100% as multiple responses were possible.

351

Chapter 5 Financing to support growth in SMEs

Case

2-5-6

Komiya Shoten, Ltd. (Chuo City, Tokyo)

A company that has extricated itself from changes in borrowing conditions
and begun its march to growth
Komiya Shoten, Ltd. (employees: 10; capital: ¥3 million), based in Chuo City, Tokyo, is a manufacturer andwholesaler of Western-style umbrellas. The company has been in business for more than 80 years. While it may nothave cutting-edge technology, it has maintained traditional methods and possesses refined techniques not easily
imitated by other companies.
Starting around 1998, Komiya’s market was snatched away from it by inexpensive products made overseas. Its
performance swiftly worsened and it was hard-pressed for capital. Accordingly, in 2001 it sounded out its main bankabout changing its borrowing conditions. The company was asked to draft a management improvement plan forpaying back its debt in ten years, and it did so. It was able to get the bank to go along with revising the repayment terms
as a result, including an extension on the borrowing period and a temporary reduction in principal repayments. The
company also continued to reassess its management improvement plan as it endeavored to reorganize its operations.
At the time Komiya reorganized its operations, it received a proposal from financial institutions to condense its
debts by selling off its headquarters building. However, after thinking about the company’s business viability after
such a sale (location requirements and rental rates after moving), it did not carry the proposal out. Instead, it firstworked to condense its fixed costs, reducing labor costs by laying off 4 workers and renting out the first floor of its
headquarters building. After the company’s balance of payments rose from rock bottom, it hired the staff it again
needed. It poured its energies into getting earnings to improve, making the most of its newly hired staff by shoring
operations at its directly managed stores and beginning
direct sales to the customer through the internet.
While Komiya’s performance did not swiftly recover
due to this undertakings, it did gradually improve thanks
to the steady effort. Currently, it is getting so manyorders that it cannot keep up solely with its staff andproduction has not caught up.
Even after performance improved, Komiya’s mainbank maintained its position on loan repayments
unchanged. Mizuho Bank, however, was another story. It,
too, had changed loan conditions, but now it offered togroup together Komiya’s debts and reduce the interest
rates considerably. All of the loans were consolidated
in 2014 with a view to facilitating financing, and withthat Komiya’s dealings with financial institutions werenormalized. Furthermore, closer to home Komiya’s businessperformance turned favorable. This produced demand forSome Komiya products
additional working capital, which it procured from Mizuho.
A reorganization of operations was completed anddealings with financial institutions organized thanks toa steady management improvement effort of this sort.
Furthermore, the company’s products were recognizedby the Ministry of Economy, Trade and Industry (METI) as
coming from one of the Wonder 50018) business, anothersign of how the company had begun its march toward
new growth.
Komiya seems to have succeeded in its effort toreorganize operations because successor who joined it
in 2000 made bold changes to the company’s businesspractices. As to borrowing conditions and financing,the changes here were the product of a serious drive
to revitalize management arising from repeatedconsultations with financial institutions.
It could be said that Komiya’s efforts were given a boost by
the quick-response support it got from a financial institutionthat took the form of encouraging advice on management
improvement and, once those improvements were made,An umbrella made by hand by one of the company’s artisansby that institution then swiftly normalizing dealings with it.
18) “The Wonder 500” is a project being pursued by the Ministry of Economy, Trade and Industry. The initiative is aimed at invigorating local
economies under the Cool Japan project based on the Comprehensive Strategy for Region-Building. As a project to discover “hometown
specialties” and promote them in a coordinated fashion, the initiative calls for selecting “local products that are the pride and joy of Japanbut not yet known outside of Japan” and then promote them around the world.

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Part II The earning power of SMEs

Column 2-5-2 The establishment of Guarantees for Refinancing by
Changing and Improving Conditions

Fig. Column 2-5-2 (1)Section 2

Under the 2015 supplementary budget enacted on January 20, 2016, the SME Agency createdthe System for Providing Guarantees for Refinancing by Changing and Improving Conditions.
This system is for SMEs who, despite their management’s desire to improve business, are having
difficulty obtaining pro-active financing support due to the easing of repayment conditions for pastloans. Under the system, they can restructure previous guaranteed financing into new guaranteedfinancing. The system also permits them to restructure so as to add new funding or increase theamount of borrowing, though this is subject to screening by the financial institutions.
In the case of credit guaranteed financing by credit guarantee corporations, where repayment
conditions have been eased due to worsening business conditions, businesses cannot in principle
receive new credit guaranteed financing from credit guarantee corporations until they have fully
paid off the borrowings on which the repayment conditions were eased. For enterprises to use thissystem, they must meet a number of prerequisite conditions. They must draft an explanation of thecircumstances underlying the easing of their repayment conditions, they must formulate a businessplan with the assistance of financial institutions and support agencies for business innovation19), andthey must issue progress reports on the formulated business plan once every quarter. Enterprises
who meet these requirements should be able to restructure their finances and improve their cashflow situation. By using this system to normalize their banking business, it is hoped that SMEs will
be able to work in an environment that supports growth investment.
Schematic of guarantees for refinancing by changing and improving
conditions
Term (remainder) 4 years> Restructuring of past guaranteedfinancing where repayment
conditions were eased into new
guaranteed financing¥5 million
outstandingdebt¥10 million
outstanding
debt

Before refinancing guarantee
Monthly repayment¥100,000

Guarantee (1)Monthly repayment¥120,000

Monthly repayment¥220,000

Guarantee (2)Term (remainder) 7 years

After refinancing guarantee> Business plan formulated andfinancial position normalized throughsystematic repayments, etc.
> Addition of new money also possible(*Screening by financial institutions,etc.)<Plan formulation>> Consolidating multiple debts andrevising the repayment scheduleeases the monthly repayment burden

1-year deferral¥15 million
outstanding
debt

Monthly repayment¥90,000<Interim support
by credit guarantee corporations, etc.>
15-year term19) Support agencies for business innovation (approved support agencies) are public assistance institutions approved by the Japanese
government for people with specialist knowledge or business experience of a set level or better who ensure that SMEs and micro-businesses
receive consistent management advice, etc. Specifically, the people certified as approved support agencies are primarily SME support bodies
such as Societies of Commerce and Industry and Chambers of Commerce and Industry, along with financial institutions and specialists suchas certified public tax accountants, certified public accountants and lawyers.

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Chapter 5 Financing to support growth in SMEs

6.

Greater diversity in funding procurement█ Wish-list for financial institutions
enterprises investing in growthfromThus far, we have considered the necessity for funding
growth investment by SMEs, and we finish by examining
the funding conditions and properties that SMEs would
prefer. Fig. 2-5-72 shows the conditions and properties
that SMEs who are investing in growth would like fromfinancial institutions. In each stage, more than 50% of
the respondents selected the “Security/guarantee notneeded” and “Low interest applied for initial set period”
responses. The “Long deferment period for repayment of
capital” response was also chosen by between 30% and
40% of respondents, showing that SMEs would like tohave a long deferment period before they are required tostart paying off the principal. By limiting the procurement
costs, a set period of low interest would ease the cashflow burden during the period immediately after aninvestment when it is unlikely that a growth investment
would be helping with revenues. However, because thissort of growth investment funding poses a high level ofrisk for financial institutions, it is likely to be difficult for
all growth investment to be funded by private financial
institutions. To address this problem, risk money must be
provided by policy-based financial institutions.
If we also look at enterprise growth according to
growth stage, 22.2% of enterprises in the startup stage
responded, “Investment (additional funding)”, indicatingthat enterprises that are still relatively young tend to havea more flexible stance towards their funding strategy for
additional investment. So, in order to raise funding for
growth investment, we need to consider a diverse rangeof funding procurement options that go beyond simply
borrowing from financial institutions.

Fig. 2-5-72 Wish-list of conditions and properties from financial institutions for growthinvestment
Enterprises overall(n=1,893)(%)

Security/guarantee
not needed

Source:Note:

354

Startup stage(n=54)

Low interest applied
for initial set period

Growth stage(n=324)

Long deferment period
for repayment of capital

Maturation stage(n=1,273)

Investment(additional funding)

In decline(n=221)

Repayment priority is low(subordinated loans)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Column 2-5-3 Enhancement of functions for supplying growthinvestment funding by policy-based financial institutions

Section 2

In this chapter, we have seen the high expectations that SMEs have of financial institutions withrespect to growth investment aimed at resolving SMEs’ management issues, and that their wishes, which
include interest settings with contingency fees and financial products with lengthy deferral periods forcapital repayments, differ from those of financial institutions regarding the nature of the funds theyhandle on a daily basis. This is due to a mismatch with respect to funding procurement, given the highbusiness risks posed by growth investment, the long time frame until results are forthcoming and thepotential for the funding procurement cycle to be longer than the investment recovery cycle. So it isimportant that this mismatch be corrected by sharing out the risks of providing funding for growthinvestment between private financial institutions and governmental financial institutions.
The Shoko Chukin Bank (Shoko Chukin) uses industrial investment loans set up as part of its fiscal
investment and loan program to target assistance for growth investment by SMEs. Specifically, itestablished the Global Niche Top Supply Loan System (GNT Supply Loan System) and the Support Loan
System for Regional Core Enterprises and collaborates with private financial institutions to provide
financial support to enterprises engaging in innovation and global expansion.
Under the GNT Supply Loan System, funding is supplied to global niche top (GNT) enterprises20) andcandidate GNT enterprises to finance long-term growth investment (setting up offshore facilities, capital
investment, R&D investment, etc.) that will ensure they maintain a high level of competitive superiority.
The Support Loan System for Regional Core Enterprises is designed to support regional core enterprises21)
that meet certain quantitative requirement, such as a set number of employees. The System helps suchenterprises deal with business downturns such as reduced sales due to changes in the business environment
resulting from declining populations and shrinking markets. Given the increasing importance of factors
such as “innovation (establishing new business, etc.)” and “pro-active management reforms”, the Systemfunds for growth investment initiatives such as strategic revitalization and new business expansion. In
April 2016, the “Regional Collaborative Support Funding System” will be established to provide enterprisepartnerships and business cooperatives that use local resources with the long-term funding they need for
initiatives such developing new markets and restructuring or establishing partnerships.
These systems are designed to resolve the mismatch in funding procurement through contingencybased interest payment settings and long-term lump-sum payment models. They also offer support
in cooperation with private financial institutions, with governmental financial institutions picking up
those high risk financing options that private financial institutions are loathe to address when acting
singly. In this way, governmental and private financial institutions can use complementary or cooperativemodels to fund growth investment by SMEs in ways that support SMEs’ earning power by offering thema broader range of risk-based funding.

<Schematic diagram of the Shoko Chukin support loan systems>
Private financial
institutions

Interest
Loans

Collaboration/
cooperation
Interest
Performance-based
interest payment
Government(industry
investment) Loans
Long-term,
lump-sum payment(Term: 10 years)

Shoko Chukin(1) Global Niche Top
Supply Loan System(2) Support Loan System
for Regional CoreEnterprises(3) Regional Collaborative
Support Funding
SystemInterest
Contingency-based
interest payment

Targetenterprises,
etc.

Loans
Long-term,
lump-sum payment(Term: Generally 10 years)20) Global niche top enterprise refers to an enterprise that has adopted a strategy of becoming the top business in a specific sector (the niche top enterprise)
and that is expanding globally. A candidate enterprise is an enterprise that has adopted a strategy of becoming the top business in its niche area andaims to become the global niche top enterprise. Given the changes in industrial structures, enterprises of this type, by utilizing their own strengths todevelop international markets rather than acting as subcontractors to large enterprises, are expected to play a key role in driving Japan’s economy.
21) A regional core enterprise is a core medium enterprise or SME with clearly established skills, expertise and brand power. These regionalcore enterprises do business with many SMEs and other businesses in regional areas and act as hubs for regional economies by providing
extensive employment opportunities in regional areas, etc. And by generating innovation, regional core enterprises are also likely to spurwide-ranging innovation among the local enterprises with which they work.

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Chapter 5 Financing to support growth in SMEs

<Overview of the Shoko Chukin support loan systems>
GNT Support Loan System

Support Loan System for
Regional Core Enterprises

Regional Collaborative Support
Funding System

Established

April 2014

April 2015

April 2016 (planned)

Targetenterprises

Enterprises adopting niche top
strategies in a specific field who are:(1) Global niche top enterprises(2) Enterprises aiming to be global
niche top enterprises

Enterprises (regional core enterprises)with significant influence on regional
economies through regional
employment and knock-on effects inclient SMEs

Business cooperatives and enterprisepartnerships that utilize local
resources

Applicablefunding(1) Establishing overseas subsidiaries(2) Expanding overseas subsidiaries(3) Expanding channels into overseas
markets
Funding required for the above
overseas business expansion(1) Developing new business(2) Funding required for pro-active
management reform

Funding required for initiatives aimed
at cooperation or restructuring andnew business expansion using local
resources that is likely to flow on toregional economies

Repayment
methodLimited temporary repayment (lump-sum repayment in a limited period)

Interest rate

Contingency fees (interest rate set by Shoko Chukin if successful, 0.6% if not)Loan term

Generally 10 years

Results[FY2014]112 loans, ¥13.5 billion[FY2015 (as at end March)]
143 loans, ¥15.296 billion[FY2015 (as at end March)]
62 loans, ¥8 billion[Construction of a dedicated plant to supply parts to a French
manufacturer (Kikuchi Gear Co., Ltd.)]
Kikuchi Gear Co., Ltd. (employees: 151; capital: ¥30 million) has its head office located in Ashikaga
City in Tochigi Prefecture and is a gear manufacturer that supplies a variety of high-quality products
to a wide range of industrial sectors. Its products range from general purpose gears to high-precision
gears with specialized functions and configurations that are accurate down to the micron level. In
2009, the company gained the JISQ9100 certification that is the product quality control standard forthe aerospace sector and started manufacturing for the aerospace industry.
Following its success in developing techniques that permit consistent machining of extremely
challenging materials such as titanium aluminide alloy, Kikuchi Gear secured a long-term contract tomanufacture and supply low-pressure turbine blades to a major French aircraft engine manufacturer.
Consequently, they constructed a new dedicated plant to manufacture aircraft components,
started delivering parts, drew up a business plan detailing their efforts to boost aircraft-related
sales and made new investments aimed at further growth. Shoko Chukin were highly impressedwith the company’s plan to establish a presence in a specific sector in the overseas market andutilized the Global Niche Top Supply Loan System to fund the construction of a dedicated factory
to supply aircraft components. They also cooperated with private financial institutions by providing
collaborative financing together with two regional financial institutions, the Ashikaga Bank and
the Ashikaga Oyama Shinkin Bank.
Through this investment in growth and by using its own strengths to breaking into theinternational market, there is every prospect that the company will further boost its international
competitiveness.

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Part II The earning power of SMEs

[Establishment of a flexible production system for automotive components(Kanae Kogyo Co., Ltd.)]█ Diversification of funding procurement

One likely avenue for diversifying funding
procurement is the use of financing that is secured byassets (asset-based lending or ABL). Asset-based lending(ABL) is a financing method that uses inventory, accounts
receivable or machinery and equipment (hardware)
owned by the enterprise as security. The security for
financing by financial institutions in the past has primarily
been “mortgage-backed”, but the fall in security values
due to declining real estate values has meant that financial
institutions have been required to transition away fromfinancing that relies too heavily on real estate. This shift
has led to the increasing adoption of ABL in recent years.
The advantages put forward for enterprises using
ABL are that funding procurement can be tailored towhether enterprises are growing or contracting and that

Section 2

Kanae Kogyo Co., Ltd. (employees: 179; capital: ¥365 million) based in Fujinomiya City, Shizuoka
Prefecture, is a Tier II manufacturer of automotive components for Japan’s car manufacturers. It isa regional core enterprise surrounded by a large number of partner companies centered aroundthe cities of Fujinomiya and Fuji. In an automotive industry that has seen increasing globalizationand dispersal of the car manufacturers’ production facilities, it is vital that suppliers respond toincreasingly diverse production requirements. For this reason, Kanae Kogyo built a flexible
production system that both increases the efficiency of their component production processes andallows variable-lot production of multiple models. They also formulated a business plan detailingtheir efforts to build the production system and develop molding techniques that would enable
then to set themselves apart from competitors in the same industry in terms of quality, delivery andcost.
Shoko Chukin, foreseeing increases in purchasing from the collaborating enterprises in thearea and rises in outside machining orders, praised the plan as one that would help to increase
employment and revitalize the regional economy. They cooperated with a regional financial
institution, the Shimizu Bank, to supply the funding needed to enhance the company’s production
system for automotive components. To provide the financing, Shoko Chukin used the Support Loan
System for Regional Core Enterprises.
This investment in growth is expected to both resolve the management issues the company
currently faces and help financial institutions to revitalize the regional economy.

borrowings can respond to the working capital requiredby the enterprise itself. That is, when sales rise, theaccompanying increases in inventory and accounts
receivable allow the corresponding amount of working
capital to be procured.
Fig. 2-5-73 shows the trends in the amount of ABL
financing and the number of loans. Starting in FY2012,
there was a rapid rise in the amount of financing, with thefigure rising to ¥932.7 billion in FY2013 before dipping
slightly down to ¥896.5 billion in FY2014. When we lookat the number of loans, there was a downward trend from
FY2008 to FY2011, but since FY2012 there have been
increases each year of just under 3,000 loans. The recent
fall in the amounts loaned coupled with the rise in thenumber of loans show that loans are getting progressively
smaller.

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Chapter 5 Financing to support growth in SMEs

Fig. 2-5-73 Trends in ABL lending amounts and loan numbers(¥100 million)

Amount of asset-based lending(left axis scale)No. of asset-based loans(right axis scale)(Instances)(FY)

Source:Note:

METI report, Study into the current status of ABL and the business responses in industrial financing given the revisions to
obligations legislation and the issues with promoting the broader adoption of ABL.
Totals for the amounts of lending are for financing implemented in each fiscal year.

Next, we look at the amounts of ABL financing andthe number of loans as a proportion of the financing by
each type of financial institution (Fig. 2-5-74). The figure
shows that regional banks topped the ranks in terms ofboth amounts and numbers of loans, accounting for 37.9%of the total amount loaned and 26.1% in terms of thenumber of loans. Also, if we look at the collective total for358

all regional financial institutions (regional banks, secondtier regional banks, credit unions and credit cooperatives),
they account for 64.2% of the total amount loaned and63.3% on the basis of loan numbers, showing that the
adoption of ABL is primarily happening through regional
financial institutions.

Part II The earning power of SMEs

Fig. 2-5-74 Proportions of ABL lending totals and ABL loans implemented by financial
institution type
Commercial banks,
trust banks

Regional banks

Second-tierregional banks

Credit unions

Credit cooperatives

Governmental
financial institutions

Other

Section 2

Proportions of funds

Proportions of loan count¥855.7 billion

11,385 loans(%)

Source:Note:(%)

METI report, Study into the current status of ABL and the business responses in industrial financing given the revisions to
obligations legislation and the issues with promoting the broader adoption of ABL.
Credit unions includes the Shinkin Central Bank, and the Other category includes responses where no type was given.

So we have seen that the number of ABL loans
implemented and the amounts actually lent are increasing
and that the primary channel is regional financial
institutions. Next, we will consider the problems with thepromotion of ABL financing. Fig. 2-5-75 shows the issues
faced when candidates for ABL financing are investigated.
The “Can’t judge the suitability of property as security”,“Can’t ascertain the management status of customers’
assets (inventory, etc.)” and “Enterprises’ recognition of
ABL is low” all rate highly. Reasons given for not being
able to clearly determine enterprises’ business flows
include not being able to determine whether assets ownedby the enterprise, such as their accounts receivable andinventory, are appropriate as security, and not being able
to judge whether the enterprise is managing those assets
properly. The importance of overcoming problems such asthese has been recognized in this section, and the businessviability of enterprises and their management issues need
to be identified, and a more in-depth understanding of theenterprises themselves is needed. However, the level ofrecognition within the enterprises themselves is also low,
but that problem is expected to be resolved as the market
for ABL grows in size, so it is important to proceedsteadily with ABL programs and promote their used sothat enterprises understand the benefits offered by ABL.

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Chapter 5 Financing to support growth in SMEs

Fig. 2-5-75 Issues faced when candidates for ABL financing are investigated
Can’t judge the suitability of property as security
Can’t ascertain the management statusof customers’ assets (inventory, etc.)
Enterprises’ recognition of ABL is low
No structure has been built for promoting ABL
Branch staff don’t understand it
The procedures for providing ABL have notbeen determined within the bank (company)
The enterprises to be targeted for ABL
have not been identified
Can’t confirm the business flows of financing
targets (sites for receivables and payables, etc.)
Undertaking ABL without assistance is very risky
Other
No particular issues(%)

Source:Note:

METI report, Study into the current status of ABL and the business responses in industrial financing given the revisions to
obligations legislation and the issues with promoting the broader adoption of ABL.
Total does not always equal 100% as multiple responses were possible.

█ Multi-sourcing in funding procurement

Thus far, we have looked at the financial institutions
that one would most expect to be the sources offunding procured by SMEs. But recently, new funding
procurement methods other than financial institutions
have been increasingly prominent. One specific method,
known as “crowd funding”, involves using IT-based
funding procurement to raise funds from large numbersof unspecified people via the Internet. Crowd funding
provides a mechanism whereby people considering
procuring funds use a fund-raising website on the Internet
to set up a fund-raising page that can be visited by large

numbers of unspecified people so that funds can becollected from those people22) (Fig. 2-5-76).
The benefit for SMEs of using crowd funding is that,
where a business has difficulty procuring funding fromfinancial institutions because, for instance, their businessis difficult to assess, or the company has only just beenfounded, or only a small amount of funding is needed,
they can procure funding by touting their company’s
project on a fund-raising website. Also, by describing
their company’s efforts on a fund-raising site, it also
serves as advertising for the company and can also beseen as a marketing exercise.

22) See the 2014 White Paper on Small and Medium Enterprises in Japan, Part III, Chapter 5, Section 2 for more detailed information on crowd
funding.

360

Part II The earning power of SMEs

Fig. 2-5-76 Crowd funding process (example)(1) Apply to list on a funding siteè(2) Undergo screening by
the funding site manager(4) Start raising funds

ç(3) Create a fund-raising web pageè(6) Run the project

Section 2êê(5) Reach the funding target

Next, we look at trends in crowd funding. Fig. 2-5-77
shows the trends in the size of the crowd funding
market in Japan, with an anticipated market size ofè(7) Remunerate the investors¥28,373 million in 2015, representing expansion of 1.5x
over the previous year.

Fig. 2-5-77 Trends in the crowd funding market size in Japan(Million yen)

2012

Source:

2013

2014

2015 (forecast)(Year)

Yano Research Institute, 2015 Survey of Japan’s Crowd Funding Market.

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Chapter 5 Financing to support growth in SMEs

Next, we examine the use of crowd funding by SMEs.
Fig. 2-5-78 (1) looks at SMEs who have used crowd
funding as a means of procuring funding, showing that no
more than 1.1% have ever actually used crowd funding.
Fig. 2-5-78 (2) looks at respondents’ intentions to use
crowd funding in the future and shows that the proportionof those who actively use crowd funding, even whencombined with those enterprises who consider using it,
is just 3.7%. This is high compared with the proportion
actually using crowd funding, but still constitutes a very
low level of use. Also, 34.4% of enterprises responded“Don’t know” when asked about their future intentions,
showing that recognition of crowd funding itself is low.

Fig. 2-5-78 SMEs actual use of crowd funding to raise funds and their future intentions(1) Experience using crowd funding to raise funds(2) Future intention to use crowd funding to raise funds
Use actively

Use and have usedin the past

Consider usage dependingon the borrowing fromfinancial institutions

Have never used

Do not use
Don’t know
Other

Source:(%)(%)(n=4,079)(n=3,973)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

So, this shows that while levels of crowd funding
recognition are low among SMEs, there are still someenterprises who have in fact successfully developed theirown products using crowd funding. It seems that, through362

the use of such diverse funding procurement methods, therange of possible avenues for enterprises to find their own
solutions to their problems is growing steadily broader.

Part II The earning power of SMEs

Case

2-5-7

Nitto Co., Ltd. (Yokohama City, Kanagawa Prefecture)

A company using crowdfunding to pursue new product development

Section 2

Nitto Co., Ltd. (employees: 40; capital: ¥10 million), based in Yokohama City, Kanagawa Prefecture, is a company
whose principal business is the manufacture of metal press products. In recent years, it has diversified the way it
procures capital by using crowdfunding.
In the past, Nitto had been a small company with no more than 10 or so employees. Since 2004, however, it has
increased its size through mergers and acquisitions. It now has four times as many employees, and has put together
a corporate structure capable of handling all stages of product development including design, prototyping, andmass production. This enabled it to make proposals to major manufacturers to accommodate manufacturingand handle mass production. Getting involved with product development for its business partners also led to it
acquiring little by little the know-how for product planning and development. Such was the situation when in2011 Nitto began to plan its own products.
The company was able to come up with ideas for new products to develop, but it worried when it came to how
to commercialize them and sell them on its own. Then, Nitto came across an event being held in April 2012 by the
MONOist information portal website for manufacturing and craftsmanship. While the product was not the one
Nitto had initially come up with, it submitted for the event a smartphone accessory it had made separately as anexperiment and posted a video of the product to the event website. The response to the video was greater than
anticipated, and the company decided it would become their first product.
Nitto learned about crowdfunding from Kouji Miki, whose company enmono Co. Ltd. had been helping on
company’s own product development. Nitto became curious about crowdfunding, and between that and its
increasing desire to take on the endeavor of developing its own product the decision was made to use the approach.
The initial capital procurement goal set was for ¥500,000. Nitto would not even be able to make the molds forthat amount, but it was their first fundraising attempt with this approach and so it set its sights low. Ultimately,by the time the deadline for making donations had been reached the company had raised ¥1.3 million from 200
people. It was the first instance in Japan of a company using crowdfunding to sell its own product. The productwent into general release in August 2012, and to date 32,000 units have been sold.
Using crowdfunding had numerous impacts, including: (1) Nitto was able to take into account various opinions andrequests made through the internet that led polishing up its product; (2) by opening the doors on the manufacturing
process while hearing the opinions offered, the company was able to create fans for the product before it went
on sale; and (3) the project was taken up in magazine articles
and the like, with the result that the company did not have tospend money on an advertising campaign.
On the other hand, Nitto did also have to express its
gratitude to project donors. The donors were all individuals,
and the task of expressing thanks required some effort. It was
not the kind of job that could just be assigned to a designatedstaffer, and so it was a struggle for staff to do so while still
performing their regular duties.
Using crowdfunding had positive effects for Nitto’s business,and it also served as a form of publicity. In fact, it also led to offers
to manufacture the cover for smartphones, and the company’s
network of contacts increased. Nitto’s own products now accountfor 8% of the company’s sales. Given that the profit margin is
Nitto’s iPhone Trick Cover producthigh for the company’s own products compared to that for parts
manufacturing, they also have improved its earnings structure.
Following the development of this product, Nitto in 2013
turned again to crowdfunding to develop a new one. In
2014, the company developed the Kurumiru, the smartphone
accessory it had in mind from the start.
Thanks to the results achieved with these development
projects, Nitto has been approached by a trading housethat handles medical equipment about developing medical
instruments. New product development in this area has
been proceeding in the form of collaborative research witha university. These efforts helping the company move toward
breaking into the medical field that has been one of its dreams.
Using crowdfunding like this served to diversify Nitto’s
capital procurement approaches, and also served as a step
toward developing its own products.
Nitto’s own Kurumiru product363

Chapter 5 Financing to support growth in SMEs

Summary of Section 2
In this section, we have discussed the need to fundgrowth investment by SMEs. SMEs face a wide range ofmanagement issues, and growth investment is important
if they are going to overcome those management issues
and continue to grow. We also confirmed the importanceof the role played by financial institutions as the sourcesof funding for this growth investment. When we analyzed
the relationships between SMEs and financial institutions,
we showed that the information provided by financial
institutions to SMEs varies depending on the financial
institution type. SMEs have working relationships with awide variety of financial institutions and this is useful inallowing them to gather the different types of information
specific to each financial institution type. Differences
exist between enterprises and financial institutions interms of their recognition of their sharing of enterprisemanagement issues, and it is anticipated that thesedifferences will dissipate in time.
To further deepen the ties between SMEs and financial
institutions, financial institutions need to better understandthe business operations of SMEs so that they canaccurately assess their viability. Enterprises and financial

Section 3

Enhancing systems to support the growth of SMEs

In the previous section, we discussed the need for theprovision of funding for further growth by SMEs, but
at the same time as financial institutions provide suchfunding, they are also expected to offer various other1.

forms of management support to address management
issues that cannot be resolved solely through financing. In
this section, we will analyze the status of the management
support services offered by financial institutions.

Details of the management support services offered by financial institutions█ Management support services that financial
institutions think their customers want

We will begin by looking at the approaches tomanagement support services from the financial
institutions’ perspective. Fig. 2-5-79 shows the
management support services that financial institutions
think their customers require. The “Support in expanding
markets/suppliers”, “Business succession support” and“Support with policies such as management plans andbusiness strategy” responses were highly rated overall. If
we also look at the different types of financial institution,
apart from the items just mentioned, commercial banks

364

institutions are equally aware of this, and it is important
both that enterprises provide financial institutions withinformation and that the financial institutions improvetheir skills as financial managers. However, it is difficult
for any financial institution to ascertain the viability ofan enterprise solely with its own management resources,
and it may well be more useful for financial institutions
to gain an understanding of enterprises’ businesses bycollaborating with third parties when necessary.
It also cannot be said that all financial institutions areable to provide the types of product desired by enterprises,
so it is also important for enterprises to consider procuring
funding from sources other than financial institutions,according to their preferred funding model, and that theirfunding procurement be more diverse and multi-faceted.
It is likely that financial institutions, in the courseof assessing the viability of SMEs, will unearth new
management issues, and it is to be hoped that the financial
institutions will be given support in areas other thanfinance to help deal with these management issues. In thenext section, we will analyze the management support
services offered by financial institutions.

rated “Support for overseas expansion” highly, regionalbanks and second-tier regional banks rated “M&A
support” well, and governmental financial institutions
ranked “Supply of systems information” high. These
differences are most likely due to the fact that different
types of financial institution deal with customers who
are at different growth stages and are differently oriented
towards business expansion. As such, the financial
institutions experience customer needs for management
support services that are in line with those customers’particular characteristics.

Part II The earning power of SMEs

Fig. 2-5-79 Management support services that financial institutions think customers
require(%)

Commercial banks(n=125)

Regional banks, second-tierregional banks(n=1,243)

Credit unions,credit cooperatives(n=1,580)

Governmental financial
institutions(n=56)maS
rke ex uppo
ts/ pan rt isu di n
pp ng
lie
rs
R&
D
su
pp
ort
Su
se pporvi rtce fo
de r prve od
lop uc
me t/
Su
nt
pp
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pa ea
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ion
M&
As
up
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Co
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us e
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ss
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Re
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ns
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su
Ad
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or
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Su
pp
ly
of
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orm temati son

Section 3

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Details of the management support services usedby enterprises

Next, we look in detail at each of the responses from theperspectives of both enterprises and financial institutions.
Here, of the growth stages experienced by SMEs, we focus
primarily on enterprises in the maturation stage23), which
is when profitability growth in particular starts to slow
and numerous issues arise around where growth is going
to come from next. Fig. 2-5-80 shows the management
support services actually used from the perspective of theenterprises themselves. A high proportion of enterprises
use services such as “Support in expanding markets/

suppliers”, “Supply of systems information” and “Advice
on finance, taxation and labor”. These services probably
include specific advice on using business matching,obtaining information on subsidies and other financial
advice. The high proportions of enterprises accessingthese services may well be because these items relate to“market development”, which enterprises have raised asa management issue. On the other hand, few enterprises
use services such as “Human resource development
support” or “Internal systems support” that address“Worker retention”, which is another management issue
for enterprises.

23) See Fig. 2-5-33 for information on the enterprise growth stages.

365Chapter 5 Financing to support growth in SMEs

Fig. 2-5-80 Management support services used by enterprises in the maturation stage
Support in expanding markets/suppliers
Supply of systems information
Advice on finance, taxation and labor
Support with policies such as management
plans and business strategy
Business succession support
M&A support
Human resource development support
Support for overseas expansion
Revitalization support
Internal systems support
Support for product/service development
R&D support
Contributions from funds affiliatedwith financial institutions(%)

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

█ Management support services enterprises expect
in the future

Next, we examine the management support services
that enterprises expect financial institutions to provide(Fig. 2-5-81). The figure shows that a high proportionof enterprises expect to have the “Support in expanding
markets/suppliers” and “Supply of systems information”
services that so many of them currently use. They also
have high expectations of “Human resource development366

support”, which is a service that is not frequently usedat present, suggesting that enterprises strongly expect
financial institutions to help them resolve staff shortages,
which they nominate as a management issue. Accordingly,
financial institutions, while continuing to provide businessmatching, advice on subsidies and policy information,must also offer support that enables enterprises to resolve
their staffing shortages.

Part II The earning power of SMEs

Fig. 2-5-81 Future management support services expected by enterprises in thematuration stage
Support in expanding markets/suppliers
Supply of systems information
Advice on finance, taxation and labor
Human resource development support
Business succession support
Support with policies such as management
plans and business strategy
M&A support

Section 3

Support for product/service development
Internal systems support
Support for overseas expansion
R&D support
Revitalization support
Contributions from funds affiliatedwith financial institutions(%)

Source:Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.

█ Status of management support service responses
to enterprises in the maturation stage

Next, we consider the status of management support
service responses to enterprises in the maturation
stage from the perspective of the financial institutions.
Fig. 2-5-82 shows the status of the responses by financial
institutions in terms of management support services forenterprises in the maturation stage. The figure shows highlevels of engagement in “Supply of systems information”,“Advice on finance, taxation, legislation and labor” and“Revitalization support”, indicating strong programsin services that are areas of specialty for the financial
institutions themselves. However, there are low levels of
engagement in “Human resource development support”,
which is a strong area of need among enterprises.
Presumably, the reason for this is that there is little affinity
between financial institutions and support for humanresource development, so it is not easy for the financial
institutions to provide that service to enterprises.

367

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-82 Management support services that financial institutions supply to enterprisesin the maturation stage
Supply of systems information (n=2,981)
Advice on finance, taxation, (n=2,982)
legislation and labor
Revitalization support (n=2,975)
Support with policies such as management (n=2,961)
plans and business strategy
Support in expanding markets/suppliers (n=2,986)
Business succession support (n=2,985)
M&A support (n=2,955)
Support for overseas expansion (n=2,949)
Human resource development support (n=2,972)
Support for product/service development (n=2,953)
Internal systems support (n=2,946)
R&D support (n=2,956)(%)

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Totals for the respective items are for the proportions of financial institutions who responded “Able to respond” or“Somewhat able to respond”.

If we look at the results according to financial institution
type, a high proportion of the larger commercial banks,regional banks and second-tier regional banks nominated“Support in expanding markets/suppliers”, presumably
because they offer programs that utilize an extensive
network of customers (Fig. 2-5-83). Among credit unions
and credit cooperatives, “Revitalization support” is oneof the top choices, indicating that they are targeting
their support to enterprises struggling with business

368

downturns. “Supply of systems information” is top choicefor governmental financial institutions, presumably
because they have a public obligation to actively provide
enterprises with policy information and information on
subsidies, etc. From the above, we can conclude that the
programs providing management support services exploit
the respective strengths of the different types of financial
institution.

Part II The earning power of SMEs

Fig. 2-5-83 Status of management support service responses to enterprises in thematuration stage
Commercial
banks(n=118−121)

Regional banks,
second-tierregional banks(n=1,231−1,243)

Creditunions, credit
cooperatives(n=1,532−1,564)

Governmental
financial
institutions(n=55−56)

Supply of systems information

73.3

66.2

53.7

96.4

Advice on finance, taxation, legislation and labor

71.9

65.9

51.4

80.4

Revitalization support

70.0

64.5

50.8

92.7

Support with policies such as management plans and business strategy

60.8

54.5

49.5

83.6

Notes:

75.2

65.3

38.3

74.5

Business succession support

89.3

64.0

34.3

76.8

M&A support

72.7

51.9

17.4

50.9

Support for overseas expansion

73.6

47.2

16.4

87.5

Human resource development support

55.0

29.0

18.7

28.6

Support for product/service development

28.0

31.3

17.6

21.4

R&D support

25.0

28.1

11.3

23.2

Internal systems support

52.1

23.8

16.2

33.9

Section 3

Source:Support in expanding markets/suppliers

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Totals for the respective management support service items are for the numbers of “Able to respond” or “Somewhat
able to respond” responses. The three services with the highest proportions are shaded in red, and the three services
with the lowest proportions are shaded in blue.
2.	 Total does not always equal 100% as multiple responses were possible.
3.	 The management support services that financial institutions supply to enterprises in the maturation stage as shown in
Fig. 2-5-82 are ranked sequentially starting from the highest scoring item.

So we have seen that, while the financial institutions
continue to provide management support services thatutilize the strengths they offer in their particular fields ofspecialty, areas in which enterprises are seriously in needof support and that are not reached by the management

support services from financial institutions, it is crucial
that financial institutions cooperate with other support
agencies capable of offering functionally complementary
services.

369

Chapter 5 Financing to support growth in SMEs

Case

2-5-8

Taiyo Seiki Iron Works Co., Ltd.
(Osaka City, Osaka Prefecture)

A company growing by getting management support services fromfinancial institutions
Taiyo Seiki Iron Works Co., Ltd. (employees: 170; capital: ¥100 million), based in Osaka City, Osaka
Prefecture, is a manufacturer and wholesaler that deals in hanging ring and metal lashing products likeshackles and hooks. The company has been getting management support services from financial institutionsin its drive to improve earnings power. In business for more than 70 years, it has dealings with a diverse
range of financial institutions, including city banks, regional banks, credit unions, and public sector financial
institutions. For that reason, its trust-based relationships with such institutions are strong, and it cancommunicate the business challenges it faces. Specifically, the challenges it sees are in how to improveearnings by making management more efficient and how to develop personnel.
In 2005, Taiyo Seiki told one of its then-banking partners UFJ Bank (now the Bank of Tokyo-Mitsubishi UFJ)
that improving business efficiency was becoming an issue. In response, the bank provided an introduction to a
private consultancy, which resulted in Taiyo pursuing a business reorganization project and adopting Enterprise
Resource Planning (ERP). ERP is a method for uniformly and centrally managing the resources used the various
divisions and businesses that comprise a company, including procurement and purchasing, manufacturing
and production, distribution and inventory control, sales, personnel and payroll, and finance and accounting.
Previously, the company had used paper forms in many of its operations, including for its ordering system. The
resulting situation was such that it could an accurate grasp of its inventory only once a year. This problem wasresolved with the adoption of ERP, resulting in a major increase in the efficiency of its business.
In 2011, the topic of improving distribution efficiency came up during an information exchange session
Taiyo Seiki had with Resona Bank. The bank introduced Taiyo to a consultant specializing in distribution
and the company moved forward to reorganize this part of its business. It created a distribution center andbrought together all of the distribution operations that it had situated around the country. These moves toimprove efficiency led to a reduction in fixed costs.
Taiyo Seiki’s earnings improved thanks to such support that was conducive to increasing business efficiency.
When it came to issues related to training personnel however, no specific advice was forthcoming from thefinancial institutions. Instead, the company got assistance from a number of consultants it searched out on its
own, and in 2012 launched its training initiative. The goal of the initiative was to train the personnel on track
to become the company’s next generation of leaders. It invited employees in managerial or section chief posts
to apply for one of the yearlong program’s 14 slots. Every month, the selected employees would given theopportunity to study management and business skills. The initiative has run for 4 years so far, and 55 employees
have taken part. Furthermore, in fiscal 2015 10 of the top personnel who went through the program were chosen
to engage in another yearlong program to further cultivate their knowledge about management. The staff who
passed the final examination would also be put into consideration for being chosen for executive positions.
On the matter of such management improvements, Taiyo Seiki Executive Managing Director Ota
explains, “When you think about business challenges in terms of importance and urgency, improvements
in management are coupled to earnings so the degrees of importance and urgency are both high. Training
personnel, on the other hand, is important but not that urgent. This is why many [SME] businesspersons
postpone dealing with it.” Having made this observation, he also mentions the difficulties with training andthe importance of the perspective one takes: “We’ve been working on training personnel, but in fact only
about 10 percent of these employees successfully gone through it. All we can do is keep steadily plugging
away and keep the long-term perspective in mind.”
Ota also touched on relations with financial institutions
in connection with such initiatives, point out that the stancethese institutions take toward them is an issue as well:“Training personnel requires making efforts with that longterm perspective. Proposals for such projects may not be very
appealing for financial institutions that are pursuing short-term
earnings.” At the same time, he held out his hope that such
entities would improve their capacity for providing consulting
services: “Financial institutions do grasp the business challenges
facing SMEs, and they can give them advice. The advice they
offer would prove valuable even if the only thing they did
A Taiyo Seiki heavy round sling being put to use
was to look into a company’s training efforts and inform it of
at a bridge-building site
effective efforts that other companies have undertaken.”370

Part II The earning power of SMEs

2.

Effects of management support services█ Effects enjoyed by enterprises through the use ofmanagement support services

Next, we analyze the effects of management support
services. Fig. 2-5-84 shows the proportions of enterprises
who experienced actual effects by using management
support services. High proportions of enterprises found that
“Revitalization support” and “Internal systems support”
were effective, but the proportions were low for “M&A
support” and “Business succession support”. The grapharranges the management support services sequentially inorder of rate of use, but compared with items with highrates of use, those with low rates of use generally havehigher proportions of enterprises who found them to beeffective. This may be because the lower the rate of use
for an item, the more obvious the management issues
troubling the enterprise, which enables the financial
institution to provide a more satisfactory management
support service.

Revitalization support (n=176)
Internal systems support (n=101)

Section 3

Fig. 2-5-84 Proportions of enterprises who experienced actual effects by using
management support services

Support with policies such as management (n=377)
plans and business strategy
Advice on finance, taxation and labor (n=466)
Support for product/service development (n=97)

Contributions from funds affiliated (n=41)
with financial institutions
Human resource development support (n=226)
Support for overseas expansion (n=197)
Support in expanding markets/suppliers (n=953)
Supply of systems information (n=909)
R&D support (n=68)
Business succession support (n=347)
M&A support (n=241)(%)

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Totals are calculated for those enterprises who used management support services and responded that they wereeffective.

Next, we analyze those effects in more detail. Fig. 2-5-85
shows the effects of the management support services
delivered by financial institutions. High proportions ofenterprises nominated “Increase in sales”, “Improved
financial details” and “Increase in profit” as effects.
However, the proportions for “Improved satisfactionlevels among company customers”, “Provision of internalmanagement systems” and “Improved employee morale”
are lower than for the other items. This is probably
because, in terms of whether enterprises have utilized
the management support services, the proportions ofenterprises who have used the “R&D support”, “Support

for product/service development“, “Internal systems
support” and “Human resource development support”
services are low.
Next, we will inspect these effects according to the
management support service items used. Fig. 2-5-86
lists each of the management support services thatenterprises used and nominated as being effective, andlooks at the nature of those effects24). A high proportionof enterprises receiving “Support in expanding markets/
suppliers” experienced an “Increase in sales”, and thesame is true for “Expanded business sectors” among
enterprises receiving “Support for overseas expansion”

24) It must be noted that, because this question did not ask about the effects according to management support service, we cannot ignore thepossibility that some effects may be reflected from the use of other management support services.

371

Chapter 5 Financing to support growth in SMEs

From this, we can probably conclude that, as well asworking to improve the accuracy of management support
services with high rates of use, we also need initiatives toraise recognition levels for management support services
with low rates of use so that those rates of use are lifted.

and “Business continuity” in enterprises who received“Business succession support”. These and other outcomesdemonstrate a strong correspondence between support
services and effects, suggesting that the targeting ofmanagement support services provided by financial
institutions is very accurate.

Fig. 2-5-85 Effects enjoyed by enterprises through the use of management support
services(%)

Source:
Note:

372

ve
ds
le atian vels sfact
y c am ionustom ong
ers
mp

co

Im

pro

mp
lo
mo yee
ral
e
de
ve
pro
Im

ed
nd
pa
Ex

ma Prov
na isioge n ome f int ntesy rna
ste
ms l

bu
si
se ness
cto
rs

y
uit
tin
on
sc
es
sin
Bu

Im

pro
sk vedills knin ow
ex ledec
uti ge/
ve
s

fit
pro
in
se
rea
Inc

df
ve
pro
Im

Inc

rea

se

in

sa

ina
n
de cial
tai
ls

les

(n=1,010)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Fig. 2-5-86 Effects according to management support service

Increase in
sales

Improvedsatisfaction
Increase inlevelsprofitamong
company
customers

Expandedbusiness
sectors

Business
continuity

Improvedfinancialdetails

Provision
Improvedof internal knowledge/
management
skills in
systems
executives

Improved
employeemorale

74.9

40.4

8.0

20.8

11.2

20.5

7.8

16.2

6.2

Support for
product/service development(n=48)

66.7

41.7

22.9

33.3

14.6

39.6

12.5

27.1

20.8

Support for overseas
expansion(n=104)

38.5

22.1

6.7

43.3

12.5

16.3

25.0

22.1

7.7

M&A support(n=78)

47.4

39.7

10.3

55.1

15.4

28.2

10.3

15.4

7.7

Support with policies such as
management plans
and business strategy(n=216)

31.0

27.8

6.0

13.9

25.9

61.6

19.4

23.6

8.3

Business succession support(n=135)

27.4

20.7

7.4

16.3

60.0

34.1

17.8

28.9

4.4

Revitalization support(n=131)

22.9

28.2

9.2

7.6

48.9

83.2

16.8

14.5

5.3

Internal systems support(n=65)

29.2

21.5

6.2

20.0

24.6

40.0

63.1

38.5

12.3

Advice on finance, taxation,
legislation and labor(n=273)

26.4

22.7

10.3

12.5

19.0

50.5

28.2

46.2

12.1

Human resource
development support(n=129)

32.6

17.8

10.9

17.1

12.4

26.4

34.1

48.8

36.4

Supply of systems
information(n=388)

30.2

21.9

8.0

16.0

17.3

38.7

21.9

35.8

10.8

Source:Notes:

Section 3

Support in expanding
markets/suppliers(n=438)Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Totals for the effects of each management support service are calculated for enterprises who experienced therespective effects.
2.	 The three highest ranked management support services are colored, with the value for the top-ranked service shownin bold.

█ Effects of the management support services on
financial institutions

Below, we analyze the effects that providing
management support services had on the financial
institutions themselves. Fig. 2-5-87 shows the effects
that providing management support services had on thefinancial institutions, according to financial institution
type. A high proportion of financial institutions responded“Helped to boost loans to past clients”, “Helped increase
our share of past clients” and “Helped in acquiring newclients”, while less than 10% responded “No noticeable
effects”, showing that providing management support
services clearly had secondary effects for the financial
institutions involved.
Of the management support services that had the effects
already discussed, Fig. 2-5-88 shows those initiatives

with the strongest effects. The proportions were high for“Support in expanding markets/suppliers” and “Support
with policies such as management plans and businessstrategy”, and it is likely that these measures resulted in
effects such as increased sales and improved finances.
Measures such as these also strengthened the relationships
between financial institutions and enterprises, and one
can assume that financial institutions also benefited from
effects such as increases in the number of loans and newcustomers. In this way, despite declines in loans to SMEs
in the medium- and long-term, resolving enterprises’
management issues through these sorts of management
support services can generate a virtuous cycle that
improves the relationship between financial institutions
and enterprises.

373

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-87 Effects enjoyed by financial institutions through management support service
programs
Helped to boost loans to past clients
Helped increase our share of past clients
Helped in acquiring new clients
Effective in minimizing nonperforming loans
Improved the ratings of past clients
Helped expand services other thanloans (increased savings, etc.)
No specific effects, but enabled us todistinguish ourselves from competing banks
Helped normalize the profit margin on loans(n=2,980)

No noticeable effects(%)

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-5-88 Management support service initiatives with the greatest effects for financial
institutions
Support in expanding markets/suppliers
Support with policies such as management
plans and business strategy
Revitalization support
Supply of systems information
Business succession support
Advice on finance, taxation, legislation and labor
M&A support
Support for overseas expansion
Support for product/service development
Contributions from funds affiliatedwith financial institutions
R&D support
Internal systems support
Human resource development support
Don’t know(%)

Source:Note:374

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Part II The earning power of SMEs

Case

2-5-9

Osaka City Shinkin Bank (Osaka City, Osaka Prefecture)

A credit union putting extra effort into its matching efforts to improvetheir success rate

Section 3

Osaka City Shinkin Bank (OCSB), based in Osaka City, Osaka Prefecture, uses its own business model toproactively lend support to SMEs seeking to solve the problems of opening new sales channels.
Around 10 years ago, OCSB launched its City Shinkin Plus business matching program in an effort topair its SME customers with major manufacturers. The credit union had observed that many SMEs in theprefecture had superb technological capabilities, but lacked situations and opportunities to make the mostof that prowess. Staff from OCSB’s Corporate Assistance Department then visited major manufacturers in
the prefecture and, having signed confidentiality agreements and other such necessary contracts, createda mechanism for its SME business partners to get technological opportunities and create new businesses
with the goal of commercialization within two to three years. The mechanism was such that the Corporate
Assistance Department would sort out the technological opportunities and then present them to SMEs.
The credit union would pair major manufacturers with those companies that could solve the issues theseopportunities contained or could develop products in collaboration with the major manufacturer, and thencoordinate the technologies involved. One success story to date is that of proposing that a component usedin molding for extruding be shifted to press working and getting it supplied at considerably lower cost froman overseas source. The dealings that resulted was beneficial both to the major manufacturer and the SME.
Another such initiative that is underway has entailed getting a large enterprise to provide licensable
patents and devices (semifinished products), and then supporting one of OCSB’s SME business partners
in its effort to use them to develop new products. The proposal entailed putting a special film the major
manufacturer made to use on showcases—a niche field that the large enterprise never considered or due toits small size enter. It resulted in the two enterprises doing business with each other.
From October 2007 to December 2015, these efforts to support partner SMEs in developing new markets
generated 821 proposals to 5 major manufacturers. Of course, 483 led to business negotiations, and 87 todeals to use elemental technologies from those large enterprises.
One of the factors that assists such efforts at matching has been the keyword-search database that OCSB
has created. The database includes information in 32 categories, including the equipment a company owns,
its technology, and the aims of its executives. It also carries photos of a company’s products and summaryof its business. The entries are exhaustively detailed, using defined rules and keywords. Liaison officers ineach branch handle the basic information in the database, and specialist staff from the Corporate Assistance
Department visit companies to register them. The database is used to find matches between technologicalopportunities offered by major manufacturers and technological data about business partner SMEs.
The Corporate Assistance Department has also drafted a “Technology Handbook” and distributed it to liaison
officers to make collecting the basic information possible. One of the women working at the Department was
charged with compiling the handbook, but despite being quite far from the shop floors where these various
technologies are used she produced a book that allows the reader to understand technological terminology
from the rudiments up. Furthermore, as a tool to assist the liaison officers in collecting information, worksheets
were created to standardize how information is collected in the branches describing a company’s business.
This makes it easier for the liaison officers and businesspersons to communicate.
The goal of this project has been to improve the GDP of the region that is OCSB’s base. It is based on theidea that a business will not be a lasting one if it is not pursued as a business and made into a profitable one.
The result of these efforts in this area has been an expansion in the financing the OCSB provides. These areloans to business partner SMEs that have gotten orders from large enterprises as a result of this project, so
OCSB is able to respond in the right place and at the right time with its loans. OCSB realized loans focusedon business growth with less competition with other financial institutions.
Corporate Assistance Department Assistant Manager Toshiyuki Hibino says one of the factors behindthe project’s success is that “initiatives like this fulfill the primary responsibility of a credit union as a local
financial institution. The very foundations of OCSB are its relationships of trust with the local communityand business partner SMEs that it has shaped over many years. This program was developed for that very
reason. Even if other organization attempt a similar undertaking, it will be very difficult for them to pull off
given the lack of those fundamental trust relationships.”
Management support such as this that calls for a financial institution to spend some time on leads to the
opening of new markets for SMEs and for the institution to loans to be made to its partners SMEs so they
can grow. It is an undertaking whose mutual benefits are considerable.

375

Chapter 5 Financing to support growth in SMEs

█ Future issues with the promotion of management
support services

Next, we look at issues with the provision ofmanagement support services from viewpoints of both
enterprises and financial institutions. If we begin withthe enterprises’ perspective, a high proportion responded,“Frequent turnover of financial institution staff, etc.” and“Lack of knowledge of enterprises and the industry among
financial institution staff” (Fig. 2-5-89). The responses

around lack of knowledge accord with the views expressedby financial institutions, but the proportion of financial
institutions who feel that staff turnover is an issue is
not high. This shows that the viewpoints of financial
institutions and enterprises differ in some respects andare aligned in others, indicating that it is important tostrengthen the relationships between financial institutions
and enterprises.

Fig. 2-5-89 Factors seen by enterprises as barriers to receiving management support
services

Causes inenterprises

Causes in financial institutions

Lack of knowledge of enterprises and theindustry among financial institution staff
Frequent turnover of financial institution staff, etc.
Management support sales that prioritizes
the financial institution’s wishes
Sales approaches that presume sales offinancial institution loans
Policy differences between financial institution
branches and head officeAggressive approach by financial institutions
Low level of support content provided byfinancial institutions
Fees are charged for support and are too highRequirements imposed by financial institutions
disadvantage our company
Insufficient recognition by enterprises of theeffectiveness of support
Resistance to the acceptance of support byenterprises(n=3,226)

Insufficient disclosure by enterprises
Conflict of interest between financial institutions
and enterprises due to management support(%)

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-5-90 shows the issues with the promotion ofmanagement support services from the perspective offinancial institutions. In general, many financial institutions
responded that a lack of education and training acts as
a barrier for staff involved in providing management
support, as does a lack of knowledge in areas such as
customers’ businesses, their industry and their technicaland development capabilities. The largest proportionof credit unions and credit cooperatives also responded
that education and training were lacking, suggesting thatthe problem is with the way financial institution types
are structured and that support for training credit unionand credit cooperative staff is needed. Also, as shownin Fig. 2-5-43, the highest proportion of governmental
financial institutions saw the large number of clients as
an issue, indicating that the burden imposed by having somany clients needs to be alleviated.

376

Next, we look at systems where financial institutions
are unable to provide management support services only
at branches. Where the branch cannot handle a situation,
almost all financial institutions know which departmentin their head office they should contact (Fig. 2-5-91 (1)).
But where problems cannot be dealt with within financial
institutions and they need to cooperate with outside
consultants or firms, the proportion who know which
outside specialists or specialist agency to work withis 70% among commercial banks, regional banks andsecond-tier regional banks, and 40% among credit unions
and credit cooperatives (Fig. 2-5-91 (2)). It seems likely
that, within branches, staff do not have direct contact withspecific outside specialists or specialist agencies. Below,
we look at financial institutions’ cooperation with otherspecialist agencies, etc. in the provision of management
support services.

Part II The earning power of SMEs

Fig. 2-5-90 Issues with the promotion of management support services(%)

Commercial banks(n=106)

Regional banks, second-tierregional banks(n=1,205)

Credit unions, credit cooperatives(n=1,529)

Governmental financial institutions(n=51)

its
op
rof
ed
t
t ti
No

fre

lon M
g ed
qu is d -term ium
en iffit s cu sup andtaf lt d po
f tu ue rt
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wh me pa
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insf
is taff corma g on
no ha tiot e ng n
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the ve lienreq man no timts, sea uiremagem e toochco ents entI
mp ofthensuffanyind icie
us nt ktry noaw
bu nd led
sin cu ge
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uff
ils
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t
ab us knti
sk lities ome owle
ills , d r te dg
an eve ch e o
d i lo nic f
nte pm alelprolectu nt
Ins
pe al
u
r
f
t
ed ficiyuemacatio nt st
na n to afftgeme imp rainin
nt lem g/
su en
pp t
ort
Co
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be ict ofde twe inpa e tesu
pp ma rtme n loarest
ort na nt ns
de ge anpa me drtm nt
Pe
en
rfo
t
rm
an
ce
are evano luat a tion
pp s
lie
d

Section 3

Source:Note:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Fig. 2-5-91 Systems where financial institutions are unable to provide management
support services only at branches
Yes

Can’t say either way

No(1) If service cannot be provided only at the branch, is it understood which head office/division to work with?
Commercial banks (n=121)
Regional banks, second-tierregional banks (n=1,166)
Credit unions, credit
cooperatives (n=1,270)
Governmental financial
institutions (n=54)(2) If the company cannot respond adequately, is it understood which external agency to work with?
Commercial banks (n=120)
Regional banks, second-tierregional banks (n=1,163)
Credit unions, credit
cooperatives (n=1,270)
Governmental financial
institutions (n=54)

Source:Notes:

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 Totals were calculated with “Fully able” and “Somewhat able” responses taken as “Able (Yes)”, and with “Somewhat
unable” and “Almost completely unable” taken as “Unable (No)”.
2.	 Totals only calculated for responses from financial institution branches.

377

Chapter 5 Financing to support growth in SMEs

3.

Importance of management support services in cooperation with third parties█ Status of cooperation in management support
servicesthe financial institutions who responded that they areable to offer management support services, comparedwith those that cannot, are actively cooperating withthird parties for all the services listed. This cooperation
with outside specialists and outside specialist agencies
no doubt helps to improve the delivery of management
support services to enterprises in fields where the financial
institutions alone cannot respond.

Below, we look in detail at the status of cooperation
with outside consultants and agencies when management
support services are delivered. Fig. 2-5-92 shows thestatus of cooperation with outside specialists and outside
specialist agencies according to the status of management
support service provision. From this, we can confirm that

Fig. 2-5-92 Status of cooperation with third parties according to the status of management
support service delivery

Notes:

pp
ort
H
ve um
lop anme re
nt sou
su rc
pp e
ort
Int
ern
al
sy
s
su tem
pp s
ort

su
R&

D

de

pp

ort

for
o
ex vers
pa ea
ns s
ion
S
se upporvi rtce fo
de r prve od
lop uc
me t/
nt

po
up
As
Su

Financial institutions not able to offer
management support services (n=285 – 287)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 In terms of overall management support service capability, financial institutions who gave the “Able to respond”
or “Somewhat able to respond” response are taken to be “Financial institutions able to offer management support
services”, and those who gave the “Somewhat unable to respond” and “Almost completely unable to respond” aretaken to be “Financial institutions not able to offer management support services”.
2.	 Totals for the respective items are for the proportions of financial institutions who responded “Fully able to cooperate”
or “Somewhat able to cooperate”.

We will also examine the status of cooperationaccording to financial institution type. Fig. 2-5-93 shows
the status of cooperation with third parties for the three
items with the highest and lowest levels of engagement byfinancial institution type. For almost every item across all
financial institution types, there is active cooperation withthird parties on items with high levels of engagement,
and no cooperation with third parties on items with low

378

M&

Re

Source:rtFinancial institutions able to offer
management support services (n=1,836 – 1,855)

vit
ali
z
Su
su atiosu ppo
pp n
ch
ort
r
pla as mt with
ns
p
a
o
n
an ag licd b em ies
us e
str ines nt
Bu
ate s
sin
gy
es
ss
uc
ce
Ad
su ssio
vic
pp n
eo
ort
n
leg fina
isla ncetio , tan a xand tiolab n,
Su
or
pp
ort
ma in
rke exts/ pan
su di
pp ng
lie
rs
Su
pp
ly
of
inf sys
orm tem
ati s
on

(%)

levels of engagement. This shows that, even in cases
where financial institutions cannot respond to enterprises’
management issues for structural reasons or because of
the particular characteristics of the financial institution
type, by cooperating with other outside specialists oroutside specialist agencies, they can deliver management
support services and assist enterprises in resolving their
management issues.

Part II The earning power of SMEs

Fig. 2-5-93 Status of cooperation in management support services(2) Regional banks, second-tier regional banks(n=1,232 – 1,236)(1) Commercial banks(n=117 – 120)

Supply of systems information

Support in expanding
markets/suppliers

Advice on finance, taxation,
legislation and labor

Support for overseas
expansion

Support in expanding
markets/suppliersInternal systems support

Human resource
development support

Support for product/
service development

R&D support

R&D support

Internal systems support

(%)

(%)

(3) Credit unions, credit cooperatives(n=1,531 – 1,560)(4) Governmental financial institutions(n=55 – 56)

Supply of systems information

Supply of systems information

Advice on finance, taxation,
legislation and labor

Revitalization support

Revitalization support

Support for overseas
expansion

Support for overseas
expansion

Human resource
development support

Internal systems support

R&D support

R&D support

Support for product/
service development(%)

Source:Notes:

Section 3

Business succession support(%)

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 The figure takes the three items with the highest and lowest proportions of engagement by financial institutions inmanagement support services provided to enterprises in the maturation stage as shown in Fig. 2-5-83, and calculates
totals for the status of cooperation with other outside specialists or outside specialist agencies in those items.
2.	 Totals for the management support services are calculated with financial institutions who responded “Fully able tocooperate” or “Somewhat able to cooperate” taken to be financial institutions able to cooperate.

█ Issues with cooperation

So, what are the reasons for not cooperating with theseoutside specialists and specialist agencies. Fig. 2-5-94
shows the reasons why the different financial institution
types cannot cooperate with third parties for the threemanagement support services with the lowest levels of
engagement. Compared with other financial institution
types, commercial banks constituted a high proportionof the financial institutions who responded “No need forcooperation”. Even so, a high proportion of enterprises
responded “Haven’t found partners to cooperate with” forthe “Support for product/service development” and “R&D
support” items. And while regional banks and second-tierregional banks feel that cooperation is necessary, a highproportion of financial institutions responded “Haven’t
found partners to cooperate with”.
Credit unions and credit cooperatives made up a highproportion of the financial institutions who responded“Internal systems for cooperation not set up”. This gives
the impression that while commercial banks, regionalbanks and second-tier regional banks have systems inplace for cooperation, they still fail to cooperate because
they cannot find suitable cooperation partners. By contrast,
among credit unions and credit cooperatives, over 50%
of financial institutions cannot cooperate for reasons to
do with internal systems, suggesting that they do not findit easy to set up systems with the limited staff available
within the organization.

379

Chapter 5 Financing to support growth in SMEs

So it seems that it is difficult for financial institutions
to assist all enterprises in addressing their management
issues, and while support through cooperation with third
parties would be ideal, some financial institutions withlimited management resources find it difficult to provide
such cooperative systems. To resolve this situation, there
need to be compromises not just on the part of the financial

institutions, but also by specialists and specialist agencies
with which the financial institutions will work. Below, welook at the features of the approved support agencies forbusiness innovation (approved support agencies)25) thatare the mainstay of management assistance for enterprises
and examine the cooperation between financial institutions
and a variety of approved support agencies.

Fig. 2-5-94 Reasons for the lack of cooperation with third parties in management support
services
Internal systems for cooperation not set up

Haven’t found partners to cooperate with

No need for cooperation(1) Commercial banks
Support for product/
service development (n=30)
R&D support (n=30)
Internal systems support (n=17)(2) Regional banks, second-tier regional banks
Internal systems support (n=195)
R&D support (n=275)
Human resource development
support (n=189)(3) Credit unions, credit cooperatives
R&D support (n=560)
Internal systems support (n=402)
Support for overseas
expansion (n=665)

Source:Notes:

4.

Mizuho Research Institute Ltd., Survey of Fund Raising by Small and Medium Enterprises (December 2015), commissionedby the SME Agency.
1.	 The reasons for being unable to cooperate in the three items with the lowest proportions of management support
service involvement among the different financial institution types were calculated for financial institutions who
responded that they were “Somewhat unable” and “Almost completely unable” to cooperate with outside specialists/
agencies.
2.	 Governmental financial institutions were excluded from the calculations as the number of responses obtained wasinsufficient.

Enhancing the support systems for SMEs

█ Support sectors and content in which approved
support agencies specialize

In this section, we look at the features of the approved
support agencies for business innovation (“approved

support agencies”) that are the prime providers ofassistance to SMEs based on the results of a Random
Survey of Approved Support Agencies for Business
Innovation conducted by the SME Agency in July 2015.

25) Support agencies for business innovation (approved support agencies) are public assistance institutions approved by the Japanese
government for people with specialist knowledge or business experience of a set level or better who ensure that SMEs and micro-businesses
receive consistent management advice, etc. Specifically, the people certified as approved support agencies are primarily SME support bodies
such as Societies of Commerce and Industry and Chambers of Commerce and Industry, along with financial institutions and specialists suchas certified public tax accountants, certified public accountants and lawyers.

380

Part II The earning power of SMEs

Our analysis of the results divides the approved support
agencies into four groups: certified public tax accountants,
lawyers and certified public accountants (“certified public
tax accountants, etc.”), financial institutions, Commerce
and industry associations, Chambers of Commerce andIndustry and National Federation of Small Business
Associations (“SME support bodies, etc.”) and small andmedium enterprise management consultant and otherconsultants (“SME management consultants, etc.”).
We begin by looking at the support sectors in whichapproved support agencies specialize (Fig. 2-5-95). The
highest proportion of certified public tax accountants, etc.,

financial institutions and SME management consultants,
etc. specialize in assisting with “Management reform,business revitalization”. The highest proportion of SME
support bodies, etc. specialize in assistance for “Businessstartups, secondary startups”. High proportions of SME
support bodies, etc. and SME management consultants, etc.
also specialize in support for “Management innovation”,
whereas the proportions are low among certified public tax
accountants, etc. and financial institutions. Also, certified
public tax accountants, etc. alone recorded a low level for“Sales expansion” compared with other approved support
agencies.

Section 3

Fig. 2-5-95 Support sectors in which approved support agencies specialize(%)

Certified public tax accountant, lawyer,
certified public accountant, etc. (n=5,759)

Financial institutions (n=481)

Commerce and industry associations,
Chambers of Commerce and Industry,
National Federation of Small Business Associations (n=230)

Small and Medium Enterprise Management
Consultant, consultants, etc. (n=381)

Management
Business startups,
reform, business secondary startups
revitalization

Source:Notes:

Management
innovation

Sales expansion

Business
succession

Cooperation withother sectors

Discontinuation

SME Agency, Random Survey of Approved Support Agencies for Business Innovation.
1.	 “Certified public tax accountant, lawyer, certified public accountant, etc.” includes certified public tax accountancy
firms, legal firms and auditing firms.
2.	 Categories with low response numbers are omitted.
3.	 Total does not always equal 100% as multiple responses were possible.

Next, we look at the specific content of the support inwhich approved support agencies specialize (Fig. 2-5-96).
Among all the approved support agencies, a proportion ofover 50% responded “Business plan formulation, financial
analysis” or “Financial position”, and response levels
were also high for items closely related to “Management
reform, business regeneration”, which is an area ofspecialization for many approved support agencies.
Also, almost 50% of the approved support agencies(except for the tax accountants, etc.) support “Trading
area expansion”, which will help resolve the problem ofmarket development that so many SMEs nominated as amanagement issue.
When we look at the items chosen by over 20% of the
respondents, certified public tax accountants, etc. chose
three items, suggesting that they specialize in particularfields. But financial institutions chose 6 items, SME
support bodies, etc. chose 9 items and SME management
consultants, etc. chose 8 items, which shows that they
provide a far broader range of specialist support services
than certified public tax accountants, etc.

381

Chapter 5 Financing to support growth in SMEs

Fig. 2-5-96 Support content in which approved support agencies specialize
Commerce
and industry
associations,
Small and Medium
Chambers ofEnterpriseCommerce andManagement
Industry, National
Consultant,Federation of
consultants, etc.
Small Business(n=369)
Associations(n=226)

Certified public
tax accountant,lawyer, certified
public accountant,etc.
(n=5,439)

Financial
institutions(n=481)Business plan formulation, financial analysis

80.2

88.6

73.0

85.9

Financial position

65.5

69.2

69.0

58.0

Knowledge of management

27.2

26.2

44.7

44.4

Policy utilization

7.2

42.8

46.5

33.1

Trading area expansion

6.3

46.6

49.1

44.7

Overseas Expansion

1.7

12.9

6.2

6.8

Use of IT (information and communications, increased value-adding)

3.2

8.1

22.6

19.2

Use of IT (internal management and greater efficiency)

9.2

0.8

5.3

15.4

Product development

1.6

12.1

26.1

24.9

Regional resource utilization

1.3

8.1

22.6

15.2

PR strategy, brand enhancement

2.0

7.1

21.2

19.2

Product design

0.5

2.7

6.6

3.3

Advertising design

0.4

2.5

5.3

3.5

Receivables protection/collection

3.2

2.5

1.8

3.8

Employment/Labor

7.6

5.4

19.0

12.7

Source:Notes:

Legislation

9.6

4.0

7.1

6.5

Work site improvements, increased productivity

9.0

21.0

13.7

35.8

Improvement of service provision processes

2.1

4.2

8.0

21.4

Intellectual property

0.6

3.1

4.4

6.8

Other support

7.2

23.1

11.9

17.6

Recompiled from the SME Agency, Random Survey of Approved Support Agencies for Business Innovation.
1.	 Items that scored 50% or higher are shaded in red, items that scored 30% to less than 50% are shaded in green, anditems that scored 20% to less than 30% are shaded in blue. (Note that other items are excluded.)
2.	 Total does not always equal 100% as multiple responses were possible.

█ Management innovation/cooperation with othersectors using approved support agencies and theimplementation status of management reforms

Next, we consider information such as the numbers of
support enterprises in each support sector. Here, we classify
support into two sectors: “management innovation/
cooperation with other sectors” and “management
reform sectors”. We will also compare the management
reform implementation status of financial institutions
and certified public tax accountants, etc.26), which wereconfirmed as playing a major role as consultation partners
during the formulation by SMEs of management reform
plans and growth investment.
Firstly, we look at management innovation andcooperation with other sectors (Fig. 2-5-97). Comparedwith certified public tax accountants, etc., financial
institutions support more companies in number to conduct
management status analysis and assist with businessplan formulation. This difference is most likely due tothe difference in the sizes of financial institutions andcertified public tax accountants, etc. in terms of employee
numbers.
Next, we look at the status of the implementation of
support for management reforms by approved support
agencies (Fig. 2-5-98). As with management reforms
and cooperation with other sectors, we see that there are
more financial institutions actually engaged in assistingwith management status analysis and supporting theformulation of business plans.

26) In this survey, certified public tax accountants, etc. includes lawyers as well as certified public tax accountants and certified public
accountants, but certified public tax accountants and certified public accountants (including certified public tax accountancy firms andauditing firms) make up 98.7% of the total in the certified public tax accountants, etc. category. The characteristics of certified public tax
accountants and certified public accountants are reflected strongly.

382

Part II The earning power of SMEs

Fig. 2-5-97 Implementation status of management innovation/cooperation with othersectors by approved support agencies(1) No. of companies supporting to analyze the yearly management status
100 companies or more

50−99 companies

10−49 companies

1−9 companies

Not implemented

1−9 companies

Not implemented

Certified public tax
accountant, lawyer,
certified public
accountant, etc.
(n=5,362)
Financial institutions(n=466)100 companies or more

50−99 companies

10−49 companies

Section 3(2) No. of companies supporting to formulate yearly business plans

Certified public tax
accountant, lawyer,
certified public
accountant, etc.
(n=5,258)

Financial institutions(n=463)

Source: Recompiled from the SME Agency, Random Survey of Approved Support Agencies for Business Innovation.

Fig. 2-5-98 Implementation status of management reform support by approved support
agencies(1) No. of companies supporting to analyze the yearly management status
100 companies or more

50−99 companies

10−49 companies

1−9 companies

Not implemented

1−9 companies

Not implemented

Certified public tax
accountant, lawyer,
certified public
accountant, etc.
(n=5,112)

Financial institutions(n=474)(2) No. of companies supporting to formulate yearly business plans
100 companies or more

50−99 companies

10−49 companies

Certified public tax
accountant, lawyer,
certified public
accountant, etc.
(n=5,044)

Financial institutions(n=475)

Source: Recompiled from the SME Agency, Random Survey of Approved Support Agencies for Business Innovation.

383

Chapter 5 Financing to support growth in SMEs

█ Status of cooperation in approved support
agencies

Finally, we look at the status of cooperation inapproved support agencies. If we start by looking at
whether approved support agencies cooperate withother approved support agencies or outside support

agencies when providing assistance to enterprises, over
90% of financial institutions, SME support bodies,etc. and SME management consultants, etc. cooperate.
However this trend is somewhat weaker in certified
public tax accountants, with only 65% or so cooperating(Fig. 2-5-99).

Fig. 2-5-99 Status of cooperation in approved support agencies
Cooperating

Not cooperating

Certified public tax accountant,
tax corporation, certified public
accountant, etc.
(n=4,990)

Financial institutions(n=472)

Small and Medium
Enterprise Management
Consultant, consultants, etc.
(n=236)
Commerce and industry
associations, Chambersof Commerce and Industry,
National Federation of Small
Business Associations(n=354)

Source:Recompiled from the SME Agency, Random Survey of Approved Support Agencies for Business Innovation.

Next, we look in more detail at the partners whom
approved support agencies cooperate (Fig. 2-5-100).
The totals calculated here are for the three primaryagencies nominated as cooperation partners among othercooperating approved support agencies and outside
support agencies. Looking at the figure, we see that
financial institutions and small business associations
actively cooperate with approved support agencies thathave different attributes to their own, and that there is a384

strong tendency for them to cooperate with outside support
agencies that are closely related to them in terms of theirregionality or specialty. SME management consultants,
etc. primarily cooperate with approved support agencies
that have attributes that are unlike their own. Certified
public tax accountants, etc. very frequently cooperatewith financial institutions, but are much less likely tocooperate with other approved support agencies or otheroutside support agencies.

Part II The earning power of SMEs

Fig. 2-5-100

Cooperatingwith otherthan approved
supportagencies

Source:Notes:

Commerce
and industry
associations,
Small andChambers of
MediumCommerce
Enterpriseand Industry, Management
National
Consultant,Federation of
consultants
Small Business(n=150)
Associations(n=183)

Certifiedpublic tax
accountant,lawyer,certified public
accountant,etc.
(n=3,331)

Financial
institutions(n=468)

Certified public tax accountant, lawyer,
certified public accountant, etc.

31.8

51.4

29.8

49.2

Financial institutions

85.6

28.9

79.0

63.4

Commerce and industry associations, Chambers of Commerceand Industry, National Federation of Small Business Associations

21.9

37.0

27.8

46.2

SME Management Consultants

14.7

39.6

45.4

30.5

Prefectural and municipal governments, etc.

13.9

19.9

41.0

16.3

Revitalization Support Councils

11.0

63.6

2.4

24.8

Organization for Small & Medium Enterprises
and Regional Innovation, Japan

6.3

14.3

12.7

5.4

Other

6.1

22.7

8.3

9.1

Section 3

Cooperation
betweenapproved
supportagencies

Cooperation partners for approved support agencies

Recompiled from the SME Agency, Random Survey of Approved Support Agencies for Business Innovation.
1.	 Items that scored 50% or higher are shaded in red and items that scored 30% to less than 50% are shaded in green.
(Note that other items are excluded.)
2.	 Totals are calculated for up to three responses nominating primary cooperation partners.

Above, we examined the situation around the support
provided to SMEs by approved support agencies andnoted that aspects of that support differ depending on theattributes of the approved support agency, the support
sector in which it specializes, the nature of the support
provided and whether or not it involves cooperation.
When we compare certified public tax accountants,
etc. and financial institutions, which are the most likely
consultation partners for SMEs in the formulation ofmanagement reform plans and growth investment, thesupport sectors and content that certified public tax
accountants, etc. focus on tends to be limited to theirown areas of expertise, and many of them cooperate withfinancial institutions when delivering support. The levelof cooperation with other support agencies was generally
low. However, we also saw that a set number of financial
institutions, in addition to their own areas of expertise,
also target their support to initiatives such as expanding
sales and cooperate with a large number of support
agencies.

385

Chapter 5 Financing to support growth in SMEs

Case

2-5-10Toyokawa Shinkin Bank
(Toyokawa City, Aichi Prefecture)

A credit union that focuses on developing executives by running amanagement cram school
Toyokawa Shinkin Bank, based in Toyokawa City, Aichi Prefecture, spends its energies on developing
executives. As part of the work of its Management Support Department, the credit union in 2008 opened
the “Kawashin Management Cram School” to instruct executives on such topics as financial analysis,
formulating business plans, and managing intellectual assets.
In 2002, Toyokawa Shinkin had established an internal unit dedicated to providing corporate assistanceand provided consulting to partner enterprises on such matters as business rehabilitation. However, thecredit union came to sense there was a need for younger executives to have a venue for learning aboutprospective business, and so the cram school program was born. When financial institutions offer seminarsof this sort, they frequently outsource them to external consultants. However, in Toyokawa Shinkin’s casethe credit union took it upon itself to handle everything from planning to operation. The reason for being
so particular about the program is that the credit union had the idea it wanted the flexibility to match theschool’s offerings with the takers’ own situations, and it also had a store of know-how geared toward thefuture.
Initially, Toyokawa Shinkin fumbled around with how to proceed. The focus was on lectures and on
students drafting and giving presentations on “my company’s future chronology.” Most of the instructors
were staff from the credit union’s Management Support Department.
The content of the program gradually became more rounded out with each time it was held. The
program came to include not only lecture-style offerings, but also included group discussion sessions. To
induce industry-academia collaborations, it added tours of university laboratories and research offices. It
also added program that induced senior management from the students’ companies to take part so thatmanagers would share their struggles with their own company’s management.
As for operation of the program, Toyokawa Shinkin moved beyond its Management Support Department
to get staff from its branch offices as well as from accountancy firms involved as well. They supported thestudents in doing financial analyses and working out management plans of their companies.
Starting in fiscal 2014, responsibility for operating the cram school was transferred to the newly
established Regional Contribution Department. While it continued in that duty, the Management Support
Department focused on providing assistance to individual companies. Working in collaboration with outside
experts, this department took on drawing up management plans and on-site improvements.
The Management Cram School initiative served to improve the management capabilities of executives at
Toyokawa Shinkin’s business partners and contributed to performance improvements there. In the process,the credit union also fostered and developed the staff in its own Management Support Department andfrom its branches. By following up with executives from business partners through the program or at theindividual companies where they offered their assistance, the branch employees were able to develop closer
ties with them and learn about perspectives on management support.
The main reason why this initiative was successful is that it had a collaborative structure in which
Toyokawa Shinkin’s Management Support Department took the lead and outside experts compensated for
those areas where something was lacking. In those collaborations with outside experts, the credit union
focused on getting a sense of which areas they specialized in. By increasing its contacts with such experts
and entering information about them into a database, Toyokawa Shinkin made it possible to provide evenmore appropriate support in the future. Furthermore, before the program got under way the Management
Support Department undertook such initiatives as holding study groups in collaboration with accountancy
firms and SME management consultants. The fact that it already developed relationships of mutual trustwith these firms and individuals has also led to closer collaborations with experts.
Thus, it would seem that Toyokawa Shinkin is getting its ideas across to executives and its Management
Cram School program is succeeding because the credit union is spending some effort to manage it internallywhile collaborating effectively with outside parties.

386

Part II The earning power of SMEs

Summary of Section 3
nominate certified public tax accountants, etc., as theirmost important consultation partners. However, whilecertified public tax accountants, etc. cooperate very
closely with financial institutions, they seldom work withother approved support agencies.
Many approved support agencies primarily cooperatewith financial institutions. It is also likely that debtfree enterprises, because they have so little contact withfinancial institutions, would primarily cooperate withpartners such as certified public tax accountants, lawyers,
attorneys and SME management consultants. In this way,
approved support agencies, by cooperating so as to makeuse of the respective strengths of their partners, could wellhelp to boost the effectiveness of their support for SMEs.
In this Chapter, we have seen how SMEs provide theappropriate information to financial institutions and thefinancial institutions then develop still closer cooperative
arrangements with related agencies in order to offer
financing based on feasibility assessments. This has theeffect of broadening the options available for SMEs
to fund growth investment. Providing assistance thatinvolves cooperation among financial institutions andother support agencies to support the growth of SMEs
may well enable those SMEs to steer a course towards
growth and thereby improve their earning power.

Section 3

In this section, we looked at the non-financial support
provided by financial institutions, namely management
support services, and examined the level of financial
institutions’ engagement in those services, the effects
and the issues faced. We saw that services to support the
expansion of markets and suppliers, such as businessmatching, and the provision of systems information, suchas information on subsidies, attracted high rates of use.
We also saw that that sort of support could be effective,
with SMEs increasing their sales and improving theirfinancial positions. On the other hand, we also noted that
support from financial institutions for human resource
development is lacking, even though it is greatly neededby enterprises, and that there are some areas where theneeds of enterprises are not being met, which may giverise to issues in the future.
We also confirmed the importance of cooperationin providing management support services, and foundthat even so there are some situations where suitablecooperation partners cannot be found or cooperation islacking because, for instance, the internal systems needed
for cooperation are not provided. Clearly, it is important
to stimulate active cooperation among support agencies toensure that a full range of management support services isprovided. SMEs, including debt-free enterprises that have
only tenuous relationships with financial institutions,387

Chapter 6
Management capabilities that determine SME earning power
In previous chapters, we have gained an overview of the changes in the economic structures
confronting SMEs, while analyzing the factors that underlie successful investment in the programs
that fund IT and overseas expansion as discussed in Chapters 2 and 3. We also focused on thepeople who play a leading role in investment and analyzed the outcomes of that investment. In
Chapter 4, we also focused on the risk management that is indispensable to support measures
aimed at boosting sales, analyzing the current situation around risk management by SMEs andissues for the future. Then, in Chapter 5, we looked more closely at the financial institutions that
support business activity by SMEs and summarized the changes in the structures whereby financemoves around, analyzing the relationships between financial institutions and SMEs to tease out
the importance of mutual understanding between the two.
This brings us to Chapter 6, where we focus on the management capabilities of enterprises.
Business activity consists making a range of different decisions that will determine the future courseof action for an enterprise. For example, in the case of the investments in IT or overseas expansion
discussed above, judgments made by management or by individual managers determine whether
the investment will proceed, and those outcomes can have a huge impact on the profitability of theenterprise. The backgrounds to the decisions made by enterprises are varied, as are the processes
that lead to the decision-making, but it seems likely that there are common characteristics that
apply to profitable enterprises. Conversely, it is also likely that enterprises that currently have little
earning power are plagued by limitations on growth due to factors internal to the enterprise, andthese factors lead to the differences in earning power compared with profitable enterprises.
Based on this awareness of the issues, this chapter will attempt to identify the particularcharacteristics of profitable enterprises and analyze the key elements that lead to growth in
those enterprises, thereby promoting the growth of enterprises with strong growth potential.
Specifically, Section 1 will identify the actual status of profitable enterprises as well as enterprisesthat have high potential to grow into profitable enterprises, and will analyze the differences in thecharacteristics of enterprises that are profitable and those that are not. In Section 2, we cover the
rejuvenation of enterprises as one aspect of their growth and analyze the importance of revitalizing
their “metabolism” to achieving growth.

Section 1

Growth in growing enterprises and the limiting factors

This section begins by outlining the status of those
SMEs designated as “profitable enterprises” and as“enterprises with a high potential for growth” (“highgrowth potential enterprises”)1). Then we go on to analyze

the organizational structures in profitable enterprises andthe levels of awareness within management or individual
managers, and identify the characteristics of profitableenterprises.

1) The analysis in this section primarily uses the Basic Survey of Japanese Business Structure and Activities by METI. The reasons for thisinclude the fact that the survey: (1) collects detailed data on the financial status of enterprises; and (2) permits multi-faceted analysis ofinvestment behavior by enterprises. However, it must be noted that the survey does not address enterprises with fewer than 50 employees orenterprises with less than ¥30 million in capital or investments.

388

Part II The earning power of SMEs

Identifying the status of growth enterprises and high growth potential enterprises

Fig. 2-6-1 shows our approach to the classification of
the SMEs to be analyzed. Highly profitable enterprises
are at the summit and immediately below those are highgrowth potential enterprises. Where an enterprise has
issues with boosting its profitability or growth, there
may well be factors that are limiting the growth of thatenterprise.
One possible limiting factor is the investment behaviorof the enterprise. To develop sustainably and increase
their profitability, enterprises must build a platform for
future growth by investing in ways that are appropriate
for their particular needs and based on a medium- to

Fig. 2-6-1

long-term vision.
With this in mind, this section provides an overview
of profitability among SMEs and shows that there isa certain number of SMEs that actually have higher
profitability than large enterprises. Next, in an attempt toclassify SMEs based on their profitability and investment
procurement capacity, we look at recurring profit margin
as an indicator of profitability and at ratios of equity tototal assets as an indicator of enterprises’ capacity to
attract investment. We then look generally at the trends
in profitability and investment behavior within thoseclassifications.

Section 1

1.

Schematic diagram of growth enterprise classification
Profitability
Profitableenterprises

High growth potential enterprises

Enterprises thatneed help to growEnterprises seeking
sustainable growthor resolving social issues█ Distribution of sales per employee

We begin by looking at the distribution of total sales
per employee (“sales per person”) (Fig. 2-6-2). While thesales per person in SMEs totals ¥45 million, the average
figure for large enterprises is ¥80 million, showing thatthe average sales per person in SMEs is lower than thatin large enterprises. Looking at the situation by industry,
the average figure in the manufacturing industriesis ¥32 million for SMEs and ¥62 million for large
enterprises. In the non-manufacturing sector the average

figure is ¥62 million for SMEs and ¥88 million for large
enterprises. So even viewed from an industry-specificperspective, there is still a gap between SMEs and large
enterprises. On the other hand, there are SMEs with higher
figure than the average for large enterprises. Specifically,
10.9% of SMEs in all industries have higher sales perperson than larger enterprises, and the equivalent figurein the manufacturing and non-manufacturing industries is
7.9% and 16.6% respectively.

389

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-2

Distribution of sales per employee(1) All industries(%)

Large enterprises

SMEs
Average for SMEs: ¥45 million

Average for large
enterprises: ¥80 million
Proportion of SMEs
with higher sales than
the average for large
enterprises: 10.9%(¥10,000)(2) Manufacturing(%)
Average for SMEs: ¥32 million

Average for large
enterprises: ¥62 million
Proportion of SMEs with higher sales than
the average for large enterprises: 7.9%(¥10,000)(3) Non-manufacturing(%)

Average for SMEs: ¥62 million

Average for large
enterprises: ¥88 million

Proportion of
SMEs with higher
sales than the
average for large
enterprises: 16.6%(¥10,000)

Source:Note:390

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
It must also be noted that there are some large enterprises where the sales per person exceeds ¥100 million, accountingfor 17.4% of the total in all industries, 10.4% in manufacturing and 20.8% in non-manufacturing industries.

Part II The earning power of SMEs

Next, we look at the distribution of recurring profit
margins (Fig. 2-6-3). In all industries, the average value
for the recurring profit margin among SMEs is 3.48%,
while the average figure for large enterprises is 4.34%.
There is also a high proportion of SMEs with a negative
recurring profit margin, while large enterprises include ahigher proportion with a positive recurring profit margin.
When we break the figures down by industry, the averagevalue in the manufacturing industries is 3.74% for SMEs
and 5.84% for large enterprises.

In the non-manufacturing industries, the average valueis 3.14% for SMEs and 3.62% for large enterprises. This
indicates that overall, the average recurring profit margin
is lower in SMEs than in large enterprises, though thedisparity between SMEs and large enterprises is smaller in
the non-manufacturing industries than in manufacturing.
However, the figure also shows that some SMEs havehigher figure than the average for large enterprises,
comprising 32.3% of SMEs in all industries, 27.1% inmanufacturing and 33.0% in non-manufacturing.

Section 1█ Distribution of recurring profit margin391

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-3

Distribution of recurring profit margin(1) All industries
SMEs

Large enterprises(%)
Average for large enterprises: 4.34%
Average for SMEs: 3.48%
Proportion of SMEs with higher recurring
profit margin than the average for large
enterprises: 32.3%

Less than
Recurring profit margin (%)(2) Manufacturing(%)
Average for SMEs: 3.74%

Average for large enterprises: 5.84%

Proportion of SMEs with higher recurring
profit margin than the average for large
enterprises: 27.1%

Less than
Recurring profit margin (%)(3) Non-manufacturing(%)
Average for SMEs: 3.14%
Average for large enterprises: 3.62%
Proportion of SMEs with higher recurring
profit margin than the average for large
enterprises: 33.0%

Less than
Recurring profit margin (%)

Source:392

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.

Part II The earning power of SMEs

Finally, we look at the distribution of equity to total
assets (Fig. 2-6-4). The average ratio of equity to total
assets among SMEs is 39.5%, whereas the average
figure for large enterprises is 41.7%, indicating thatwhile SMEs tend to have lower average equity to total
assets than large enterprises, the difference is minimal.
When we break the figures down by industry, the averagevalue in the manufacturing industries is 40.7% for SMEs
and 49.5% for large enterprises, while the figures in the
non-manufacturing industries are 38.0% for SMEs and37.9% for large enterprises. So we see that there is a
noticeable difference between SMEs and large enterprises
in manufacturing, but virtually no difference at all in the

non-manufacturing industries. There are also some SMEs
with higher figure than the average for large enterprises,
making up 47.1% of SMEs in all industries, 39.6% inmanufacturing and 48.7% in non-manufacturing.
From the results shown in Fig. 2-6-2, Fig. 2-6-3 andFig. 2-6-4, we have seen that overall, profitability andequity to total assets in SMEs is generally lower than the
average figures for large enterprises, but that some of theSMEs have earning power and investment capability thatis on a par with or superior to that of large enterprises.
Below, we attempt to classify SMEs according to theirprofitability and ratio of equity to total assets based onthese results.

Section 1█ Distribution of equity to total assets

393

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-4

Distribution of equity to total assets(1) All industries
SMEs

(%)

Large enterprises
Average for large enterprises: 49.5%
Average for SMEs: 39.5%

Proportion of SMEs with higher
equity to total assets than the
average for large enterprises: 47.1%

or moreLess thanEquity to total assets (%)(2) Manufacturing(%)

Average for SMEs: 40.7%

Average for large enterprises: 49.5%

Proportion of SMEs with higher
equity to total assets than the
average for large enterprises: 39.6%
Less thanor moreEquity to total assets (%)(3) Non-manufacturing(%)

Average for large enterprises: 37.9%

Average for SMEs: 38.0%

Proportion of SMEs with higher
equity to total assets than the
average for large enterprises: 48.7%
Less thanor moreEquity to total assets (%)

Source:394

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.

Part II The earning power of SMEs

among large enterprises as the benchmark for classifying
SMEs into four categories2). Fig. 2-6-5 shows the numbers
and proportions of SMEs organized based on rates ofordinary profit and equity to total assets using the averagevalues for large enterprises as indices. Bearing the abovein mind, we can assume that enterprises located in area (1)are profitable enterprises, while those in areas (2) and (3)have high potential for growth. In this section, we analyze
the differences in the financial characteristics and in theapproaches adopted by management in the enterprisesin the respective areas, based on the four categories inFig. 2-6-5. From this point on, unless otherwise stated,
analysis will assume that enterprises in (1) are defined as“profitable enterprises”, enterprises in (2) are defined as“enterprises with a high ordinary profit ratio”, enterprisesin (3) are defined as “enterprises with a high equity ratio”,
and those in (4) are defined as “other enterprises”.

Based on the analysis above, we will now consider
those SMEs that are profitable or that have high growthpotential. When we consider SMEs on the basis of thetwo indices of ordinary profit and equity to total assets,
profitable enterprises are those that consistently makemoney. Accordingly, such enterprises are likely to havehigh rates of both ordinary profit and equity to total assets.
When we define profitable enterprises as those with highrates of both ordinary profit and equity to total assets
in this way, we can also suggest that enterprises withhigh equity to total assets but low ordinary profit rates,
while they may not currently be as profitable as the more
profitable enterprises, they still have the right level ofstability for funding procurement.
So, in the analysis in this section, we want to use theaverage rates of ordinary profit and equity to total assets

Fig. 2-6-5

Classification of SMEs based on rates of ordinary profit and equity to total
assets[Enterprise categories]

Average ratio of equity
to total assets(3)
2,576 businesses(24.0%)(1)
2,042
businesses(19.0%)(4)
5,023 businesses(46.7%)(2)
1,108
businesses(10.3%)

41.0%(average for large enterprises)

4.0%(average for large enterprises)

Enterprise categories(1) Profitable enterprises(2) Enterprises with a high ordinary
profit ratio(1) Profitable enterprises(2) Enterprises with a high ordinary profit ratio(3) Enterprises with a high equity ratio(4) Other enterprises

Average ordinary
profit rate

[Manufacturing][Non-manufacturing]
No. of enterprises

Proportion

No. of enterprises

Proportion

1,066

17.3%

(1) Profitable enterprises

976

21.2%

10.3%

(2) Enterprises with a high ordinary
profit ratio

475

10.3%

633

Enterprise categories(3) Enterprises with a high equity ratio

1,329

21.6%

(3) Enterprises with a high equity ratio

1,247

27.1%

(4) Other enterprises

3,119

50.7%

(4) Other enterprises

1,904

41.4%

Source:Note:

Section 1█ SME classification

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
The upper left figure was compiled using statistics for all industries.

2) Here, panel data for a 10-year period was compiled and analyzed using data from the Basic Survey of Japanese Business Structure andActivities by METI. As a result, it must be noted that this data differs from the average values shown in Fig. 2-6-2, Fig. 2-6-3 and Fig. 2-6-4.
Note also that the 10-year panel data population in Fig. 2-6-5 is classified based on average values for the last 3 years.

395

Chapter 6 Management capabilities that determine SME earning power█ Trends in recurring profit margin rates, sales
and ratios of equity to total assets

Firstly, we look at trends in recurring profit margin
rates (Fig. 2-6-6). Looking at trends for all industries,
we see that the levels for “Profitable enterprises (1)” aregenerally high. But looking specifically at “Enterprises
with a high equity ratio (3)”, the trend values from 2004
to 2009 closely match those for “Enterprises with a highordinary profit ratio (2)”. But from 2010 onwards, thevalues are significantly lower than those for “Enterprises
with a high ordinary profit ratio (2)” and are generally
trending downwards. Also, when we compare “Profitableenterprises (1)” with “Enterprises with a high equity ratio(3)”, we see that the difference between the two tends

396

to grow over time. Looking at trends by industry, in the
manufacturing industries “Enterprises with a high equity
ratio (3)”, were at roughly the same level as “Enterprises
with a high ordinary profit ratio (2)” until around 2009. But
from 2010 onwards, as with the changes in all industries,“Enterprises with a high equity ratio (3)” trended much
lower than “Profitable enterprises (1)” and “Enterprises
with a high ordinary profit ratio (2)” and tended to go into
decline. One distinctive feature of the non-manufacturingindustries is that the level for “Profitable enterprises (1)”is relatively high. But when we look at “Enterprises with ahigh equity ratio (3)”, we see that they scored consistently
lower than “Enterprises with a high ordinary profit ratio(2)” during the 10-year period from 2004 to 2013.

Part II The earning power of SMEs

Trends in recurring profit margin

Section 1

Fig. 2-6-6(1) All industries
Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)

(%)

(FY)

(2) Manufacturing
(%)

(FY)

(3) Non-manufacturing
(%)

(FY)

Source:Note:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
The enterprise categories are as defined for Fig. 2-6-5.

397

Chapter 6 Management capabilities that determine SME earning power

Secondly, we look at the trends in the average values
for total sales per individual employee (Fig. 2-6-7).
Looking at trends for all industries, we see that “Profitableenterprises (1)” are consistently at the lowest level. But
the trend for “Enterprises with a high equity ratio (3)”is generally close to but slightly lower than for “Other
enterprises (4)”. But as with the changes in ordinary profit
rates, there is a slight easing trend from 2009 onwards.
If we look at the trends by industry, there is little
difference between “Profitable enterprises (1)” and “Other
enterprises (4)” in the manufacturing industries, with both
enterprise categories showing the same sort of movements398

in the 10-year period between 2004 and 2013. If we single
out “Enterprises with a high equity ratio (3)”, we see thatit tends to be at the lowest level of all the categories.
In the non-manufacturing industries, we note that there
is a discrepancy between “Profitable enterprises (1)” and“Other enterprises (4)” in terms of the sales per person,
amounting to a difference of around ¥30 million perperson between the two categories. For “Enterprises witha high equity ratio (3)”, the situation is similar to that for
all industries, with the trend being generally close to but
slightly lower than for “Other enterprises (4)”. But there
is also a slight softening trend from 2009 onwards.

Part II The earning power of SMEs

Trends in average sales per employee(1) All industries(10000 yen/person)

Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)Section 1

Fig. 2-6-7(FY)(2) Manufacturing(10000 yen/person)(FY)(3) Non-manufacturing(10000 yen/person)(FY)

Source:Note:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
The enterprise categories are as defined for Fig. 2-6-5.

399

Chapter 6 Management capabilities that determine SME earning power

Thirdly, we look at the trends in equity to total assets(Fig. 2-6-8). Looking at the trends in all industries, there isa trend towards a growing difference in the ratio of equity
to total assets between the “Profitable enterprises (1)”and “Enterprises with a high equity ratio (3)” categories
and the “Enterprises with a high ordinary profit ratio (2)”and “Other enterprises (4)” categories. If we compare“Profitable enterprises (1)” and “Enterprises with a highequity ratio (3)”, “Enterprises with a high equity ratio(3)” tended to be higher than “Profitable enterprises (1)”from 2004 to 2006, but from 2007 onwards the levels
were reversed, with “Profitable enterprises (1)” showing
a continuing higher trend than “Enterprises with a highequity ratio (3)”. Looking at the “Enterprises with a highordinary profit ratio (2)” and “Other enterprises (4)”categories, the former shows a generally rising trend,
while the latter shows a declining trend.

400

Looked at by industry, “Enterprises with a highordinary profit ratio (2)” show a rising trend in equity tototal assets in the manufacturing industries, while “Other
enterprises (4)” trends downwards in those industries,
with a marked gap opening up between the two in recent
years.
Looking at the non-manufacturing industries, while thetrend is not as marked as in manufacturing, there is still atrend towards a growing difference in the ratio of equity
to total assets between “Enterprises with a high ordinary
profit ratio (2)” and “Other enterprises (4)”.
Thus far, in Fig. 2-6-6, Fig. 2-6-7 and Fig. 2-6-8, we
have looked at the trends in the recurring profit margins,sales per person and rates of equity to total assets for theenterprise categories defined in Fig. 2-6-5. Below, welook at the situation regarding investment behavior inthose categories.

Part II The earning power of SMEs

Trends in rates of equity to total assets(1) All industries(%)

Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)Section 1

Fig. 2-6-8(FY)(2) Manufacturing
(%)

(FY)

(3) Non-manufacturing
(%)

(FY)

Source:Note:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
The enterprise categories are as defined for Fig. 2-6-5.

401

Chapter 6 Management capabilities that determine SME earning power█ Trends in investment behavior

We begin by looking at the circumstances around theacquisition of fixed assets.
Fig. 2-6-9 shows the fixed asset acquisition costs as
a proportion of total sales. This figure shows that acrossall industries, “Profitable enterprises (1)” spent a higher
proportion on acquiring fixed assets than “Enterprises witha high equity ratio (3)”, suggesting a positive tendency
for profitable enterprises to invest in fixed assets. The
level of acquisition is also high among “Enterprises witha high ordinary profit ratio (2)”, clearly indicating that,like “Profitable enterprises (1)”, they too actively invest
in fixed assets.
If we look at specific industry trends, we see that
“Profitable enterprises (1)” in manufacturing show highlevels of investment. “Enterprises with a high equity ratio(3)” tend to be roughly on a par with “Enterprises with a402high ordinary profit ratio (2)”, suggesting that enterprises
with higher profitability to be more likely to invest. In the
non-manufacturing industries, “Enterprises with a highordinary profit ratio (2)” show high levels of investment,
and if we compare “Profitable enterprises (1)” and“Enterprises with a high equity ratio (3)”, the “Profitableenterprises (1)” show a higher level, again suggesting
fairly active investment.
In non-manufacturing, the trend is for enterprises withhigher profitability to be more likely to invest, so while thetrend is not as marked as in the manufacturing industries,
there is still a tendency in non-manufacturing industries
for high levels of profitability to lead to more active
investment by enterprises. From this, we can conclude
that there is a fixed correlation between an enterprise’s
earning power and its investment activity.

Part II The earning power of SMEs

Trends in fixed asset acquisition costs as a proportion of total sales(1) All industries(%)

Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)Section 1

Fig. 2-6-9(FY)(2) Manufacturing
(%)

(FY)

(3) Non-manufacturing
(%)

(FY)

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 The enterprise categories are as defined for Fig. 2-6-5.
2.	 The fixed asset acquisition costs are calculated as the total of “owned fixed asset acquisition cost for the current
period” and “intangible fixed asset acquisition cost for the current period”.
3.	 The formula used to calculate fixed asset acquisition costs as a proportion of total sales is as follows:		 Fixed asset acquisition costs as a proportion of total sales = Fixed asset acquisition cost/Total sales

Source:Notes:

403

Chapter 6 Management capabilities that determine SME earning power

Next, we look at trends in capacity building
expenditure as an indicator of investment in humanresource development3). Fig. 2-6-10 shows capacity
building expenditure as a proportion of total sales. The
figure shows that in all industries, there is no marked
difference overall between the different categories, but theexpenditure levels are highest in “Profitable enterprises(1)”.
If we look specifically at the manufacturing industries,“Enterprises with a high equity ratio (3)” ranked higher
than “Profitable enterprises (1)” between 2009 and 2012,indicating a high level of awareness of the importance ofhuman resource development. However, the proportions
decreased from 2012 to 2013. The trend in “Profitableenterprises (1)” however was for capacity building
expenditure to rise, suggesting that those enterprises

tend to also invest actively in the area of human resource
development.
In non-manufacturing industries, the level is again
high among “Profitable enterprises (1)”, with “Enterprises
with a high ordinary profit ratio (2)” ranked next highest.
“Enterprises with a high equity ratio (3)” rank lower than
“Enterprises with a high ordinary profit ratio (2)”, indicatingthat one of the issues they face is their level of activity inhuman resource development. However, when we compare
the trends in capacity building expenditure in nonmanufacturing with those in the manufacturing industries,
proportional expenditure is high among “Profitableenterprises (1)” and “Enterprises with a high ordinary
profit ratio (2)”, leading us to conclude that enterprises in
non-manufacturing industries generally take a progressive
attitude towards human resource development.

3) It must be noted that, due to limitations in the data, analysis of capacity building expenditure only covers a 5-year period.

404

Part II The earning power of SMEs

(1) All industries(%)

Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)Section 1

Fig. 2-6-10 Trends in capacity building expenditure as a proportion of total sales(FY)(2) Manufacturing
(%)

(FY)

(3) Non-manufacturing
(%)

(FY)

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 The enterprise categories are as defined for Fig. 2-6-5.
2.	 The formula used to calculate capacity building expenditure as a proportion of total sales is as follows:		 Capacity building expenditure as a proportion of total sales = Capacity building expenditure/Total sales

Source:Notes:

405

Chapter 6 Management capabilities that determine SME earning power

Finally, we look at proportional investment in IT(Fig. 2-6-11)4). In all industries, “Enterprises with a highordinary profit ratio (2)” occupied the highest position
from 2006 to 2007, but from 2008 onwards that position
was taken over by “Profitable enterprises (1)”. The figure
also shows that “Enterprises with a high equity ratio (3)”were consistently at or near the 0.06% level.
If we look specifically at the manufacturing industries,
we see that the proportions are generally decreasing,but that “Profitable enterprises (1)” recorded the highest
levels. “Enterprises with a high equity ratio (3)” were next
in line behind “Profitable enterprises (1)”, suggesting that,compared with other types of investment, the trend is for
relatively progressive investment in IT.
In the non-manufacturing sector, the level of investment
by “Enterprises with a high ordinary profit ratio (2)” washigh from 2006 to 2007, but declined subsequently. If welook specifically at “Profitable enterprises (1)”, we see aslight increasing trend from 2007 onwards, indicating fairly
active investment in IT, as with other types of investment.
Compared with the manufacturing sector, investment as aproportion of total sales also tends to be high. When we
look at “Enterprises with a high equity ratio (3)”, they also
were consistently at or near the 0.07% level.

4) It must be noted that, due to limitations in the data, the analysis of trends in proportional IT investment only covers a 7-year period.

406

Part II The earning power of SMEs

(1) All industries(%)

Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)Section 1

Fig. 2-6-11 Trends in IT investment as a proportion of total sales(FY)(2) Manufacturing
(%)

(FY)

(3) Non-manufacturing
(%)

(FY)

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 The enterprise categories are as defined for Fig. 2-6-5.
2.	 The formula used to calculate IT investment as a proportion of total sales is as follows:		 IT investment as a proportion of total sales = Amount invested in IT/Total sales

Source:Notes:

407

Chapter 6 Management capabilities that determine SME earning power█ Characteristics of the enterprise categories

Based on the above analysis, we can summarize thecharacteristics of the enterprises in each category.
Firstly, one characteristic of “Profitable enterprises(1)” is that, in general, investment constitutes a highproportion of their total sales. “Profitable enterprises (1)”invest the profits that they make, and this seems to giverise to a virtuous cycle whereby that investment builds aplatform for future growth.
Next, we focus our attention on “Enterprises with a highordinary profit ratio (2)”. If we begin by comparing themwith “Profitable enterprises (1)” in terms of their ordinary
profit ratios, there is a difference of 4 percentage points in
2005, but by 2014 this is just 1 percentage point, showingthat the trend is for the difference to decrease. If we thenlook at investment as a proportion of total sales, we see thatlike “Profitable enterprises (1)”, the level is high. From thiswe can conclude that their ability to make a profit enables
them to also adopt a progressive attitude to investment.
Thirdly, when we look at the characteristics of“Enterprises with a high equity ratio (3)”, we see that they
have the same consistently high level of equity to total
assets as “Profitable enterprises (1)”. On the other hand,
they tend to have low rates of investment relative to total
sales. However, when we consider that they rank rightbehind “Profitable enterprises (1)” in the manufacturingindustries in terms of their proportion of capacity building
expenditure, they clearly tend to have a high awareness2.

of the importance of human resource development. These
results suggest that “Enterprises with a high equity ratio(3)” previously had high profitability and successfully
built up their own capital base, but their profitability
growth may have slowed because their proportion of
actual investment was low.
Looking finally at “Other enterprises (4)”, thoseenterprises with high average sales per employee also
show consistently low rates of ordinary profit. In recent
years in particular, this shows up in a widening gap
between those enterprises and “Profitable enterprises(1)”. This category also has low overall investment as aproportion of total sales. Because they have high sales perperson and low profit ratios, we can conclude firstly that
cutting down on expenditure is a key issue for them.
So, in this section, we have taken an overview ofthe differences in enterprise profitability by focusing
on financial indicators such as ordinary profit and on
expenditure in investment in fixed assets, etc. These results
indicate that there is a direct correlation between highlevels of profitability and high proportional investment,
reconfirming the importance of investment as a path tobuilding a platform for future growth in enterprises. In
section 2, we look at the reasons why these differencesin enterprise growth arise and delve more deeply into thelimiting factors on growth through analysis that focuseson management awareness and other factors internal toenterprises.

The Characteristics of profitable enterprises and the required management stanceIn section 1, we showed that some SMEs haveprofitability that is equivalent to or better than large
enterprises, and we used rates of ordinary profit andequity to total assets to classify SMEs into categories. We
then looked at trends in sales, recurring profit margins andthe ratios of equity to total assets for those enterprises. We
also looked at the investment behavior by the enterprises
and analyzed the characteristics of the different enterprise
categories.
So, in what ways do the managers at those enterprises
differ in terms of their thinking with regard to investment?
And what are the particular characteristics of theorganizational culture at growth enterprises? Below, using
the categories defined in Fig. 2-6-5, we will analyze thecharacteristics of management in the various enterprises,

their approaches to investment and their investment statusbased on the findings from the Questionnaire on Small andMedium Enterprises’ Growth and Investment Activities5).

█ Age of management and of the enterprise

We begin by looking at the correlation between theage of the enterprise management and the enterprise
category. Fig. 2-6-12 shows that the 39 or younger group
had the largest proportion (23.8%) of “Enterprises witha high ordinary profit ratio (2)” compared with the otherage groups. The 40s age group contains a relatively even
distribution of enterprises in three categories: “Profitableenterprises (1)” (15.6%), “Enterprises with a highordinary profit ratio (2)” (15.9%) and “Enterprises with ahigh equity ratio (3)” (14.8%).

5) Survey of 30,000 SMEs conducted by Teikoku Databank, Ltd. in December 2015, commissioned by the SME Agency. The response rate
was 15.3%.

408

Part II The earning power of SMEs

order for an enterprise to maintain its earning power, itappears that the management must be rejuvenated at theappropriate time. In section 2, we conduct a more detailed
analysis of the correlation between rejuvenation, the ageof the management and the enterprise’s earning power.

Section 1

A similar trend can also be observed in the 50s age
group. If we then look at the 60s age group, “Profitableenterprises (1)” make up 17.8% of the total, which is thehighest proportion for that category of all the age groups.
Thus, we can see a direct correlation between the earning
power of an enterprise and the age of its management. In

Fig. 2-6-12 Correlation between management age and enterprise categories
Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Other enterprises (4)70 or older(n=617)60s(n=1,583)

50s(n=1,290)40s(n=889)39 or younger(n=172)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

Next, we look at the distribution of enterprises inthe different categories by the age of the business.
Fig. 2-6-13 shows that roughly 40% of enterprisesin the “Less than 40” group fall into the “Profitableenterprises (1)” category. It also shows that around
30% of enterprises are in the “40−59” group. If wethen look specifically at “Enterprises with a highordinary profit ratio (2)”, those enterprises makeup 19.2% of the “Less than 20” group and 28.5% of
the “20−39” group. This shows that there tend to be
more enterprises with a shorter time since startup in
the “Enterprises with a high ordinary profit ratio (2)”category than in the other enterprise categories.

When we look at the third category, that of “Enterprises
with a high equity ratio (3)”, those enterprises tend tohave been around for longer, with some 70% being
more than 40 years old. In the final category, that of“Other enterprises (4)”, the distinctive feature of thoseenterprises is the evenness of their distribution across all
the enterprise ages up to the “Less than 80” group whencompared with the other categories. In other words, thelack of distribution bias of the “Other enterprises (4)”category compared with the other enterprises suggeststhat that category includes a wide range of enterprises,from short-lived enterprises such as venture companies
through to long-established enterprises.

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Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-13 Distribution of enterprise age according to enterprise categoryLess than 20 yrs

20−39 yrs

40−59 yrs

60−79 yrs

80−99 yrs

100 yrs or more

Profitableenterprises (1)(n=681)Enterprises witha high ordinary
profit ratio (2)(n=613)Enterprises witha high equity
ratio (3)(n=642)Otherenterprises (4)(n=2,026)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

█ Enterprise growth stage and corporate culture

In this section, we will attempt to identify the stage of
growth of enterprises as recognized by the enterprise’s
own management. In Section 1, we used the two
indicators of ordinary profits and the ratio of equity tototal assets to classify enterprises into four categories.
In this section we explore the correlations between
these categories and each enterprise’s stage of growth as
identified by the enterprise’s own management. Fig. 2-614 shows the distribution of enterprise growth stages, as
identified by management, for each enterprise category.
Looking at the details for each enterprise category,“Profitable enterprises (1)” returned the highest numberof all four categories for “Maturation stage”, at 80.0%.
But if we look at “Enterprises with a high equity ratio(3)”, 10.4% of those enterprises responded “In decline”,
the highest number with that response in all four
categories.
When we consider the correlation between stages ofgrowth and the enterprise categories defined in Fig. 2-65, “Profitable enterprises (1)” have the highest rates ofboth ordinary profit and equity to total assets, giving themboth profitability and stability. This combination is almost
certainly why management at those enterprises so often
rank their enterprises in the “Maturation stage”.

410

Next, we focus our attention on “Enterprises witha high ordinary profit ratio (2)”, a category in which
many managers identify their enterprises as being in the“Growth stage”. Of the four categories, “Enterprises witha high ordinary profit ratio (2)” show the greatest appetite
for growth, and it may be that this leads to more active
investment by those enterprises and consequently a lower
ratio of equity to total assets. We will analyze this appetite
for growth in more detail below, but when we consider thehigh profitability of the “Enterprises with a high ordinary
profit ratio (2)” category, we can reasonably conclude
that a desire among the management of those enterprises
to grow their businesses is an important factor driving
enterprise growth.
If we then look at our third category of “Enterprises
with a high equity ratio (3)”, their profitability is lower
than that of “Profitable enterprises (1)” but they haveequivalent rates of equity to total assets, suggesting thatthey are stable enterprises and many managers responded
that their enterprises are in the “Maturation stage”. When
we consider that many of the “Enterprises with a highequity ratio (3)” are long-established enterprises with lowlevels of ordinary profits, as Fig. 2-6-13 shows, this may
also have led to a tendency for many of those enterprises
to choose the “In decline” response.

Part II The earning power of SMEs

Startup stage

Growth stage

Maturation stage

In decline

Profitableenterprises (1)(n=483)

Section 1

Fig. 2-6-14 Correlation between enterprise categories and growth stages

Enterprises witha high ordinary
profit ratio (2)(n=427)
Enterprises witha high equity
ratio (3)(n=439)Other
enterprises (4)(n=1,454)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 The stages of enterprise growth are as assessed by the management of the enterprises themselves.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Next, we look at the corporate culture. Fig. 2-6-15
shows that a corporate culture that accords with “Internal
decision-making is top-down” and “Management
prioritizes human resource development” is common
to all enterprises. When we break the findings down byenterprise category, 34.6% of “Profitable enterprises (1)”chose the “Management plans and strategies are fully
disseminated to workplaces” option, a higher proportion
than for other enterprises, pointing to well-organizedmanagement in which the enterprise management
formulates business plans and shares those plans fully
with the entire company. The proportion who responded“Employees are satisfied with their individual payment
and working conditions” was 21.9%, which was also
a higher proportion than other enterprises, suggestingthat employees in “Profitable enterprises (1)” are highly
satisfied with the companies they work for.
Looking next at “Enterprises with a high ordinary
profit ratio (2)”, which have the same high levels of
profitability as “Profitable enterprises (1)”, 27.3%

responded “Committed to taking on new challenges
and do not fear failure”, indicating a more aggressive
posture towards their own enterprise’s growth than otherenterprise categories.
But what sort of characteristics do we find in“Enterprises with a high equity ratio (3)”, which have
low profitability and high ratios of equity to total assets.
The same figure shows that “Take pride in the company’sorganization and origins” accounts for 35.2% of responses
for “Enterprises with a high equity ratio (3)”, which isa higher proportion than other enterprises. Conversely,“Committed to taking on new challenges and do not fear
failure” made up only 16.7% of responses, which was alower proportion than the other enterprise categories. So
we can infer that while “Enterprises with a high equity
ratio (3)” have confidence in their own history, resources
and knowhow, they may have issues when it comes totrying new approaches to expanding into new businessesor breaking into new markets.

411

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-15 Corporate culture according to enterprise category(Organization characteristics)
Profitable enterprises (1)(n=757)(%)

Internal
decision-making
is top-downEnterprises with a highordinary profit ratio (2)(n=695)Internal
decisions are
made quicklyEnterprises witha high equity ratio (3)(n=730)The whole company
Managementtakes an integrated
plans andapproach to resolving strategies arecustomer issues
fully disseminatedto workplaces

Other enterprises (4)(n=2,312)

Employeeareas ofresponsibility
and privileges
are clear

It is an organization
capable ofresponding quickly
to changes in themarket or environment(Management/employee characteristics)(%)

Take pride in theManagementcompany’s products/
prioritizes
technology/services human resource
development

Source:Notes:

There is broadcooperation
among employees

Take pridein the company’sorganizationand origins

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

█ Management awareness of changes in theexternal environment and approach to growth

In this section, we will look at the changes inenterprises’ competitive environment as they are identified
by management. Fig. 2-6-16 shows the recognition of
external environmental changes by enterprise category.
The figure shows that “Enterprises with a high equity
ratio (3)” and “Other enterprises (4)”, which both have
low profitability, have high proportions of the following
responses: “Price competition in the market is worsening”,“Market needs are diversifying”, “The market is412

Committed toStrong commitment Employees aretaking on new
to improving
satisfied withchallenges andemployees’
their individual
do not fear failure
individual
payment andcapabilities
working conditions

contracting due to population decline” and “Competition
with other companies in the same industry is worsening”.
This indicates that many enterprises see the changes in
the market as unfavorable. But many enterprises in thehigh-profit categories of “Profitable enterprises (1)”and “Enterprises with a high ordinary profit ratio (2)”responded, “The quality of technology and services is
improving”, which suggests that those enterprises tend tohave a clear grasp of their own technology and services
and of the direction in which the market is moving.

Part II The earning power of SMEs

Source:Notes:

Enterprises witha high equity ratio (3)(n=696)

Other enterprises (4)(n=2,225)tn
div eeds
ers ar
ify e
ing

rke
Ma

Pr

ice
c
in ompte
is he m titio
wo ar nrse ke
nin t
g

(%)

Enterprises with a highordinary profit ratio (2)(n=676)Cco ompmp etiind anie tion
us s i withtry n tis he othe
wo sa rrse meningThan e qud s ali
erv ty o
ice f tesi
s i chno
mp lo
rov gying
pu Rawr
ris chas mat
inin e
alo more g an g co rial ang
dif d be sts ndfin
the icult com aresa to p ing
les as
pri s
Th
ce
e
du ma
e t rko p etop is cula ontio trac
n d tin
ec g
lin
e
Tu
an rnod s veerv r inice nesi wp
si
nte rodu
ns cts
ify
ing
Wi
th
mo the are dvajoi comp ncesning t etito in IT
he rs,
ma are
rke
t
No
pa
rtic
ula
rc
ha
ng
es

Profitable enterprises (1)(n=720)Section 1

Fig. 2-6-16 Recognition of changes in the competitive environment by enterprise
category

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Next, we will try to look at enterprises’ approach to
growth. Fig. 2-6-17 shows management approaches togrowth by enterprise category. The figure shows that all
the enterprises surveyed had high rates of the “Profit
rates must be increased” response, indicating a strong
feeling that profit rates have to be increased in order toachieve enterprise growth. However, when we look atmanagement’s views on the means of achieving growth,
the “Active investment is required” and “Growth involves
risk, so we should actively embrace risk” responses werechosen by a high proportion of “Profitable enterprises(1)” and “Enterprises with a high ordinary profit ratio(2)”, showing a bullish attitude towards growth among

those enterprises. Conversely, a higher proportion of“Enterprises with a high equity ratio (3)” opted for the“Company growth is dependent on market growth”
response than any of the other enterprises.
From the above, we can conclude that “Profitableenterprises (1)” and “Enterprises with a high ordinary
profit ratio (2)” have high profitability as well as a very
positive attitude to growth. But those “Enterprises with ahigh equity ratio (3)” that showed any intent with regard
to growth tended to have a more conservative attitude
than either “Profitable enterprises (1)” or “Enterprises
with a high ordinary profit ratio (2)”.

413

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-17 Management approaches to growth by enterprise category

Notes:

414

Don’
if i t wan
t in
vo t grolve wt
sr h
isk

ow
th
i
sh risk nvolou
, s vesld
em ac o w
bra tiv e
ce elyriskOther enterprises (4)(n=2,304)

GrCom
is pandeyma pen growrke den th
tg to
row n
th

tiv

ei
nv
is estm
req enuir tedEnterprises witha high equity ratio (3)(n=717)

Ac

Tra

din
g
be areaex
pa musnd tedEnterprises with a highordinary profit ratio (2)(n=698)plo
be ymem nt
or aint musinc ain t
rea ed
se
d

Em

Sa

ofi
t
be ratesinc m
rea ustsedPr

Source:lesminc ustrea besedProfitable enterprises (1)(n=741)(%)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Part II The earning power of SMEs

How does management’s awareness of the enterprise’s growth stages differ according todifferences in that management’s term of office or their generational age when they took office?
In this column, we will look at the correlation between the growth stages of an enterprise as
perceived by management and the management’s terms of office and generation.
We begin by looking at the correlation between the management’s term of office and growthstages, bearing in mind trends in management’s term of office in each age group. If we look at
the correlation between management’s term of office and their age groups shown in Fig. Column
2-6-1 (1), we can see a tendency for management’s average time in the job to most commonly bein the “11−20 yrs” bracket, with managers in their 50s being the most common age group in thatbracket. In the “6−10 yrs” bracket, the age group with the highest proportion is managers in their
40s with 31.3%, while in the “21−30 yrs” bracket the highest proportion is managers in their 60s
with 21.9%. From this we can surmise that there are many instances where managers assume officewhile in their 30s.

Fig. Column 2-6-1 (1)Section 1

Column 2-6-1 Correlation between growth stages and the management
terms of office and generation

Management’s term of office and age groups

39 or younger(n=171)40s(n=889)50s(n=1,285)60s(n=1,577)

70 or older(n=619)(%)

Up to 2 years

Source:3−5 yrs

6−10 yrs

11−20 yrs

21−30 yrs

More than 30 yrs

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.

Next, we look at management’s term of office according to growth stage. In Fig. Column 2-6-1(2), we see that among the managers who opted for the “Growth stage” response, those with aterm of office in the 6−10 yrs bracket made up the highest proportion. For “Maturation stage” thehighest proportion were in the 11−20 yrs bracket and for “In decline”, it was those with 11−20 yrs
or more than 30 yrs of service in management. In other words, as enterprises transition from thegrowth stage through maturation and into decline, the term of office of the management also
tends to increase in length. From this, we can conclude that, in order for an enterprise to havesustained growth, management must be rejuvenated at the appropriate time. We will now consider
this from another perspective.

415

Chapter 6 Management capabilities that determine SME earning power

Fig. Column 2-6-1 (2)Management term of office by growth stage

Up to 2 years

3−5 yrs

6−11 yrs

11−20 yrs

21−30 yrs

More than 30 yrs(%)

Startup stage (n=20)

Source:Growth stage (n=762)

Maturation stage (n=3,321)

In decline (n=305)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.

Fig. Column 2-6-1 (3) shows the correlation between growth stages and management generation.
From this, it is clear that the highest proportion of managers are the second generation. When we
look at the correlation with growth stages, the managers of enterprises in the growth stage aremost often the founders. As management transitions from the founders to later generations, anincreasing number of enterprises tend to be in the maturation stage or in decline. Fig. Column 2-6-1 (3)shows us that as management moves up through the generations, the number of enterprises in thegrowth stage tends to decline. It is also likely that as management transitions to later generations,the proportion of managers who respond that their enterprise is in the maturation stage or in
decline also increases due to factors such as market maturation. For enterprises to grow sustainably,
it also seems that as well as being rejuvenated at the appropriate times, they must at the same time
re-evaluate the key drivers of their profitability in response to changes in their enterprises’ market
environments.

416

Part II The earning power of SMEs

Correlation between growth stages and management generations
Startup stage(n=20)

Growth stage(n=733)Maturation stage(n=2,958)

In decline(n=267)(%)

Founder

Source:

2nd generation

3rd generation

Section 1

Fig. Column 2-6-1 (3)4th generation

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.

417

Chapter 6 Management capabilities that determine SME earning power

Column 2-6-2 Enterprise survival rates and longevity
Thus far, we have used a variety of indicators to evaluate enterprise growth, and in theprevious Column we examined and analyzed enterprise growth stages and the generations of the
management. Now, we move on to the actual situation regarding the number of years for which
enterprises survive in Japan.
Fig. Column 2-6-2 (1) shows the survival rates of enterprises in Japan for each year since theenterprise was established. The figure reveals that around 30% of all enterprises have gone out ofbusiness 10 years after starting up, and that figure rises to roughly 50% after 20 years, indicating
the high attrition rates among enterprises after establishment.
Fig. Column 2-6-2 (1)SME survival rates(%)(Years elapsed since establishment)

Source:Notes:

Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).
1.	 Compiled only for enterprises for which corporate data is stored in the database.
2.	 Due to the extensive range of enterprises contained in the database, results may not match those in Fig. 3-1-11
in the 2011 White Paper.
3.	 Due to the time required to store data in the database, calculated survival rates may be higher than the actual
survival rates.

It is no simple matter to accurately keep track of a continuously changing business environment
and maintain profitability so that a business can continue into the long term. According to the
Teikoku Databank, Ltd. database6), in 2014 no more than 0.96% of all enterprises (13,081 businesses)
were long-established concerns with a history of 100 years or more since being started up or
established. Looking at the figures by industry, the largest proportion of these enterprises were in
the wholesale and retail trade (6,461), followed by manufacturing (3,342) and then construction(1,109) (Fig. Column 2-6-2 (2)).

6) A private sector database containing corporate data for around 700,000 businesses in Japan. As such, it must be noted that this database is
not a comprehensive record of all enterprises in Japan.

418

Part II The earning power of SMEs

Long-established enterprises by industry
100 or more years since startup Less than 100 years since startup Proportion of long-establishedor establishment (businesses)
or establishment (businesses)
enterprises (%)

Wholesale/Retail trade

6,461

319,188

1.98

Manufacturing

3,342

160,724

2.04

Construction

1,109

377,632

0.29

Transport and postal activities

128

42,7260.30

Medical, health care and welfare

96

59,151

0.16

Real estate and goods rental
and leasing

567

97,4780.58

Information and communications

67

34,4450.19

Accommodations,eating and drinking services

621

27,876

2.18

Finance and insurance

20

9,438

0.21

Services(not elsewhere classified)209

103,329

0.20

Living-related and personal
services and amusement services

139

26,8350.52

Scientific research,
professional and technical services

53

54,591

0.10

Agriculture and forestry

118

11,971

0.98

Mining and quarrying of stone
and gravel

12

1,373

0.87

Fisheries

41

1,643

2.43

Electricity, gas, heat supply
and water

0

972

0.00

Education, learning support

85

15,3750.55

Compound services

13

5,970

0.22

13,0811,350,717

0.96

Total

Source:Notes:

Section 1

Fig. Column 2-6-2 (2)Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).
1.	 The number of years since startup is calculated as at FY2014 (April 2014 to March 2015).
2.	 Compiled for those SMEs stored in the Teikoku Databank corporate database for which the startup or
establishment years can be confirmed.

So, what is it that characterizes long-established enterprises that have successfully continued
their businesses, overcoming the various business hazards in each era? In Fig. Column 2-6-2 (3),we look at the rate of decline of long-established enterprises7) and compare it with the overall
exit rate, noting that the rate for long-established enterprises is around 2% lower. Changes in thebusiness environment for long-established enterprises are more pronounced than for more shortlived enterprises, suggesting that they have the capability to run a sustainable business.
At the same time, a comparison of total sales indicates that long-established enterprises tend tohave lower sales than enterprises with histories of 100 years or less (Fig. Column 2-6-2 (4)). If we takethe value for the year 2000 to be 100, by 2014, total sales by short-lived enterprises have reached
118, or slightly less than 20% growth.
However, sales growth in long-established enterprises actually fell by more than 20%, opening
up a gap of around 40% between the two enterprise types.

7) Here, long-established enterprises are defined as enterprises that, by the reference year, had been operating for at least 100 years since being
founded.

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Chapter 6 Management capabilities that determine SME earning power

Fig. Column 2-6-2 (3)Comparison of the exit rate (overall) and the rate of decline in longestablished enterprises
Rate of decline in long-established enterprises(%)

Overall exit rate

(Year)

Sources: Recompiled from MHLW, Annual Report on Employment Insurance Programs and Teikoku Databank, Ltd.,COSMOS2 (Corporate Profile Database).
Note:
Comparison conducted with long-established enterprises defined as SMEs which, in 2000, had been operatingfor 100 years or more since being established.

Fig. Column 2-6-2 (4)(%, the year 2000 = 100)

Sales in long-established enterprises and short-lived enterprises
Long-established enterprises

Short-lived enterprises(Year)

Source:Note:

Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).
Comparison conducted with long-established enterprises defined as SMEs which, in 2000, had been operatingfor 100 years or more since being established.

While one characteristic of long-established enterprises is that their sales growth is lower thanthat of short-lived enterprises, we see that they also tend to have consistent management over long
periods. One could say that they conduct business over the long term while maintaining a reasonablelevel of sales. In this section, we have discussed investment intended to promote enterprise growthand focused on improvements in earning power. But there are also instances where the ability
to pass the family business along to successive generations and stay true to the original intent in
the midst of a changing business environment is given a higher priority than increasing sales andgrowing the business.
Maintaining consistent long-term management is also important as a point of view.

420

Part II The earning power of SMEs

2-6-1

Cerarica Noda Co., Ltd.

An old company that has survived by using tradition and being flexible tothe times

Section 1

Case

Cerarica Noda Co., Ltd. (employees: 18; capital: ¥40 million), based in Aikawa Town in Kanagawa
Prefecture, started business in 18328) during the Edo Period as a manufacturer of wax for traditional Japanesecandles and hair oil. Historically, wax came from animals and plants, which secreted it for self-protection.
The name Cerarica was formed by combining the Spanish words “cera” and “rica,” meaning “wax” and“rich” respectively. It refers to wax derived from biological sources.9)
Change came over time, however. The uses of biological wax gradually became more limited as petroleum
wax appeared and consumer demand shifted to liquid hairdressing products. Eventually, current President
Taizo Noda, noting the emergence of the information recording industry, started pitching products to major
photocopier manufacturers. At that time, in the 1980s, a major American corporation was holding all thepatents to dry-process copy machines. The engineers
at a major company working to develop a uniquely
Japanese plain paper copier recognized a propertyof biological wax, namely its sharpness in response toheat (i.e., heat fluctuations caused it to soften andharden easily). Cerarica Noda’s wax came to be used
as an additive for toner and other products.
Cerarica Noda was additionally developing andmanufacturing a wide range of products taking
advantage of the unique functionality and safetyof biological wax. Those products included natural
coatings for wooden construction10) and raw materials,
free of agricultural chemicals, for natural foodadditives and natural cosmetics. Cerarica Noda is an
old company that, over its long history and in a variety
of fields, has applied technologies making full use of
the ancient, natural substance that is biological wax,
Cerarica Noda’s wax is used in a wide range of product fromhigh tech to foodand it has survived by being flexible to the times.11)8) Company history based on Cerarica Noda web site (http://www.ceraricanoda.com/b2b/com03.html). The company name at the time offounding was Noda Wax.
9) This is to distinguish biological wax from petroleum or synthetic wax.
10) In FY2000, these became the first products in the coatings field to win the Good Design Award in Japan. They are designed to help prevent
sick building syndrome and the like.
11) The company is developing new fields with particular help from young employees, namely high school and graduate school graduates intheir twenties.

421

Chapter 6 Management capabilities that determine SME earning power█ Awareness among enterprises of behaviors thatbring risk

In order for an enterprise to grow and increase its
earning power, that enterprise must build a platform
for growth. Such a growth platform can only be built
through investment behavior that involves investing
in infrastructure and in human resources. As alreadydiscussed, responses from more profitable enterprises
stress the need for investment in growth and the
management is also highly aware of the need forinvestment. But investment by enterprises is an uncertain
activity and comes with certain risks. So when weanalyze the status of investment behavior by enterprises,
we must begin by looking at their awareness of behavior
that entails risk to the enterprise (“risk-taking behavior”)
and the items that enterprises regard as important whenengaging in risk-taking behavior.
Firstly, we will look at enterprises’ awareness ofrisk-taking behavior. Fig. 2-6-18 shows the levels ofawareness of risk-taking behavior according to enterprise
category. This reveals that “Enterprises with a highordinary profit ratio (2)” and “Enterprises with a highequity ratio (3)” are more likely than enterprises in the“Profitable enterprises (1)” and “Other enterprises (4)”categories to adopt an attitude that emphasizes risk-taking
behavior. It also shows that “Enterprises with a highequity ratio (3)” have high levels of consciousness around“Start up new business and change existing businesses”
and “Develop and deploy new services and products”.
A particular characteristic of this enterprise category isthat a higher proportion responded “Expand into newareas/segments” than the other enterprises. If we lookat “Enterprises with a high ordinary profit ratio (2)”, ahigher proportion responded “Expand existing business”
than other enterprises, and they lean strongly towards the“Reduce costs” and “Improve productivity” responses.
But when we compare “Profitable enterprises (1)” withthe other enterprise categories, they are somewhat lessinclined towards risk-taking behavior and tend to bestrongly disposed towards “Start up new business andchange existing businesses”.

Fig. 2-6-18 Risk-taking behaviors seen as important according to enterprise category(%)

Profitable enterprises (1)(n=746)

Start up new
business andchange existing
businesses

Source:Notes:

422

Develop anddeploy newservices andproducts

Enterprises with a highordinary profit ratio (2)(n=665)

Expand into newareas/segments

Expand existing
business

Enterprises witha high equity ratio (3)(n=719)Reduce costs

Other enterprises (4)(n=2,313)

Improveproductivity

Create new
demandTeikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Part II The earning power of SMEs

Section 1

Looking next at “Enterprises with a high ordinary
profit ratio (2)”, 49.9% responded “External agencies
to be consulted/other parties also engaged in research”,
showing a tendency to emphasize cooperation withexternal agencies. Other popular responses were
“Ensuring adequate funding” and “Funding procurement
capacity”. This is most likely due to the recognition byenterprises in the “Enterprises with a high ordinary profit
ratio (2)” category that they have low rates of equity tototal assets. The “Other enterprises (4)” category also
had similarly high response rates for “Ensuring adequate
funding” and “Funding procurement capacity”.
When we look at “Enterprises with a high equity
ratio (3)”, we see that, like “Profitable enterprises (1)”,a high proportion selected the “Information sharing bymanagement and the workplace”.

So, what are the factors behind enterprises deciding
to choose risk-taking behaviors? Fig. 2-6-19 shows theresults when enterprises were asked what they consider
to be important when engaging in risk-taking behavior.
Looking at the figure, we can see that when enterprises
engaged in risk-taking behavior, they placed greatestemphasis on “Seeing the market and our own situation
clearly”. Focusing on the responses by enterprise
category, the responses from “Profitable enterprises (1)”show a tendency to place importance on factors relating
to the organizational structure and matters internal to theenterprise, such as “Information sharing by management
and the workplace” and “Rapid decision-making bymanagement”. “Grasping the superiority of our own
technological and service skills” also attracted a highresponse rate, indicating an intention to keep in mind astrategic approach to business when taking risks.

Source:Notes:

pro
ing
nd
Fu

rin
g
su
En

Ac
ca quir
pa inan ble g pers
d e ofva ana onn
ap luatin lyzin el
pro gg
pri riskatelyOther enterprises (4)(n=2,326)cureca men
pa
cit t
y

Gr
of aspiou ng
rown the san tec upe
d s hn rio
erv olo rity
ice gica
sk l
ills

Ex
t
co erna
ns l ault geed nc
als /othe ies t
oe rp ob
ng art eaie
res ged s
ea in
rch

pid
Ra

Enterprises with ahigh equity ratio (3)(n=727)adeq
fun uatedingEnterprises with a highordinary profit ratio (2)(n=699)deby cisioma n-mna ak
ge ingment

Profitable enterprises (1)(n=747)

Inf

Se

ein

gt
h
sit and e mauatio our o rket
nc
lea wn
rly

(%)

orm
b at
an y m ion s
d t anhe ag harin
wo em grkp ent
laceFig. 2-6-19 Factors considered important when engaging in risk-taking behavior
according to enterprise category

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Here, “Enterprises with a high ordinary profit ratio (2)”tend to have a more positive attitude towards investment
than the other enterprise categories and returned highrates of the “External agencies to be consulted/otherparties also engaged in research” response. Accordingly,
we will look specifically at what sorts of consultants andresearch partners they are considering. If we look again

at Fig. 2-5-62 (cited earlier), the consultants and research
partners most often engaged for risk-taking behavior are“Certified public tax accountants, accountants, etc.”. They
are followed by “Financial institutions” (44.0%) and“Employees” (30.8%). “Certified public tax accountants,
accountants, etc.” are well-known to SMEs and arelikely to be the people SMEs would feel comfortable423

Chapter 6 Management capabilities that determine SME earning power

For SMEs, it is also important that all their employees
are united in conducting business in accordance withthe company’s own vision, which is most likely why“Employees” are also ranked high as consultants andresearchers for risk-taking behavior.

consulting when looking at risk-taking behavior. Like
“Certified public tax accountants, accountants, etc.”,“Financial institutions” are also an important presence
for SMEs, which is probably why they are ranked highas consultants and researchers by SMEs considering risktaking behavior.

Source:Notes:

Ou

tsi

de

dir
ec
tor
s
So
c
i
Ch etieam s
C b a
an ommers nddIond erce f
us
Ot
try
he
rS
ME
s
ag uppen ort
cie
s
Re
gio
na
lp
bo ublic
die
No
-on
s
ei
np
art
icu
lar

ors
dit
Au

lie
pp
Su

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 Refer to Part II, Chapter 2 for details of the survey.

So far, we have looked at the approaches adopted by
SMEs and the matters they consider important for risktaking behavior. We have also identified the actual levelsof engagement in such behavior and analyzed the factors

424

rs

s
bo
try
us

Ind

are

ho

lde

die

rs

rs
Sh

Cu

sto

me

ts
Co

ns

ult

an

es
ye
plo
Em

C
ta er
ac x ac tified
co co pu
un un btan tan lic
ts, ts,
Fin
etc
an
.
cia
l in
sti
tut
ion
s

Fig. 2-5-62 (Cited earlier)
Consultation and research partners when engaging in risk-taking behavior

SMEs regard as important when choosing risk-taking
behavior. In the next section, we analyze the specificinvestment types that lead to risk-taking behavior.

Part II The earning power of SMEs

In this column, we will evaluate the risk-taking behavior by enterprises and consider thecorrelation between that risk-taking behavior and profits. When enterprises engage in risk-taking
behavior, they do so on the assumption that it will significantly change their annual profit. So
here, we will use fluctuations in enterprise profitability as an indicator for risk-taking behavior byenterprises. That is, we will assume that the larger the fluctuations in profitability, the greater thetendency for enterprises to take risks. In this discussion, we will use the figure for return on assets(ROA) to gauge enterprise profitability, and we will use the ROA standard deviation to measure
variations in profitability12).
Fig. Column 2-6-3 shows the correlation between risk-taking behavior and profitability among
SMEs using these indicators. This figure classifies enterprises into high-risk enterprises with ROA
variability that is at the mean value or higher, and low-risk enterprises with variability below themean, and shows the ROA distribution among those two categories. Looking at the figure, it isimmediately clear that the average ROA for high-risk enterprises is higher than that of low-riskenterprises. This leads us to conclude that, if risk-taking behavior by enterprises is gauged using
ROA variations, enterprises who take risks have higher profitability than those who do not.
Fig. Column 2-6-3(%)

Less than

Section 1

Column 2-6-3 Enterprise growth and risk-taking behavior by enterprises

Correlation between ROA and risk-taking behavior by enterprises
High-risk enterprises

Low-risk enterprises

More than
Average ROA (%)

Source:Notes:

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 The variations in ROA assume the standard deviation in ROA for the period from 2009 to 2013 and takeenterprises with a standard deviation equal to or higher than the mean value to be high-risk enterprises andthose that are lower than the mean value to be low-risk enterprises.
2.	 The average ROA is taken to be the average value from 2009 to 2013.

12) In the Annual Report on the Japanese Economy and Public Finance 2008, variation in ROA was used as an indicator of risk-taking behavior
among enterprises listed on the stock exchange in its consideration of the correlation between risk-taking behavior and profits.

425

Chapter 6 Management capabilities that determine SME earning power

Case

2-6-2

Mizukami Insatsu Co., Ltd.

Creating high added value by offering customers every aspect of printing,from marketing to logistics
Mizukami Insatsu Co., Ltd. (employees: 132; capital: ¥10 million), based in Shinjuku City in Tokyo
Metropolis, works mainly in offset and specialty printing. Although the printing industry faces a shrinking
market, the company has managed to grow its profitability for four straight business years. Its earning
power is about five times that of its industry peers.
As a B2B enterprise, instead of market share, Mizukami Insatsu’s concern is how to earn customers’ mind
share. It does not try to sell its products to large numbers of customers by competing on price. Rather, it
tries to understand what added value customers are really looking for, and then supply it to them. Whatmatters to Mizukami Insatsu is that each customer uses many of its products and stays with it a long time. To
achieve that, the company works to increase points of contact with its customers while enhancing customer
satisfaction. President Katsuya Kawai says that approach will create more opportunities for getting business,
which in turn will promote company growth.
To make this concept a reality, President Kawai describes Mizukami Insatsu as “a company built to solve
customers’ ‘bothersome’ problems.” This is to say that, though printing remains the company’s core business,it sees itself as an information processing company. It works to create high added value as a full-service
company capable of providing all printing-related processes to customers, since it can function also as amarketing department, logistics department, and more. Mizukami Insatsu also has a policy of doing 100%of its business in direct trade. It does not subcontract, so it can negotiate on prices and it sit down face toface with customers, talking as equals. This approach is likely a big reason Mizukami Insatsu’s profitability is
so much higher than its competitors.
Along with seeking high customer satisfaction, President Kawai also prioritizes employee satisfaction.
This is because President Kawai sees customer satisfaction and employee satisfaction as adding up to
perpetual growth for the business. As the President explains, enhancing employee satisfaction requires anenvironment that allows for both economic value (such as good salaries) and spiritual value (fulfilling work).
In addition, about 120 hours of training are provided per capita every year to build individual employee skills
and enhance customer satisfaction. The slogan for this training program is, “Let’s be the company that does
more study than anyone else in Japan.” President Kawai’s focus on training stems from this belief that eachcustomer needs a different type of service, and staff
who work with customers need to be able to judge
for themselves how to meet these individual needs.
This is an attitude that his employees share. Certainly,
enhancing the quality of one’s human resources willlead to further company profitability.
Asked about his vision going forward, President
Kawai says, “My aim in raising both employee andcustomer satisfaction is to make this a company
that both employees and customers choose. In otherwords, we want to be a business that attracts people
and brings them together. I hope we will still be
growing 10 or 20 years from now. I hope to makethis a model for a new kind of business that is notentrapped in pre-existing concepts of what a small or
medium enterprise or printing company should be.”Mizukami Insatsu exhibits at Gaishoku Business Week 2015,
its first time at the trade fair426

Part II The earning power of SMEs

2-6-3

Tree of Life Co., Ltd.

A pioneering enterprise building a new market in the herbal industry

Section 1

Case

Tree of Life Co., Ltd. (employees: 730; capital: ¥10 million), based in Shibuya City in Tokyo Metropolis,
manufactures, retails, and wholesales a variety of products with a focus on herbs, a field it has helped to pioneer.
The company helped establish a culture of herbs and aromatherapy in Japan, where it had not previously existed,
and is growing just as these markets are expanding.
Current president Tadashi Shigenaga is the company’s third leader. Under his predecessor, the company
manufactured and sold Western tableware, but the prospects for that business started to seem uncertain whenimports from China began to grow. At that time, the predecessor noticed the wide use of herbs in people’s
lifestyles while on a visit to the United States. Tree of Life began its herb business then with the determination toestablish in Japan a culture that loves the gifts of nature.
It started by selling potpourri.13) Tying up with a magazine for elementary school-age girls, it created a trend
for consumers to make their own potpourri, and gradually an herb market was born in Japan. While the business
was originally geared to the most enthusiastic customers, the generation that grew up making potpourri became
adults and Tree of Life began direct sales in major cities throughout Japan and also formed partnerships. Overtime, they managed to build a network that could not just sell but also teach consumers the attractiveness anduses of herbs and aromatherapy and introduce lifestyles embracing herbs andaromatherapy. As the market grew, so did the company. In addition, it worked
with the Aroma Environment Association of Japan14) to establish an aromatherapy
qualifications certification system. Individuals with aromatherapy qualifications
set up a mechanism for promoting aromatherapy and herbs, which helped togreatly expand the reach of the market. Even after that, Tree of Life continued
trying to expand the market, for example through the Japan Medical Herb
Association15) and efforts to establish a medical herb examination system.16)
Therefore the strengths of the company have been that there was a network totake advantage of herbs from around the world and a system in place to give added
value to those herbs by using them in day-to-day life. No other enterprise, anywherein the world, has done as much to comprehensively develop the herb business, which
is why Tree of Life gets so much herb-related information from around the world.
Asked about the factors behind his company’s growth, President Shigenaga saysthat Tree of Life’s investment has continued to stay focused on its core business, andthat has allowed the company to expand this far. The company has a “total selfSuperfood products from Tree of Lifesufficiency” approach, handling all processes including raw
material acquisition, product development, manufacturing,sales, and logistics. As Shigenaga says, Tree of Life takes
responsibility for the products it has created. Additionally,to create the culture of herbs and aromatherapy, it suggests
ways for consumers to enjoy them and provides places to
get that experience, places that include shops, schools, andherb gardens. Through these tactics it develops productsthat address customer needs. Working this way, says
Shigenaga, Tree of Life has deepened the culture ofherbs and aromatherapy in Japan and has grown alongwith the market. Looking ahead, Tree of Life plans tofocus on edible products. It plans to make products suchas superfoods17) a pillar of its business, alongside herbs
and aromatherapy. Shigenaga hopes to enhance Tree ofLife’s social impact, raise its corporate value, and makeit a company that employees find exciting to work for.
Aromatherapy products
13) Potpourri is a type of room fragrance made by mixing herbs, essential oils, etc., placing them in a container, and letting them mature.
14) The predecessor of the organization was the Aromatherapy Association of Japan, established in 1996 to promote and raise awareness ofaromatherapy. In 2005, it won approval to incorporate under the jurisdiction of the Ministry of the Environment and became an incorporated
association. It was newly established in 2012 as a public interest incorporated association. Here, aromatherapy refers to a form ofnaturopathy that uses plants and herbs to promote health and beauty.
15) Aiming to promote the use of herbs in health and healing, the association acquired legal personality as a specified nonprofit corporation in2006. According to Tree of Life, it currently has about 10,000 members.
16) Examination takers have to learn basic knowledge about 15 types of medical herbs, including their safety and usefulness and how they areused. Here, medical herbs are herbs that have components that are used to maintain health.
17) Superfoods are natural foods that are more nutrient-rich than ordinary foods or have some nutrients in particularly high amounts. These havebecome popular among consumers in recent years.

427

Chapter 6 Management capabilities that determine SME earning power

Case

2-6-4

Aiya Co., Ltd.

A long-standing company that opened up a new market for matcha infood products
Aiya Co., Ltd. (employees: 100; capital: ¥30 million), based in Nishio City, Aichi Prefecture, is a manufacturer
and seller of matcha (a premium type of powdered green tea) and was founded in 1888. The businesscreated a new matcha market by converting matcha to food product use.
President and Director Yoshio Sugita says that for an enterprise to keep growing, it is important for it
to identify what it has to change—and what it must not. In Aiya’s case, what it must not change was thehigh-quality matcha that it ground in its mortars. What it had to change was the market it was in. The
background to Aiya’s story of opening up a market for matcha for food products was that the matcha it
used, which is grown in Nishio City, was not well known. Aiya was able to open up the new market when it
started producing a matcha for food product processing such as none of the competition had ever done, asa way of giving its high-quality matcha added value over those competitors.
Additionally, Aiya makes it a priority to meet customer needs. For example, it actively pursues businessoutside Japan, meaning that it has to sell products meeting the tastes of each overseas market. In Europe,for example, consumers like healthy choices, with a particular affinity for herb teas. There, Aiya promoted
the fact that matcha, like herb teas, has plenty of health benefits. This helped matcha to more naturallyfind a place in the lives of Europeans. This is an example of President Sugita’s idea of having to change somethings and not change others.
When asked about his company’s future outlook, President Sugita says, “I hope we can maintain our
position as a leading matcha producer in Japan while
being a pioneer elsewhere. I would particularly liketo actively develop Southeast Asia as a new market.”
When asked why Aiya is looking overseas to find newmarkets, President Sugita says it is because no one
else has done so. When the company started making
matcha for food products, no one had ever done
that. And no one had ever developed a new market.
President Sugita took it as a challenge to develop amarket that no one else had ever tried. But it was nota reckless challenge, because he was confident themarket would embrace the product, knowing how
good tea is for people’s health.
The President’s attitude of recognizing what his
company must not change and actively challenging
Aiya’s flagship store
himself and his company to change what it must is
one of Aiya’s strengths.

428

Part II The earning power of SMEs

to engage in those sorts of investment. On the other
hand, they tended to have lower rates for “Investment inoverseas expansion” than other enterprises. Looking next
at “Enterprises with a high ordinary profit ratio (2)”, theygenerally lean more positively towards investment thanother enterprises, and show particularly marked positivity
towards “Capital investment” (75.3%) and “Investment
in advertising and PR” (40.4%).
If we then look at the third category of “Enterprises
with a high equity ratio (3)”, they generally showa tendency towards lower levels of engagement ininvestment compared with the other enterprise categories.

Below, we will look at the actual state of investment
behavior by SMEs. Fig. 2-6-20 shows the investment
behavior by enterprise category over the last three
years. When we observe the general trends, we see highimplementation rates for “Capital investment”, “ITinvestment” and “Human resource investment”.
Next, we look at the particular characteristics ineach enterprise category. If we look first at “Profitableenterprises (1)”, the figures for “IT investment” (53.1%)
and “R&D investment” (27.1%) indicate that thoseenterprises tend to be more likely than other enterprises

Section 1█ Identifying actual investment behavior

Fig. 2-6-20 Investment activity in the last three years according to enterprise category
Profitable enterprises(1) (n=595)(%)

Enterprises with a highordinary profit ratio (2)(n=544)Enterprises with ahigh equity ratio (3)(n=614)

Other enterprises (4)(n=1,914)

80
75.3
71.1

70

66.8
62.6

63.4 63.4

60

57.0
53.0

53.1
49.749.1

50

46.1
40.4

40

36.3
33.3

35.4

30

27.1

25.4

24.9

18.7

20

17.2 16.2

17.1

12.5
9.4

10
0

Capitalinvestment

Source:Notes:

Human
resource
investment

IT
investment

Investment
in advertisingand PR

R&D
investment

Marketing

13.4
12.3
10.3

Investment
in overseas
expansion

10.8 11.5
8.0

9.9

IP investment

6.8

8.6

6.8 5.7

M&A

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Next, Fig. 2-6-21 shows the most and least successful
examples of the investment behavior shown by the
responses in Fig. 2-6-20. This clearly shows that by
far the most successful investments were those in the“Capital investment” category. Conversely, those with thegreatest incidence of failure were in the “Human resource
investment” category. As we saw in Fig. 2-6-20, “Human
resource investment” had a high level of involvement of all
investment behavior by enterprises. These results lead us
to the conclusion that while enterprises are very consciousof the need for “Human resource investment”, achieving
success through such investment poses more problems
than other types of investment. For instance, in the 2015
White Paper on Small and Medium Enterprises in Japan,
one of the main issues faced by SMEs in developing corehuman resources18) was the dilemma posed by the lack ofstaff to conduct human resource development programs.
One of the possible measures proposed for addressing thisproblem was human resource investment coupled with inhouse staff deployment and the use of external agencies.

18) See the 2015 White Paper on Small and Medium Enterprises in Japan, P.240−241.

429

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-21 Most and least successful investments
Most successful investments(n=1,867)(%)

Capitalinvestment

Source:Humanresource
investment

IT
Investment
R&D
investment in advertising investment
and PR

Investment
in overseas
expansion

Marketing

M&A

IP
utilization
investment

Other

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.

Now, we look at the time required for enterprises totransition to the actual implementation of investments
according to the different types of investment. Fig. 2-6-22
looks at the most successful investments in terms of theamount of time the managers or the management needed
to consider whether or not to proceed with the investment.
The figure shows many responses of “6 months toless than 1 year” for “IP investment”, “Investment inoverseas expansion” and “M&A”, indicating that thesetypes of investment tend to require longer periods ofconsideration. By contrast, the most frequent response

430

Least successful investments(n=582)for “IT investment”, “Investment in advertising andPR” and “Human resource investment” was “Less than
3 months”, showing that the time required for decisionmaking was relatively short. If we look specifically at“Capital investment”, the commonest response (35.5%)
was “3 months to less than 6 months”, but relatively
high proportions chose other responses, with 28.8%
responding “6 months to less than 1 year” and 23.5%
opting for “Less than 3 months”. This level of responses
for “Capital investment” may well be because the scale ofcapital investments is so wide-ranging.

Part II The earning power of SMEs

Less than 3 months

3 months to less than 6 months

6 months to less than 1 year

1 year or more

IP investment(n=69)

Section 1

Fig. 2-6-22 Time required for proceeding with the most successful investments

Investment inoverseas expansion(n=130)M&A(n=116)
Marketing(n=107)
Capital investment(n=1,808)
R&D investment(n=250)IT investment(n=562)
Investment inadvertising andPR (n=281)
Human resource
investment(n=695)

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.

So, what sort of internal backing pushed theseinvestments through to implementation? Fig. 2-6-23
shows these characteristics by enterprise category. In
the figure, we can see that the highest proportion of
responses by “Profitable enterprises (1)” went to “There
was adequate funding to proceed with the investment”(58.1%). There were also relatively high proportions who
opted for the “Management showed leadership” (50.1%)
and “The time was deemed to be right for the investment”(45.9%) responses.
If we look next at “Enterprises with a high ordinary
profit ratio (2)”, which generally take a positive attitude
towards investment, 56.8% chose “Management showed
leadership” and 51.9% opted for “The time was deemed
to be right for the investment”. The high proportions
attracted by these responses indicate a similar trend to“Profitable enterprises (1)”. In addition, 39.2% chose“There were no problems procuring funding”, indicatinga high proportion of funding-related responses comparedwith other enterprises. In fact, a high proportion of both“Profitable enterprises (1)” and “Enterprises with ahigh ordinary profit ratio (2)” selected funding-related
responses, indicating that any differences in theirrespective responses probably reflect differences in theirrates of equity to total assets. So we can see that, for“Profitable enterprises (1)” and enterprises the actively
investment-inclined “Enterprises with a high ordinary
profit ratio (2)” category, the key factors are the capacityof the company itself to secure funding, the leadershipprovided by management and their ability to analyze anddiscern the appropriate timing for investment.

431

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-23 Factors driving investment behavior according to enterprise category

Source:Notes:

The
pla re wecertha e pothe t su licies
inv ppo ines rte
tm d
en
t

Th

ec

lim
a
a p te eos ncoitiv ure o ageutl dookOther enterprises (4)(n=2,326)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Now, we take an opposite view and look at the factorsthat prevented investment behavior. Fig. 2-6-24 shows
reasons behind investments that were considered once,but never implemented. Looking at the figure, factors
to do with personnel, namely “Insufficient staff” and“Insufficient knowledge/expertise”, attracted a highproportion of responses. The item relating to grasping
market trends and the company’s own skills and services,namely “The investment timing is premature”, also
garnered a high proportion of responses, with this trend
being particularly marked among “Enterprises with a high432Enterprises with ahigh equity ratio (3)(n=727)Th
kn ere w
ow
led as ato ge/e dequp
the roce xpert ate
inv ed ise
es wit
tm h
en
t
Th
ere
we
pro re nocu
rin probg f lem
un
din s
g

ail
av

et
Th

Th
ab ere wlee
the to p re s
inv rogr taff
es es
tm s
en
t

Enterprises with a highordinary profit ratio (2)(n=699)imto e wa
be s drig eehm
inv t for edestm theentProfitable enterprises (1)(n=747)Ther
fu e w
wit ndin as ad
h t g to eq
heu
inv proc ate
es ee
tm d
en
t
Ma
na
ge
me
nt
lea show
de ed
rsh
ip

(%)

ordinary profit ratio (2)”. When we focus on the “Other
enterprises (4)” category, 31.6% responded “Insufficientfunding”, showing that issues relating to financing were
important. And when we look at “Enterprises with a highequity ratio (3)”, 22.7% responded “When risks emerge,
their impact on our company is likely to be severe”, which
is high compared with the figure for “Enterprises witha high ordinary profit ratio (2)”. Fig. 2-6-17 revealed atendency towards conservatism in the “Enterprises with ahigh equity ratio (3)” category, and Fig. 2-6-24 indicatesa similar outcome.

Part II The earning power of SMEs

Source:Notes:

Other enterprises (4)(n=863)T
su herepp
ort wereponoin licies
pla
Ou
ce
ro
wn
an tecare d s hno
no ervic logitdce e s albe eme kills
su d tpe oriorEnterprises with ahigh equity ratio (3)(n=255)Whe
the n ris
ir i ks
co mp em
mp ac
ean t o rge
to y is n ou ,be lik r
se ely
ve
re
Ma
rke
t
are fluc
lar tuati
ge oex r tha ns
pe
cte n
d
Sy
ne
rgi
s
tic
ot
co her b effens
ide usin cts w
red ess ith
un are
like
ly

nt

fun

din
g

Enterprises with a highordinary profit ratio (2)(n=233)

icie
Ins

uff

nv
es
t tm
pre imin ent
ma g is
tur
e

ei
Th

sta
nt
icie
uff
Ins

In
kn suffic
ow
ie
ex ledg nt
pe e/
rtis
e

Profitable enterprises (1)(n=225)ff(%)

Section 1

Fig. 2-6-24 Reasons preventing the implementation of investment behavior byenterprise category

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Thus far, we have looked at the situation regarding
investment activity in the different enterprise categories,
analyzing the reasons why enterprises decided to proceed
and the factors that prevented investment during the stage
where enterprises were considering their investment
options.
So, where enterprises decided to actually proceed with
the investment, how did instances where those investments
succeeded differ from those where the investment endedin failure? Below, we will conduct an analysis of thefactors that contributed to successful investment behavior
by enterprises and those that led to failure.

█ Success factors and failure factors in investment
behavior

Fig. 2-6-25 shows the factors that led to success ininvestment behavior. The figure shows that, across all theenterprise categories, a high proportion responded “Thetiming was right for investment”. This shows that the factthat the company had correctly evaluated its own products

and/or services relative to market trends was seen by themas a key factor in the success of the investment.
If we then look at the particular characteristics for thedifferent enterprise categories, we see that “Profitableenterprises (1)” tend to see staff-related factors (“Wehad suitable staff in place”) and the pre-investment
consideration process (“Advance risk assessment andanalysis was helpful”) as factors in their success. And while
they were at roughly the same level as enterprises in the“Enterprises with a high ordinary profit ratio (2)” category,a relatively high proportion of profitable enterprises(21.7%) also responded “Appropriate monitoring was
carried out”. Focusing next on “Enterprises with a highordinary profit ratio (2)”, the proportion who opted forfactors relating to advance assessment and analysis washigher than for the other enterprise categories, with 28.7%
choosing “Market growth was as anticipated” and 30.7%
selecting “Our superiority in technological and service
skills was as expected”. Also, as mentioned above,
22.1% responded “Appropriate monitoring was carried433

Chapter 6 Management capabilities that determine SME earning powerplanning stage and pro-active management during
investment implementation were important.
However, when we look more closely at “Enterprises
with a high equity ratio (3)”, it is clear that cost-related
factors (“We kept costs within expected levels”) werehighly rated.

out”, which was high compared with “Enterprises witha high equity ratio (3)” and “Other enterprises (4)”. This
leads us to conclude that “Profitable enterprises (1)” and“Enterprises with a high ordinary profit ratio (2)” saw
that, in addition to the investment timing, factors suchas advance assessment and analysis at the investment

Fig. 2-6-25 Success factors in investment behavior according to enterprise category

Notes:ana Ad
aly sses vancsis sm e r
wa ent isk
s h anelp dful

Other enterprises (4)(n=1,232)priawa te mos c niarr tori
ied ng
ou
t
Ap

pro

re
inc depl
rea oyesdas ed s orne taf
ed f
ed

We

ke
p
ex t cospe
cte ts wi
d l thinev
elsEnterprises with ahigh equity ratio (3)(n=364)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

By contrast, Fig. 2-6-26 shows the factors underlying
failed investments. The figure shows that a financingrelated factor (“Costs were higher than expected”) rates
highly. And among “Enterprises with a high ordinary
profit ratio (2)”, the proportion opting for factors relating
to pre-investment planning was high when comparedwith other enterprises, with 28.0% choosing “There wasinsufficient advance risk assessment and analysis” and25.6% selecting “Advance research could not quantify
anticipated demand”. At the same time, 19.2% chose the“Appropriate monitoring was not carried out” option, a

434

We

rke
t
as grow
an th
tic waipa s
ted

Enterprises with a highordinary profit ratio (2)(n=371)MaOu
tec r suse hnol perio
rvi og rit
ce ica y in
as skills l andexpe was
cte
d

We

et
Th

Source:hasta d su
ff i itabn p lelaceProfitable enterprises (1)(n=391)iminfor g w
inv as r
es igh
tm
en t
t

(%)

factor that applies to the investment implementation stage.
In Fig. 2-6-25 and Fig. 2-6-26, we have analyzed thesuccess factors and failure factors for investment andidentified a trend for profitable enterprises and enterprisesin the “Enterprises with a high ordinary profit ratio(2)” category, which tend to take a positive approach toinvestment, to place considerable importance on advanceassessment during the investment planning stage andon pro-active management during actual investment
implementation. Below, we analyze some of the methods
used for monitoring and advance assessment.

Part II The earning power of SMEs

Notes:

Other enterprises (4)(n=397)Marno ket g
ta
s a rowt
nti h w
cip as
ate
d
Ou
r te
se ch
rvi noac ce s logickhde ieve ills d al anma th idd
nd e le not
ed
ve
by ls
ma therketEnterprises with ahigh equity ratio (3)(n=111)Th
rig e timht
for ing w
inv ases
tm notent

ble
no staf
td fw
ep ere
loy
ed

ita
Su

pro
wa priatesnot monca itorrie rin
do gutEnterprises with a highordinary profit ratio (2)(n=125)

Ap

as

ere
Th

Source:Adc vanan ould ce r
tic
ipa not esea
ted qua rch
de ntifma yndProfitable enterprises (1)(n=91)wasi
a nsu
se dvan fficie
ss
me ce ri nt
sn
an t an k
aly d
sis
Co
sts
tha weren e hig
xp he
ec r
ted

(%)

Section 1

Fig. 2-6-26 Failure factors in investment behavior according to enterprise category

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 Total does not always equal 100% as multiple responses were possible.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

435

Chapter 6 Management capabilities that determine SME earning power

Case

2-6-5

Fuji Electronics Industry Co., Ltd.

Supplying customers with a foundation for competitiveness, continually
growing by taking a long-term view
Fuji Electronics Industry Co., Ltd. (employees: 123; capital: ¥80 million), based in Yao City, Osaka Prefecture,
was founded in 1960. The firm performs manufacturing and high-frequency thermal treatment of highfrequency induction heating devices and their components under contract to other businesses. Current
President Hiroko Watanabe is the third leader of the company, having taken over the business in 2008.
Following the company policy of “Contributing to society with our technology,” Fuji Electronics Industry
aims to “supply goods that will be a foundation for our customers’ competitiveness.”
President Watanabe stays focused on the direction her company needs to go, always taking a long-term
view. Fuji Electronics Industry is continually investing to increase profitability, whether the current businessconditions are good or bad. Because Fuji Electronics Industry is privately held, it runs its business withoutworrying about the short-term view of shareholders and the like. Aside from that, President Watanabe’s
way of thinking as executive has a big impact. As she says, the job of an executive is to “show leadership to
employees and make investment decisions that focus on a time three to five years in the future.” She adds,“You can’t fall into the trap of pursuing short-term sales and competing on price. You have to make surecustomers recognize the value of your products and be thinking about future transactions.”
To take the medium- to long-term view and decide where to invest next, a business absolutely has tocollect information. President Watanabe leverages the fact that her firm is independent and need not
rely on business with any particular enterprise or financing source. She pays attention to several large
enterprises when they tell her the direction of business going forward. Furthermore, she endeavors tointegrate and analyze the information she collects so she can grasp industry trends in future. At the monthly
marketing meetings, she shares the information she’s heard with her site workers and tells them what fields
she wants the company to target and what her management policies are going forward. Therefore, one of
the strengths of this firm is that the executive herself uses a variety of information, checks the market trends
and the direction the company should be going, and makes the investments
the company needs to make at that time.
Moreover, President Watanabe’s stance on investing whether the current
business conditions are good or bad even held true during the Lehman crisis.
That crisis caused sales of Fuji Electronics Industry’s device manufacturing
department to fall by half. Nonetheless, the company built equipment to be
used in their own processing department, and it added on to its processing
plant. It was thanks to decisions made by President Watanabe that thecompany invested and created work when business conditions were bad sothat it would have stronger technology than its rivals when the economy wasbetter. This type of investment, moreover, created work for the company’sbusiness partners during a difficult economy, which helped to solidify trusting
relationships with them.
Looking ahead, Fuji Electronics Industry wants to start working in new
fields. President Watanabe says she hopes the firm will keep its eye on market
trends in the medium- to long-term and tackle those challenges suggested
by customers and challenges the company has chosen for itself so that it can
President Watanabe
continue to supply goods that make its customers more competitive.

436

Part II The earning power of SMEs

2-6-6

Makino Seiki Co., Ltd.

Aiming to endure and growing dramatically by developing new products
and expanding overseas

Section 1

Case

Makino Seiki Co., Ltd. (employees: 111; capital: ¥479.25 million), based in Aikawa Town, Kanagawa
Prefecture, is a machine tool manufacturer supplying tool and cutter grinders.19) A company product haseven been chosen to receive the “Long-Life Best Seller Award,” given to machine tools with historical value.
The firm also develops leading-edge technology like the CNC20) tool and cutter grinder with 10-axis control,a world first. And it is proactively developing markets outside Japan.
Daisuke Shimizu, the current President, believes that Makino Seiki can fulfill its responsibilities to its
customers by surviving so that it can meet customers’ maintenance and repair needs, because the company’s
products are built to last and customers will use them for many years. To ensure the firm endures, therefore,
he makes sure to invest in research to develop new products and is not frugal when it comes to investmentthat paves a way into new markets.
By the time President Shimizu took his post, the company already had bestselling products that themarket had long embraced. However, factors like price competition with other companies had eroded
profitability, and Shimizu understood there was a need for new products to create a foundation for profits.
President Shimizu resolved to give the market a product with a fundamentally different construction thananything then available, and development commenced. While that development effort was successful, it
took about two years before the new product started making a profit.
In addition, immediately after taking office, President Shimizu became keenly aware of the need to
expand overseas, since the domestic market was contracting. He also felt that getting into those overseas
markets could not wait until the markets had grown. Given the circumstances, he determined to go intobusiness on the Asian continent, where he foresaw high growth in a latent market. First he tried opening
up a market in China, but this did not have any immediate results. It took about five years for Makino Seiki
products to really catch on in the Chinese market.
What Makino Seiki’s two efforts had in common was that both took a certain amount of time to produce
results. But President Shimizu was determined not to give up. As he tells it, this is because he felt confident
both investments would be successful. He takes pride that the new product that created a new foundation
for profitability, though intended for specific applications and specific users, really took customer needs
into account. As for offshore markets, the company also gradually grew its profitability by approachingcustomers who did not have large competitors outside Japan and by giving customers added value they
could not get from competitors, such as very thoroughpost-sale follow-up.
President Shimizu believes that continual
investment is crucial for his company to endure anddevelop. As a case in point, Makino Seiki started
operating a new plant in March 2016. Building thenew plant required a very large investment for thecompany, but the President saw it as indispensable if
the company were to continue producing high-quality
products and meeting customer needs. He admits thatsome of his new initiatives have been opposed even
within Makino Seiki, but one of the strengths of thefirm would seem to be that the President has such astrong sense of resolution and leadership and is able
to manage according to his own ideas in a consistentmanner.
President Shimizu in front of new plant

19) Tool and cutter grinders are machines that grind cutting tools.
20) Computer numerical control, a means of controlling movement distance, speed, etc., in machine tools.

437

Chapter 6 Management capabilities that determine SME earning power

Case

2-6-7

Asada Mesh Co., Ltd.

Capturing a high world share through R&D investment attuned tochanging times
Asada Mesh Co., Ltd. (employees: 259; capital: ¥80 million), based in Matsubara City in Osaka Prefecture,
is a manufacturer of stainless steel wire mesh. The company makes components that are used, for example,
to form electrodes in electronic components and are indispensable to screen printing. This requires strong
technical expertise.
Matsubara City, where Asada Mesh is located, was once home to a flourishing Kawachi cotton
manufacturing industry, but that industry eventually disappeared when cotton production becamemechanized. Wire mesh production began to prosper in its place, and by the time Asada Mesh was founded,
the region was producing wire mesh for sieves and filters. The executive managing the company traveled
to Europe half a century ago to observe the industry there. He realized that his own company’s existingproducts were in danger when he saw plants doing mass production with state of the art machinery. Thatexperience convinced him to switch the foundation of his business to the production of high-detail, highstrength stainless steel mesh by using the delicate technologies of the Japanese.
Later, a trading company doing business with Asada Mesh told the company there was a need for screen
printing in electronic product production processes. That is when the company started making and deliveringmesh for screen printing. Plenty of other companies in the industry had given up making such products,
since their development was highly complex and their future unknown. Asada Mesh, however, anticipatedthat demand would grow and concentrated its management resources on high-function stainless steel wire
mesh. It subsequently focused on high-detail products and products of greater strength. The result today isthat products with high added value, such as those for electronic components or solar cells, make up 75%
of company sales. It even has the world’s No. 1 share for products of 500 mesh21) or higher. The market
recognized Asada Mesh’s outstanding technical expertise.
In 2007, Asada Mesh established a screen printing
research lab.22) There, it has focused on R&D fromnew angles. The firm has also begun a new marketing
approach for customers in Japan and abroad that
actively proposes company technology. With thetechnical support the company has on hand, it canquickly discover user needs and solve issues that cometo its attention. This has helped it to expand the scopeof screen printing applications and given a rapid
boost to Asada Mesh’s sales in recent years.
For a company to grow, it needs to grasp market
needs this way, and to keep making R&D investmentthat meets market needs and keep opening up new
Mesh production at Asada Mesh’s factory in Kagoshimamarkets.

21) 500 mesh means there are 500 meshes per inch. The higher the mesh, the finer the wires required, which makes manufacturing more
complex.
22) In October 2015, the lab was renamed the Open Innovation Hub. Here, Asada Mesh offers comprehensive screen printing technical support
from platemaking to printing and analysis and proposes optimal meshes and newly developed products for customers’ various applications.

438

Part II The earning power of SMEs

We begin by looking at the frequency of monitoring.
Fig. 2-6-27 shows the frequency of monitoring relating
to investment behavior among the different enterprise
categories. The figure shows that the highest proportionsof the responses from “Profitable enterprises (1)” and“Enterprises with a high ordinary profit ratio (2)” were for“Weekly”. However, more than 50% of “Enterprises witha high equity ratio (3)” responded “Monthly”, suggestingthat those enterprises may have had issues with managing
staff and scheduling for their investments.

Section 1█ The frequency of monitoring, those responsible
and its effects

Fig. 2-6-27 Monitoring frequency according to enterprise category
EverydayWeeklyFortnightly

Monthly

Other

Profitableenterprises (1)(n=83)
Enterprises witha high ordinary
profit ratio (2)(n=79)
Enterprises witha high equity
ratio (3)(n=60)
Other
enterprises (4)(n=246)

Source:Notes:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 The enterprise categories are as defined for Fig. 2-6-5.
2.	 Here, monitoring refers to managing of investment costs and schedules and determining the progress of investments.

Next, we focus on the people who carry out themonitoring. Looking at Fig. 2-6-28, the overall trend acrossall the monitoring enterprises is for a high proportion of“Management and workplace” responses, suggesting
an approach that stresses the importance of information
sharing between management and the workplace. In thecase of “Enterprises with a high ordinary profit ratio (2)”,the “Workplace and external agencies” and “Management
and external agencies” responses together attracted a totalof 10.2%, indicating that those enterprises boosted theirinvestment success rates by recruiting personnel fromoutside rather than relying solely on in-house staff.

439

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-28 Those conducting the monitoring according to enterprise category
Management only

Workplace only

Management and workplace
Workplace and external agencies
Management, workplace and external agencies

External agencies only
Management and external agencies
Other

Profitableenterprises (1)(n=85)

Enterprises witha high ordinary
profit ratio (2)(n=80)

Enterprises witha high equity
ratio (3)(n=64)

Other
enterprises (4)(n=253)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

Finally, Fig. 2-6-29 shows the monitoring outcomes.
The figure shows that the largest proportion of responses
chose “Proceeded without delay”. It also shows that around
30% of all respondents selected “Business delays arose,
but the delays/expenditure were within expectations”,
indicating that it is likely that conducting monitoring
helped to improve the success rates of investments. When
we focus specifically on “Enterprises with a high equity

440

ratio (3)”, 18.8% responded “Business delays were longer
than expected, but delays and expenditure were kept
to a set level”, which is a higher proportion than otherenterprises. So we can probably say that conducting
monitoring, because it allows corrective measures to betaken promptly when unexpected situations arise, helps toget investments back on track and is one factor leading toinvestment success.

Part II The earning power of SMEs

Proceeded without delay
Business delays arose, but the delays/expenditure were within expectations
Business delays were longer than expected, but delays and expenditure were kept to a set level
Other

Section 1

Fig. 2-6-29 Monitoring outcomes by enterprise category

Profitableenterprises (1)(n=85)

Enterprises witha high ordinary
profit ratio (2)(n=80)
Enterprises witha high equity
ratio (3)(n=64)
Other
enterprises (4)(n=253)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

█ Advance assessment methods and outcomes

In this section, we will look at the methods used at
the planning stage to assess investments in advance andthe outcomes of those assessments. We begin by looking
at the advance assessment methods. Fig. 2-6-30 clearlyshows an overall trend for about 50% of all responses to be“In-house staff only”. The proportions for the “Primarily
in-house staff, with outside consultation as appropriate”

response were all above the 30% mark, with 36.5% for“Profitable enterprises (1)”, 32.8% for “Enterprises with ahigh ordinary profit ratio (2)” and 35.7% for “Enterprises
with a high equity ratio (3)”. The proportion wasparticularly high for the “Other enterprises (4)” category
at 43.7%, showing that a number of enterprises also
canvass the opinions of external agencies when deciding
whether to proceed with investments.

441

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-30 Those conducting advance risk assessment according to enterprise
category
In-house staff only
Primarily external agencies,
with in-house staff participation as appropriate

Primarily in-house staff,
with outside consultation as appropriate
External agencies only

Profitableenterprises (1)(n=83)
Enterprises witha high ordinary
profit ratio (2)(n=79)
Enterprises witha high equity
ratio (3)(n=60)
Other
enterprises (4)(n=246)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

Next, we consider the outcomes of advance risk
assessment and analysis. In Fig. 2-6-31, we see thataround 60% of respondents chose “Risks were identified
beforehand” as the outcome of their analysis of theadvance risk assessment. However, 20.0% of “Enterprises
with a high ordinary profit ratio (2)” chose “Were able toprevent risk before they arose” and 18.3% opted for “Keptimpacts within expectations when risks eventuated”,
which were higher levels for those two responses thaneither “Profitable enterprises (1)” or “Enterprises with a442high equity ratio (3)”. Enterprises in the “Other enterprises(4)” category also tended to have a higher proportion than“Profitable enterprises (1)” or “Enterprises with a highequity ratio (3)” for the “Kept impacts within expectations
when risks eventuated” response, and this suggests that
there may be scope for some improvement in the analysisof advance risk assessments by the “Enterprises with ahigh ordinary profit ratio (2)” and “Other enterprises (4)”categories.

Part II The earning power of SMEs

Risks were identified beforehand
Kept impacts within expectations when risks eventuatedWere able to prevent risk before they arose
Were able to keep the impacts of unexpected risks to a set level

Section 1

Fig. 2-6-31 Outcomes of advance risk assessment and analysis by enterprise category

Profitableenterprises (1)(n=83)

Enterprises witha high ordinary
profit ratio (2)(n=79)
Enterprises witha high equity
ratio (3)(n=60)

Other
enterprises (4)(n=246)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

The above discussion reveals that monitoring evaluation
and advance risk analysis are important measures insystematically progressing investment behavior, and thata high percentage of the enterprises who implement suchmeasures recognize the value of their outcomes.

█ Status of systematic management

Where enterprises are boosting their earning power
through investment, they can almost certainly improvetheir success rate by adopting a medium- to long-term
perspective and formulating a business plan that sets out
policies that they should work towards. Their investments
should then be based on that plan. So this item focuses

on medium- and long-term business plans and considers
the relationship between the progress of the measuresin medium- and long-term plans and profitability. We
begin with an overview of the situation in terms of therates at which medium- and long-term business plans areformulated. Fig. 2-6-32 shows formulation rates of 56.5%
for “Enterprises with a high ordinary profit ratio (2)” and57.3% for “Other enterprises (4)”. However, the rates
are just 46.4% for “Profitable enterprises (1)” and 43.4%
for “Enterprises with a high equity ratio (3)”, showing atendency to be lower than the rates for “Enterprises with ahigh ordinary profit ratio (2)” and “Other enterprises (4)”.

443

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-32 Medium- and long-term business plan formulation by enterprise category(%)

Formulated

Profitable enterprises (1)(n=681)

Source:Notes:

Enterprises with a highordinary profit ratio (2)(n=613)Enterprises with a highequity ratio (3)(n=642)Other enterprises (4)(n=2,026)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 “Formulated” shows the combined total for the “Currently formulating” and “Previously formulated” responses.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Next, in Fig. 2-6-33, we look at the different enterprise
categories to see whether the creation of a medium- andlong-term business plan results in variations in profitability.
The figure shows that, among “Profitable enterprises(1)” and “Enterprises with a high ordinary profit ratio(2)”, which are both characterized by high levels of
profitability, those enterprises that have formulated a
medium- and long-term business plan tend to have higher
profitability than those that have not. However, when we

444

Never formulated

look at the “Enterprises with a high equity ratio (3)” and“Other enterprises (4)” categories, which generally have
low profitability, we see that enterprises that have neverformulated a medium- and long-term business plan tend
to have higher profitability. The next step is to analyze
these trend differences in low and high profitability fromthe perspective of whether the enterprises are engaged ininvestment behavior (Fig. 2-6-34).

Part II The earning power of SMEs(%)

Formulated

Profitable enterprises (1)(n=713)

Source:Notes:

Enterprises with a highordinary profit ratio (2)(n=674)

Never formulated

Enterprises with a highequity ratio (3)(n=701)

Section 1

Fig. 2-6-33 Differences in ordinary profit rates by enterprise category according tomedium- and long-term business plan formulation

Other enterprises (4)(n=2,230)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
1.	 “Formulated” shows the combined total for the “Currently formulating” and “Previously formulated” responses.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

Looking at Fig. 2-6-34, there is little variation among“Profitable enterprises (1)”, but clear differences can beseen for other enterprises depending on whether or notthey have created a medium- and long-term business plan.

This suggests that, by incorporating a plan for investment
behavior into a medium- and long-term business plan,
planning can be implemented with greater certainty andthe results may be linked to profitability.

Fig. 2-6-34 Differences in ordinary profit rates by enterprise category depending onwhether a medium- and long-term business plan is applied to investments(%)

Formulated and includes investment behavior

Profitable enterprises (1)(n=713)

Source:Note:

Enterprises with a highordinary profit ratio (2)(n=674)Formulated but does not include investment behavior

Enterprises with a highequity ratio (3)(n=701)Other enterprises (4)(n=2,230)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
The enterprise categories are as defined for Fig. 2-6-5.

445

Chapter 6 Management capabilities that determine SME earning powercompany unity and company growth and that this is crucial
to the systematic implementation of management. A highproportion of respondents also chose “To highlight issues
in the company by comparing actual results with projected
results” and “To help with reviewing the business andbuilding organizational structures”, suggesting that thehigher an enterprise’s profitability, the more it tries toapply systematic management

So, what are the circumstances that determine whether
or not enterprises formulate a medium- and long-termbusiness plan? Fig. 2-6-35 shows the reasons given for
creating a medium- and long-term business plan. Thisshows that the highest proportion of respondents (70.8%)
chose “To share with employees and provide motivation
for growth”. We have already discussed how systematicmanagement is an issue, but these responses also showthat managers are very conscious of the links between

Fig. 2-6-35 Reasons for formulating medium- and long-term business plans

Note:

he
Ot

ve To hloe
co pme lp in
hu mp nt
ma an of then r y’s the
es co
ou re
rce
s
It i
sn
fun eedin dedgf
rom to pr
oc
ins finan ure
titu cia
tio l
ns
It i
se
ffe
wit for c ctive
h o om athe mu s ar e nic too
an nter atin lsta d ex prise g
ke ter s
ho na
lde l
rs

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Conversely, what are the reasons behind the failureof enterprises to create a medium- and long-term plan?
Fig. 2-6-36 shows the reasons given for not formulatinga medium- and long-term business plan. Looking at thefigure, it is clear that many managers feel there is little tobe gained from formulating a business plan, as indicatedby the 43.5% who chose “Business doesn’t run according
to a plan” and the 25.5% who opted for “The benefits
gained do not outweigh the drafting costs”. A fairly highproportion (29.8%) chose “Too busy keeping up with

446

de

en
re ab
en spo le rap
vir nson es idmt
ch ent o
an al
ge
s

To

To
pro emp sha
vid loy re we m ees ithoafor tivat nd
gro ionwthTo
in highthli
co e co ght i
mp m ssu
ar pa
es
pro re ing a ny by
jec sul ctuta
ted s w l
res ith
ult
To
s
he
lp
wit
bu
t
h
h
ild
ing e bu rev
org sine iewi
an ss ngiza
str atio nd
uc na
tur l
es

Source:r(n=1,735)(%)

day-to-day work to create a plan”. As already discussed,
we see that managers who formulate a medium- andlong-term business plan recognize the effectiveness ofthe plan and tend to look for growth in the company as awhole. The fact that a high proportion of such managers
also respond that their companies are in a growth stage
suggests that there is a definite correlation between
systematic management and enterprise growth. So we canconclude that conducting management in accordance witha business plan will be an issue in the future for SMEs.

Source:

Note:
(%)

Ot
he
r

Do
n
cre ’t kn
ate owa b howus
ine tospla snDous n’te a knbu ow
sin hoes w t
sp o
lan
Do
n’t
to
co havensabu ult a nyo
sin bo ne
es ut
sp a
lan

Fig. 2-6-36 Reasons for not formulating medium- and long-term business plans(n=1,046)

Section 1

Busrun ines
ac s docordi esn’tna p g to
To
lan
o
up
b
wit usyhk
wo day eepi
rk -to ng
tocre daya p ate
lan
Th
eb
en
e
d
the o no fits g
dra t ou aine
ftin twe dg c igh
os
Do
ts
n’t
se
et
h
o eb
bu f cre enef
sin ati its
es ng
sp a
lan
Do
n
cre ’t haate vea b sta
us ff to
ine
s
pla s
n
Ha
sn
ev
er
he
lp
the ed i
pa nstPart II The earning power of SMEs

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

447

Chapter 6 Management capabilities that determine SME earning power

Case

2-6-8

Kobayashi & Co., Ltd.

A firm that has stayed in the black for 64 years by following a policy ofsteady progress
Kobayashi & Co., Ltd. (employees: 568; capital: ¥80 million), based in Taito City in Tokyo Metropolis, sells
synthetic resin products, both those that it manufactures and those it stocks from others.
The company was established in 1952. Current CEO Tatsuo Kobayashi is the second-generation leader of thecompany, having taken over the business in 1995. The company values steady management, as reflected in its
policy of “Steady progress, not big leaps.” The result has been 64 consecutive years of profitability.
Kobayashi & Co. started out as a wholesaler of plastic materials but evolved to develop and manufacture its
own original products, such as KOBASOL.23) In addition, it has a recycling business and handles non-petroleumbased materials, making it an all-round plastics company. Behind this company’s history of growth is its founder’sphilosophy that “A firm cannot just suddenly grow. To grow, it is important for a business to practice steadymanagement commensurate to its stature.” A firm can rapidly expand its scale through M&A for example, butscale will not lead to profitability unless the company has the expertise to manage it. The same is true for capital
investment. Large capital investments will not increase profitability if the business lacks the skill to sell its products
and the capacity for management. Instead of taking a short-term approach to acquiring the needed capabilities,
it’s essential that the business take a medium- to long-term approach and acquire those capabilities one by one.
As it has pursued its business with that medium- to long-term approach, Kobayashi & Co. has prioritized thedevelopment of its human resources. Lifetime employment and a seniority system are highly valued practices
at the company. The system was designed to reward employs who stay for a long time and produce results.
Particularly outside of Japan, whereas other companies have experienced severe turnover, employees tend to staywith Kobayashi & Co. This is something that customers find praiseworthy and helps to build trust. It goes without
saying that an organization is made up of people, but this means that a business will not grow if its people do not.
This steady philosophy even finds expression in Kobayashi & Co.’s business plan. The firm reconsiders its
medium-term management plans every three years in addition to establishing yearly plans, which it shares with
its employees. At all times, employees carry business card-sized slips on which the yearly policies are printed. Its
practice of sharing its direction with all employees is another factor underlying the company’s profitability.
Another strength of Kobayashi & Co. is its thorough practice of QCD balance.24) Its Katsushika plant is set up to
start production the same day if so requested by 3:00 p.m. It has also done business continuity planning. Taking alesson from the Great East Japan Earthquake, it dispersed its production sites and is working to avoid disruptionof product supplies to customers and therefore consumers. Initiatives with a focus on product quality and supply
stability, not just price competitiveness, help to increase trust from trading partners and lead to new business.
And while it is part of an industry marked by fierce cost competition, Kobayashi & Co. works to do business at
an appropriate price with businesses that recognize the firm’s value. It turns down business if it feels it cannot
get an appropriate profit. This is because the company
believes that if it continues providing good products tothe market with the right QCD balance, it will win orders
back. It values long-term relationships with businesses
that recognize its value.
Kobayashi & Co. is very attentive to R&D. It collaborates
with advanced research institutions at universities and soon, steadily developing new technologies and products.
It makes an amount equivalent to 1% of sales available
for R&D, which may be used freely. Among the attentionwinning events of recent years, dining plates made of
the firm’s cornstarch and plastic resin biomass hybridmaterial Reseam ST25) were used in the Japan Pavilion at
Expo Milan 2015.
Kobayashi & Co.’s steady follow-through on its
management principles—valuing human resources, thethorough practice of QCD, and the use of the PDCA cycle26)
CEO Kobayashi with company products
in management planning—is certainly its strength.
23) A PVC liquid compound material developed by Kobayashi & Co., Ltd., it is a type of organic compound. It has a wide range of applications
from ordinary products like toys and daily goods to industrial products. It makes it possible to develop products meeting many needs.
24) An abbreviation for Quality, Cost, Delivery. It expresses the importance of the quality and cost of products in addition to how quickly they
can be delivered.
25) A new material intended as a substitute for petroleum-based materials, it is gaining attention for helping to limit CO2 in the atmosphere.
26) An abbreviation for Plan, Do, Check, Act. It is the idea that repeating these four steps can continually improve business processes.

448

Part II The earning power of SMEs

2-6-9

Material Co., Ltd.

Achieving sustained development and contributing to growth of its entire
community through continued investment in human resources development

Section 1

Case

Material Co., Ltd. (employees: 16; capital: ¥20.01 million), based in Ota City in Tokyo Metropolis,
manufactures, processes, and sells non-ferrous metal and specialty steels and designs industrial machinery.
The strengths of the company include speed through every step up through delivery and the reliability of its
products. Its sales were ¥20 million when established in 1992 but now reach about ¥1 billion.
President Junichi Hosogai says, “The job of an executive is to make investment to create an environment
for developing people with good skills.” Material’s strengths are speed and reliability, but the importantelements for putting them into practice are to help people gain master knowledge of materials and develop
staff members’ human qualities. To that end, President Hosogai holds “private school” every Friday to
expand his workers’ technical knowledge and give them spiritual instruction. He is also completely devoted
to fostering and attending to his employees, checking up on their wellbeing every morning, for example.
As President Hosogai tells it, “We started the Shitamachi Bobsleigh Network Project27) because we felt it
necessary to motivate our employees to build on their strengths.” Talking about their dream of winningworld attention for a product they handle helps to motivate his employees and build their human qualities.
The Shitamachi Bobsleigh Network Project has another aim as well. That aim is to bring new energy into
Ota City, where Material is headquartered. At first, President Hosogai assumed that the declining numberof competitors in his community would boost profitability for Material. Instead, he found that it was notjust fewer competitors over time, but fewer SMEs in Ota City as a whole, a situation that led to declining
technical skill and craftsmanship in the area. He started the project out of a sense of crisis that the impact
would eventually hurt his own business. The bobsleigh project was intended to show the world the technicalstrength of SMEs in Ota City, which Hosogai believed would lead to more inquiries and orders for work fromhis own company. Additionally, Hosogai believes the project could make stronger local partnerships.
In 2011, Material got JIS Q 9100:2009 certification28) with the aim of getting into the aerospace and defense
markets. Although these markets are expected to grow in future, getting into them requires outstanding
quality control and much knowledge of the law and other considerations. President Hosogai felt that if
Material could get into a market with such high barriers to entry, it would show the world the company’s
high level of technology and knowledge. Now, Material is making a profit in these fields. As President
Hosogai tells it, one of the challenges SMEs face is that they do not have enough knowledge to acquirecertifications like JIS Q 9100:2009. As a result, SMEs without certification cannot objectively advertise theirreliability. Even if they have advanced technical skill, they are not likely to get tapped by large enterprises
as business partners, so they cannot make a profit
this way. Going forward, it is going to be importantfor SMEs to get third-party certification like this tomake them profitable, not as subcontractors for large
enterprises, but in markets of their own.
Material has successfully opened new markets bybuilding a mechanism for skilled human resources
to develop, maintaining a high level of technicalstrength, and acquiring certifications, etc., necessary
to use that strength. Furthermore, Material looks
not only at its own growth but at the needs of its
community. It is contributing to the growth of its
community by forming frameworks for enterprisecollaboration. Looking ahead 10 years, President
Hosogai remarks, “I want this to be an attractive SME
President Hosogai and the Shitamachi bobsleighwith enhanced technical strength and productivity.”27) The Shitamachi Bobsleigh Network Project is an attempt to develop a made-in-Japan bobsleigh that can compete on the world stage. The
project leaders include Material and small and medium workshops in Ota City.
28) A Japan Industrial Standard, JIS Q 9100:2009 was written based on the 9100 standard of the International Aerospace Quality Group (IAQG),
without any change of technical content or structure.

449

Chapter 6 Management capabilities that determine SME earning power

Column 2-6-4 Status of SMEs’ preparedness for risk
In this column, we look in more detail at the question discussed in Part II, Chapter 1 of SMEs’
preparedness for risk, focusing on their awareness of the risks and their situation regarding
countermeasures. As discussed in Chapter 4, amid a changing environment for SMEs, one of the
key factors for SME management is preparing to deal with a variety of risks. In this column, we use
the enterprise categories defined in Chapter 6, Section 1 to gain an overall perspective on SMEs’
awareness with respect to preparing for risks and their progress in taking countermeasures against
those risks (Fig. 2-1-24 (cited earlier)).
Let’s begin by looking at some overall trends. We will take a more detailed look at the response
rates later, but we can see that there are high levels of awareness of “Risks related to natural
disasters”, “Risks related to accidents and malfunctions of facilities/equipment” and “Productquality risks”.
Next, we look at the particular characteristics in each enterprise category. If we begin by looking
at “Profitable enterprises (1)”, “Product quality risks” was the most popular response (78.0%),
followed by “Risks related to accidents and malfunctions of facilities/equipment” (76.0%) and “Risks
related to natural disasters” (73.4%). Compared with other enterprises, the “Profitable enterprises(1)” category notably had the highest proportion of respondents who selected “Information
security risks”.
Looking next at “Enterprises with a high ordinary profit ratio (2)”, “Risks related to natural
disasters” was the most popular response (78.1%), followed by “Product quality risks” (77.1%) andthen “Risks related to accidents and malfunctions of facilities/equipment” (76.8%). We also see
that, compared with other enterprises, “Enterprises with a high ordinary profit ratio (2)” had thehighest proportion of respondents who opted for “Risks related to natural disasters”.
The third category looked at is “Enterprises with a high equity ratio (3)”. Among “Enterprises
with a high equity ratio (3)”, the highest proportion (80.2%) chose the “Product quality risks”
response, followed by “Risks related to accidents and malfunctions of facilities/equipment” (75.9%)
and then “Risks related to natural disasters” (75.0%). Like “Profitable enterprises (1)”, “Enterprises
with a high equity ratio (3)” are also very conscious of “Product quality risks”.
Looking finally at “Low-revenue enterprises (4)”, “Product quality risks” was the most popular
response (78.0%), followed by “Risks related to accidents and malfunctions of facilities/equipment”(75.9%) and “Risks related to bankruptcy of business partners” (74.6%). This indicates that “Lowrevenue enterprises (4)” tend to be more conscious of “Risks related to bankruptcy of business
partners” than the other enterprise categories.

450

Part II The earning power of SMEs

(Cited earlier) Attitude towards risk preparation, by company category(1) Impacts are expected
Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Low-revenue enterprises (4)Section 1

Fig. 2-1-24

Risks
lab relat
or ed
iss to
ue
s

bu

Ris
k
b s resin ankr late
es up d tos p tcy
art
ne of
rs

ks
Pr

od

uc
t

qu
ali
ty

ris

C
vio omp
lat lia
ion ncris e
ksI
se nformcurity atio
ris n
ks

Ris
k
ac s relcid atemfacailiti lfun ents d toes/eq ction anduip s ome fntRna isks
tur relala
dis ted
as to
ter
s

(%)

(2) No impacts are expected(%)

Risks related tonatural disasters

Source:Notes:

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.
1.	 “Impact are expected” represents the sum of “Has a large impact“ and “Has an impact” responses.
2.	 “No impact are expected” represents the sum of “Has a slight impact” and “Has almost no impact” responses.
3.	 “Other” responses are not presented here.
4.	 The enterprise categories are as defined for Fig. 2-6-5.

Next, we look at the status of risk countermeasures by SMEs (Fig. 2-1-25 (cited earlier)). If we
begin by looking at overall trends, of the three risks with high recognition rates in Fig. 2-1-24(cited earlier) (“Risks related to natural disasters”, “Risks related to accidents and malfunctionsof facilities/equipment” and “Product quality risks”), we see a trend for countermeasures to beprepared for “Risks related to accidents and malfunctions of facilities/equipment” and “Productquality risks”. However, there appears to be little progress with countermeasures for “Risks related
to natural disasters”.
Next, we look at the results by enterprise category. Starting with “Profitable enterprises (1)”,the response with the highest proportion for that category is “Product quality risks” (60.9%).
This was followed by “Information security risks” (55.0%) and then “Risks related to accidents
and malfunctions of facilities/equipment” (52.4%). The “Profitable enterprises (1)” had a higher
proportion of responses than other enterprises for “Information security risks” in terms of theirawareness of risks, and also has a high proportion of responses for risk countermeasures.

451

Chapter 6 Management capabilities that determine SME earning power

Next, when we look at “Enterprises with a high ordinary profit ratio (2)”, the highest proportionof responses was for “Product quality risks” (55.9%), followed by “Risks related to accidents andmalfunctions of facilities/equipment” (51.7%) and “Information security risks” (46.0%). The trends
for the status of countermeasures are similar to those for “Profitable enterprises (1)”, but withlower proportions of responses.
Thirdly, looking at “Enterprises with a high equity ratio (3)”, the highest proportion of responses
was for “Product quality risks” (56.3%), followed by “Risks related to accidents and malfunctions offacilities/equipment” (46.1%) and “Information security risks” (45.3%). The only response relating
to the status of countermeasures that scored more than 50% was “Product quality risks”, showingthat the overall trend was for low levels of preparedness in terms of countermeasures.
Finally, looking at “Low-revenue enterprises (4)”, the highest proportion of responses wasfor “Product quality risks” (55.6%), followed by “Risks related to accidents and malfunctions offacilities/equipment” (47.0%) and “Information security risks” (45.7%). Like “Enterprises with ahigh equity ratio (3)”, the overall countermeasure status was low.
Summarizing the above, the trend seems to be that the higher the profitability of an enterprise,
the greater its awareness of risks and countermeasures. However, we can also see that there isan overall tendency for enterprises to have made little progress with their risk countermeasures.
This is particularly true with respect to “Risks related to natural disasters”, where despite highlevels of awareness of the impacts on business, the proportion of enterprises who have actual
countermeasures in place is not high. Even among those enterprises that have not taken
countermeasures, the proportion who responded “Risks related to natural disasters” is remarkably
high. This suggests that progressing preparations against “Risks related to natural disasters” is an
important issue. As we saw in Chapter 4, the formulation of a BCP not only boosts a company’s
preparedness against risks, it also increases the company’s value as perceived by others. So it isimportant that enterprises take advantage of resources such as published manuals and seminars
held by external agencies, and that their preparedness against risks be promoted through measures
such as the formulation of BCPs.

452

Part II The earning power of SMEs

(Cited earlier) Measures against risks, by company category(1) Countermeasures have been taken
Profitable enterprises (1)Enterprises with a high ordinary profit ratio (2)Enterprises with a high equity ratio (3)Low-revenue enterprises (4)Section 1

Fig. 2-1-25(%)

Risks related tonatural disasters

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues(2) Countermeasures are being considered(%)

Risks related tonatural disasters

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues

Complianceviolation risks

Product quality
risks

Risks related tobankruptcy ofbusiness partners

Risks related tolabor issues(3) No countermeasures have been taken(%)

Risks related tonatural disasters

Source:Notes:

Risks related toaccidents andmalfunctions offacilities/equipment

Information
security risks

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.
1.	 “Other” responses are not presented here.
2.	 The enterprise categories are as defined for Fig. 2-6-5.

453

Chapter 6 Management capabilities that determine SME earning power

Section 2

Managers’ ages and earning power

In the previous section, we classified enterprises into
four categories using ordinary profit and equity to total
assets as indices and then looked at differences among
the categories in their approaches to growth and theirinvestment strategies.
In this section, we will focus our analysis on
rejuvenation within enterprises as one aspect of enterprisegrowth.
Normally, rejuvenation among enterprises isfrequently seen as being indicated by their participation inor withdrawal from the industry as a whole and businessstartups and shutdowns. But in this section, we will lookat enterprise rejuvenation as indicated by the turnover ofmanagement and the recruitment of younger people into
management positions, and we will analyze the correlation

1.

between the age groups to which managers belong andthe profitability of the enterprises they manage. In thecase of SMEs, the improvement or deterioration of thefinancial situation is often dependent on the capabilities
of managers. The promotion of management rejuvenation
could well be one of the most important issues forenterprise growth.
Bearing this in mind, this section will begin byexamining the current situation with regard to management
age groups. Based on this, we will then analyze thedifferences in the attitudes towards growth and appetites
for investment according the age of the managers, andfinally we will look at the impacts of manager replacementon performance.

Current age of management and differences in attitudes by manager age█ Current age of management

Firstly, we look at the current situation regarding theage of the managers of SMEs. Fig. 2-6-37 shows the trend
in the ages of representatives at five-year intervals since1995. The figure shows that in 1995, the peak age formanagers was 47, but that this peak shifted in the 2000s
until, by 2015, the peak age had reached 66.

Fig. 2-6-37 Distribution of SME manager ages by age group
1995

(%)
24

2000

2005

2010

2015

22
20
18
16
14
12
10
8
6
4
2
0

15−19

Source:

454

20−24

25−29

30−34

35−39

40−44

45−49

50−54

55−59

60−64

65−69

Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).

70−74

75−79 80 or older

Part II The earning power of SMEs

Next, Fig. 2-6-38 shows the trends in the proportionsof managers in the 65 and older age groups according toindustry.
In manufacturing, the proportion in the 65 and older age
groups increased by around 15 percentage points, while in

the non-manufacturing industries, we see an increase ofaround 10 percentage points. Fig. 2-6-38 clearly shows
how managers are moving into older age groups in bothmanufacturing and non-manufacturing though there isabout 5 percentage points gap between them.

(%)

ManufacturingNon-manufacturing

Section 2

Fig. 2-6-38 Proportions of SME managers in the 65 and older age groups according toindustry(Year)

Source:Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).

We also look at trends over time in the proportions
managers moving into older age groups relative to thenumber of employees in the enterprises (Fig. 2-6-39). The
figure reveals that in 1995, enterprises with 20 employees
or less had the lowest proportion of managers in the 65 andolder age groups, but by 2015, the same sized enterprises
had the highest proportion of managers in the 65 andolder age groups. This indicates a tendency for smaller
enterprises to be less likely to promote rejuvenation
within the enterprise.

455

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-39 Proportions of SME managers in the 65 and older age groups according to
the number of employees(%)

20 employees or less21−50 employees

101−300 employees

More than 300 employees

51−100 employees(Year)

Source:456

Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).

Part II The earning power of SMEs

Column 2-6-5 Distribution of manager age groups by prefecture

Fig. Column 2-6-5

Section 2

In this Column, we look at the distribution of manager age groups in the different prefectures.
Fig. Column 2-6-5 shows the changes in the ages of enterprise managers by prefecture between
FY1995 and FY2015. For example, we can see that the proportion of managers aged 65 or morein Shiga prefecture increased by 15 percentage points between 1995 and 2015, which indicates a
relatively low rate of aging in that region. When we look at the Tokyo metropolitan area, we see
progressive aging, with the proportion of older managers increasing by 20 percentage points inalmost every area.
Proportions of SME managers in the 65 and older age groups according toprefecture (1995−2015)(％p)

Source:Recompiled from Teikoku Databank, Ltd., COSMOS2 (Corporate Profile Database).

457

Chapter 6 Management capabilities that determine SME earning power2.

Differences in managers’ attitudes to growth by age group and the effects of management turnover on
performance█ Enterprise growth stages and managers’
awareness of the external environment

Below, we will consider whether differences in the agegroups of managers make a difference to their attitudes togrowth and corporate culture. We begin by looking at thegrowth stages of enterprises according to the generationalage of the managers. Fig. 2-6-40 shows that the younger
the generation of the managers, the higher the proportion
who responded that their enterprise is in the growth stage,
and that as the managers age, more of them identify theirenterprises as being in the maturation stage.

Fig. 2-6-40 Enterprise growth stages according to manager age
40 or younger(n=1,026)

50−59(n=1,246)

60−69(n=1,541)

70 or older(n=600)(%)

Startup/growth stage

Source:Note:

Maturation stage

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
“Startup/growth stage” shows the combined total for those who responded “Startup stage” and “Growth stage”.

Next, we move on to the level of recognition ofchanges in the competitive environment according tomanager age. Looking at Fig. 2-6-41, we see that only a458

In decline

small proportion of managers aged 70 or more responded“Market needs are diversifying” or “The quality oftechnology and services is improving”.

Part II The earning power of SMEs

Fig. 2-6-41 Recognition of changes in the competitive environment by manager age(%)

49 or younger(n=997)50−59(n=1,235)

60−69(n=1,501)

70 or older(n=579)Note:

du Turn
cts ovan er
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int
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les as
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po ntrac e mapu
lat ting rket
ion du isde e to
clin
e
in
Wi
IT, thare mo thejoi re c adv
nin om angtche petit es
ma orsrketC
co ompmp etiind anie tion
us s i withtry n tis he othe
wo sa rrse meningThan e qud s ali
erv ty o
ice f tesi
s i chno
mp lo
rov gying

Price
in comthepm etitwo arke ion
rse t is
nin
g
Ma
rke
tn
div eeds
ers arify e
ing

Section 2

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Attitudes to Growth

The next area to examine is managers’ attitudes togrowth according to age. Fig. 2-6-42 shows that the “Profit
rates must be increased” response accounted for a highproportion of choices across all age groups. However, thetrend shows that the younger the managers, the higher the

proportion who opted for “Active investment is required”
and “Growth involves risk, so we should actively embracerisk”. Conversely, the more senior the managers’ age
group, the higher the proportion who selected “Company
growth is dependent on market growth” and “Don’t want
growth if it involves risk”.

459

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-42 Attitude towards growth according to manager age(%)

49 or younger(n=1,048)

Profit rates
must beincreased

Source:
Note:

Sales
must beincreased

Employment
must bemaintained
or increased

50−59(n=1,271)

Trading area
must beexpanded

Activeinvestment
is required

70 or older(n=607)Company
growth isdependent
on market
growthGrowthinvolves risk,
so we should
activelyembrace risk

Don’t want
growth if it
involves risk

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Next, we investigate respondents’ appetites for future
investment in growth (Fig. 2-6-43). When we look at
the levels of appetite for investment in growth, there isstrongly positive sentiment across all the age groups for

460

60−69
(n=1,553)

investment that reduces costs or increases productivity.
However, where the investment targets new initiatives,
the strongest appetite is shown by the 49 or younger age
group.

Part II The earning power of SMEs

Fig. 2-6-43 Appetite for risk-taking behavior in the next 3 years according to manager
age(%)

49 or younger

50s

60s

70 or older

Section 2

Reduce costs

Source:Note:

Improveproductivity

Expand existing
business

Develop anddeploy newservices andproducts

Create new
demandStart up new
business andchange existing
businesses

Expand into
new areas/
segments

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

Next, in Fig. 2-6-44, we look at appetite for investment
for the next 3 years by age group. Overall, the figure showsthat as managers age, the proportion with an appetite forinvestment tends to decrease. But when we look at specifictypes of investment, we see that there is a consistently

strong appetite for human resource investment across all
age groups compared with other types of investment. On
the other hand, none of the age groups tend to have muchappetite for investment in overseas expansion or in IP
utilization.

461

Chapter 6 Management capabilities that determine SME earning power

Fig. 2-6-44 Appetite for investment in the next 3 years according to manager age(Investment (1))(%)

Capital investment

49 or younger(n=590)50s(n=762)60s(n=863)70 or older(n=333)IT investment

Human resource
investment

Investment inoverseas expansion

IP utilization investment

Marketing

M&A

R&D investment(Investment (2))(%)

Investment inadvertising and PR

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

█ Effects of Management Turnover

Here, we look at what effects replacing the management
has on the performance of an enterprise. Fig. 2-6-45
shows the variations in the ordinary profit rate relative tomanager replacement during the period from FY2007 to
FY2008. Looking at the figure, it is clear that enterprises

462“Managers were replaced” experienced markedly larger
increases in ordinary profit rate than enterprises where“Managers were not replaced”, suggesting that manager
turnover actually contributes to the profitability of anenterprise.

Part II The earning power of SMEs

Fig. 2-6-45 Trends in ordinary profit rate depending on whether managers are replaced(%)

Managers were replaced

Managers were not replaced

Section 2(FY)
Source:Note:

Recompiled from Teikoku Databank, Ltd., COSMOS1 (Corporate Financial Database) and COSMOS2 (Corporate Profile
Database).
“Managers were replaced” is calculated as an average value for enterprises where managers were replaced at SMEs withmanagers aged between 55 and 64 over the period from FY2007 to FY2008.

463

Chapter 6 Management capabilities that determine SME earning power

Column 2-6-6 Differences in post-succession performance according tomanagement innovation initiative
In this section, we have analyzed the impacts of manager replacement on enterprise performancealong with the differences in performance according to the age of the managers. But this column
attempts to tease out whether any difference was made by initiatives aimed at management
innovation by the new managers (the successors). Fig. Column 2-6-6 shows the results of a surveyof the levels of performance improvement according to whether the successors implemented
any management innovations. The figure shows that enterprises where the new management
undertook initiatives to reform management had higher rates of performance improvement thanenterprises where no measures were introduced. This applies particularly to micro enterprises, morethan half of which reported performance improvements when innovations were introduced. By
contrast, more than half of all SMEs where no management reforms were undertaken reported
that business worsened.
The analysis in this section also indicates that replacing management with managers who are
not elderly tends to lead to improved performance, but it is also clear that further improvements
can be achieved if the successors implement management innovations29).
Fig. Column 2-6-6

Post-succession performance according to management innovation
initiative
Improved

Unchanged

Worsened

Unreformed
enterprises(n=58)
Microenterprises

Reformedenterprises(n=2,016)

Unreformed
enterprises(n=251)
SMEs
Reformedenterprises(n=2,064)

Source:Note:

Japan Finance Corporation (JFC) Research Institute, SME Questionnaire Survey of Business Succession.
Micro enterprises are defined as enterprises with 19 or fewer employees, while SMEs are those with 20 employees
or more.

29) See Japan Finance Corporation (JFC) Research Institute, Japan Finance Corporation Collected Essays, Edition 29 (P.29−32).

464

Part II The earning power of SMEs

Column 2-6-7 Management age and corporate culture

Corporate culture according to manager age(Organization characteristics)

40 or younger(n=1,037)

50−59(n=1,268)Thew
ap takes holeprocac an i om
cu h to ntegr pany
sto reame sol ted
r is ving
su
es
Ma
na
ge
str menate t pdis gies lanssem are andwo inate fully
rkp d t
lac o
es

Int
e
are rnal
ma decde isio
qu ns
ick
ly

ma Intekin rnag i l dest
op cisio
-do n
wn

(%)

60−69
(n=1,553)

70 or older(n=606)Emplorypri espo ee avile nsr
ge ibili eas os a tyre and fclearca It ispa anboqu le of rgan
ick resp izatiolyointhe to ch ndin naen mar nge g
vir ket s
on
me or
nt

Fig. Column 2-6-7

Section 2

In this section, we have focused on the age of management and looked at the differences manager
age makes to attitudes towards enterprise growth and appetites for investment. Now, we turn to thecharacteristics of enterprises’ corporate culture according to the age of the management. Fig. Column
2-6-7 shows that a high proportion of younger managers tended to respond “Internal decisions are
made quickly” and “It is an organization capable of responding quickly to changes in the market or
environment”, indicating a strong trend for them to be aware of agility as a characteristic of theirenterprises. By contrast, the proportion of “The whole company takes an integrated approach toresolving customer issues”, “Management plans and strategies are fully disseminated to workplaces”
and “Employee areas of responsibility and privileges are clear” responses tend to be higher the moremanagers belong to the senior age groups, which indicates a strong trend for older managers torecognize systematic organization as a characteristic of their corporate culture.

(Management/employee characteristics)

Source:
Note:

loy
ee
pa with s arym the e s
en ir i atist a ndnd ivid fied
co work ual
nd ing
itio
ns

Em
p

Str
im ongpc
ind rovin omm
ivid gitua emp men
lc
ap loye t toab esiliti ’esmm
ne ittedw
to
do chall takno eng ing
t fe es onarfai and
lur
e

Co

T
an akey’s priorg dea inan niza thed o tio
rig n
ins
mp
co

op Therera e itio s brn
em am oadplo ong
ye
es
co

ge
m
hu ent p
ma riode n res ritizeve ou slop rc
me e
nt
na
Ma

co Takm
tec pan e prid
hn y’solo pr e in t
gy odu he/se ctrvi s/
ces(%)

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

465

Chapter 6 Management capabilities that determine SME earning power

Column 2-6-8 Management age and future performance prospects
In this Column, we will try to identify differences in the expected outlook for future performanceaccording the age of the management. Fig. Column 2-6-8 (1) shows future prospects for sales.
The figure shows a clear trend for diminishing forecasts for increases in sales as the management
grows older. Advancing age also appears to be accompanied by an increasing trend for managers
to forecast declining sales.
Fig. Column 2-6-8 (1)Predictions of future sales trends according to management age
Increasing

Unchanged

Decreasing

49 oryounger(n=1,042)

50−59(n=1,272)

60−69(n=1,565)

70 or older(n=615)

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.

Next, in Fig. Column 2-6-8 (2), we look at the future prospects for ordinary profit. As withpredictions of sales growth, the figure shows a trend for fewer forecast increases in ordinary profit
as management grows older. And again, as the management age rises, there is a trend for increasing
predictions of declines.

466

Part II The earning power of SMEs

Fig. Column 2-6-8 (2)Predictions of future ordinary profit trends according to management age
Increasing

Unchanged

Decreasing

Section 2

49 oryounger(n=1,040)

50−59(n=1,271)

60−69(n=1,561)

70 or older(n=614)

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.

If we also look at predictions of increases in employee numbers, the pattern again mimics thatfor predictions of sales and ordinary profit, with the figure showing a trend for fewer forecast
increases in employee numbers as management grows older (Fig. Column 2-6-8 (3)). And again, as
the management age rises, there is a trend for increasing predictions of declines.
Fig. Column 2-6-8 (3)Predictions of future trends in employee numbers according tomanagement age
Increasing

Unchanged

Decreasing

49 oryounger(n=1,049)

50−59(n=1,277)

60−69(n=1,565)

70 or older(n=613)

Source:Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities(December 2015), commissioned by the SME Agency.

467

Chapter 6 Management capabilities that determine SME earning powerCase

2-6-10Nihon Dento Kougyo Co., Ltd.

A plating company that took the occasion of a change of leadership toreform employee awareness and break into new fields, aiming to be an
enterprise loved by society
Nihon Dento Kougyo Co., Ltd. (employees: 73; capital: ¥10 million), based in Saitama City in Saitama Prefecture,
specializes in small-lot production of multiple varieties of products, with a key focus on plating and surface treatment.
The firm took the occasion of the installation of current President Mami Ito to overhaul employee awareness and breakinto new business domains while taking advantage of their existing technologies.
At the time she took office, President Ito had no executive experience and not enough knowledge about plating.
However, she recalled that her father, the founder of the company, had always valued relationships with employees andused that to power company growth. Her idea was that “Enhancing employee satisfaction will help the company grow.”
To turn that idea into reality, President Ito decided that “Enhancing employee satisfaction can’t be a top-down effort.
It’s important that employees gain a stronger awareness of their own work and develop the power to make decisions.”
In recent years, therefore, Nihon Dento Kougyo has been putting more focus into strengthening employee training anddeveloping leaders. As for strengthening employee training, President Ito felt that bringing in an outside perspective
would help people see their jobs through new eyes, and she encourages her employees to actively participate in a variety
of study groups meeting outside the firm. She also started recruiting employees interested in becoming leaders. The
company started providing leader training from an outside teacher to those who stepped up, and six young employees
are continuing the training today.
These initiatives have resulted in a big change of employee awareness compared to before. Recently, employees
think about yearly policies for their own business areas and present them to other company members at the startof the fiscal year. Employees from other departments also offer their opinions in this setup. Another benefit is that
employees have a greater sense of participating in management. For example, monthly profit and loss statements areshared with employees. If any business area is declining, they think not only about cost control, but how to add morevalue. Besides changing awareness, President Ito believes it is essential that employees, not just the President, look to
the future and make decisions on important issues like future business development or capital investment. Making suchimportant decisions is not easy without experience, of course, but with the help of existing leaders and through employee
development, employees have greatly increased their experience grasping the issues and making decisions. Gradually,
Nihon Dento Kougyo is forming a foundation for its future.
President Ito also feels it is Nihon Dento Kougyo’s mission to build a business that can last a century, a goal she has
shared with her employees. To get to the century mark, she believes that as the market changes, so must the company. Thismeans that her business cannot afford to get stuck in their old ways of thinking and doing things. She is trying to createa corporate culture that actively adopts new ideas and initiatives and survives by being flexible to changes in the market.
Aside from reforming employee awareness to make a stronger organization, President Ito is working to expand thescope of Nippon Dento Kougyo’s business. When she first became President, the company’s main business was plating watch
cases. Now they have expanded into a range of fields, including musical wind instruments, writing instruments, medical
devices, and beauty instruments. Now she aims to develop businesses outside of plating, businesses that will “bloom in 10
years.” The company has already begun a number of projects, including joint research with universities. Starting to workwith one particular medical product was the start of the company’s business expansion. Because of the technical difficulty ofthe product and the fact of its use in medical applications, any defect would have a major negative impact on the company,and for that reason some employees opposed the idea. President Ito, however, mobilized her staff with her passion andleadership until the business was successful. For a company
to survive when the market is changing at a dizzying pace,each business has to maintain the excellence of its unique
technologies while actively developing new markets andchanging internally. To do that, it is important to have an
executive with strong resolve promoting operations, to have
employees who do their work with a sense of ownership, andto have a mindset that does not get stuck in old frameworks.
Speaking of her company’s future, President Ito says,“A labor force of about 80 members is just right for Nihon
Dento Kougyo’s business model, which is based on smalllot production of multiple varieties of products. We wantto have an appropriate replacement of employees andexecutives, pursue the kind of value only we can offer, andraise employee satisfaction to new heights. By doing this,we want to be a company that creates a positive cycle notjust for ourselves but for society, so that the company will be
loved by society.”
President Ito with employees of Nihon Dento Kougyo

468

Part II The earning power of SMEs

Case

2-6-11

Fukurokujyu Brewery Co., Ltd.

Fukurokujyu Brewery Co., Ltd. (employees: 19; capital: ¥25 million), based in Gojome Town in Akita Prefectureand founded in 1688, is a brewer of seishu (refined sake). Current President Kouei Watanabe joined the company
after graduating from university in 2001. He is the 16th generation of his family to run the business. Faced withdeclining sales, President Watanabe embarked on a reform of his company rather than sticking to tradition. The
firm launched a new seishu and successfully restored and strengthened its profitability.
At the time he joined Fukurokujyu Brewery, it was marketing mainly to local liquor stores and wholesalers. The
majority of the company’s sales came from inexpensive futsushu (ordinary-quality sake)30) sold within the same
prefecture. Therefore the business faced a dire situation as the population was declining and consumer tastes
were changing. Additionally, the company’s approach to negotiating sale prices did not even try to convince
customers of the product’s quality and added value. The President grew skeptical of this approach and decided tomake a refined sake of very high quality.
President Watanabe made large-scale capital investment in a warehouse, refrigerators, and the like tomake a high-added-value sake completely different from the futsushu it had made up to then. He also tried
to develop a more delicate taste by reconsidering his brewing methods, including storage after pasteurization.
Another approach he adopted was to bypass the wholesalers and sell directly to liquor retailers. To do so, hesearched for retailers who would really convey the value of his company’s products. Moreover, when Watanabe
became President in 2004, the company decided to break away from its old image. The company took the name
Fukurokujyu Brewery Co., Ltd., replacing its old name of Watanabe Hikobee Shoten Co., Ltd. It then went on tofinish its new product, Ippaku Suisei, in 2006.
One reason why Fukurokujyu Brewery’s investment succeeded in reforming the company was that the executive
did not take a top-down approach, imposing his own ideas and decisions on his employees. Rather, he first shared
his ideas with the employees, incorporated their feedback, and corrected course in his management.
Another factor is that he expressed his own feelings about sake to his employees, telling them about the kindof sake he wanted to make and what kind of customer he wanted to target. As a result, all employees, even thetoji,31) were of the same mind. Finally, the executive personally learned market trends and information, which
helped him to predict future market trends and be sure of the timing of his investment.
The added value strategy was so successful that Fukurokujyu Brewery now surpasses its past net sales andprofitability even though it is only producing half as much. Aside from running his own company, President
Watanabe is part of NEXT FIVE,32) an association of five young sake brewers in Akita Prefecture. The group formed
NEXT FIVE to make refined sake popular again. Members share opinions and technologies on brewing methods
and the like that are considered trade secrets. NEXT FIVE has also continued to brew one type of refined sake
together every year. Their collaborative product has been very popular among sake lovers. Participation in a grouplike this is one way President Watanabe shows his determination to teach the market the value of refined sake andnot get stuck in tradition.
Even
as
its
traditional
technologies
remainits
foundation, Fukurokujyu Brewery
has made big changes in its
business policies and successfully
restored its profitability. The
effort has resulted in a newcustomer base for refined sake,even at a time when the market
for the product is shrinking.
Commenting on future initiatives,
President Watanabe says that
“The issue is how to increase
the value of our products even
Fukurokujyu Brewery (the facility is a registered tangible
President Watanabe
more.”
cultural property of Akita Prefecture)

Section 2

Upon change of leadership, sake brewer switches to an added-value
strategy to restore profitability30) Under Japan’s liquor tax act, futsushu is any refined sake other than tokutei meishoshu (specially designated sakes, i.e., honjozoshu / purebrew sake, junmaishu / sake made without added alcohol or sugar, and ginjoshu / sake brewed by low-temperature fermentation from white
rice milled to 60%).
31) In a Japanese sake brewery, the toji or chief brewer has highest responsibility for the brewing process.
32) NEXT FIVE activities are designed to exchange technology and information as a stimulus to breweries. The group brews sake together oncea year and holds events intended to promote Japanese sake.

469

Chapter 6 Management capabilities that determine SME earning powerCase

2-6-12

Amauchi Industry Co., Ltd.

A precision sheet metal working company that aims to no longer “waitfor work” but instead “think and work” to meet customer needs
Amauchi Industry Co., Ltd. (employees: 25; capital: ¥21 million), based in Yokohama City in Kanagawa
Prefecture, works mainly in precision sheet metal work as its pursues processing, product, and development
opportunities. Under the leadership of current President Miwa Amauchi, the company decided to strikea new image. Instead of merely waiting for customers to come to it, the business aims to think about
customer needs and do business accordingly. The company is growing under this policy.
President Amauchi joined the firm when it was hit by the Lehman crisis. In 2014 she became President. She
worked on reforming the company from within to restore it. Among its important changes, it establisheda new vision and philosophy and actively got its message out. President Amauchi felt the company had
superior technical skill, but to get back to profitability, it would be necessary for the organization to pull
together as one. Therefore, by stating clear company principles and vision, she tried to share with her
employees how the company could contribute to society and express her vision of what it could be. She tried
to unite the company and build it into one that could contribute to customers.
Additionally, President Amauchi sensed the company had problems in its marketing capacity. She said,“At the time of my grandfather and father, manufacturing businesses were thriving and there was plentyof work. Thankfully, it was more than enough to handle the work in front of them.” That led to a cultureof “waiting for work”—not working until a customer placed an order. Employees were not cultivating newjobs and customers by acting proactively. However, nowadays when big changes are unavoidable, this old
way of working does not apply. To survive, President Amauchi aimed to build a company that could think
and act independently, by actively spreading company information to society and at the same time seeking
out customer needs. Specifically, by using the Internet, holding workshops, and participating in R&D projects
in collaborations with other businesses, Amauchi could demonstrate its technical skill to a wider audienceand develop new customers and markets. For example,
engineers of major companies also took part in some of
Amauchi’s workshops, which could lead to new customers
in future. Additionally, while spreading information about
the company, President Amauchi began to sense there
were latent markets that could use her firm’s technology.
She notes, “Precision sheet metal work is a business witha visibility issue, but the market is broad-based.”In the process of effecting these changes, some objected.
They said that instead of spending time on long-termplanning and pipe dreams, Amauchi should focus onbuilding sales with work immediately available. However,President Amauchi saw that the market environment facing
the company was clearly changing, and felt strongly that
her business would not survive if it did not keep responding
At a precision sheet metal workshop, participants getsto the changes. Instead of giving up, she encouraged her
hands-on experience with bending
executives and employees to understand the objectives of her
long-term vision and her view of the future. People started
to help establish a vision and cooperate with sample making
and other projects to promote Amauchi’s technology. Thisstrong leadership on the part of the President has become akey part of the company’s return to profitability.
Going forward, President Amauchi says the task is tobuild a brand for Amauchi Industry’s precision sheet metal
technology. Currently, the focus is on robotics but thecompany is also getting into the medical, aerospace, andother fields. She says, “We are here today because ourcustomers fostered us with quite a bit of discipline. We plan
to take on leading-edge areas and build up knowledge so
we will be able to contribute to our customers in one way or
Sample of a stainless steel product from Amauchi Industry(trescopic_box)
another. As we do so, we will never forget to feel grateful.”

470

Part II The earning power of SMEs

3.

Summary
potential to translate that potential into actual growth,
they need to focus on market trends and on their own
areas of excellence. It is important for managers to
put forward ideas for growth and to work with outside
specialists such as financial institutions while uniting theirorganizations to push ahead with investment. At the sametime, they should also be preparing for risk and drawing
up methodical business succession plans as they work toboost their earning power.

Section 2

In this chapter, we have conducted an analysis to
identify the characteristics of profitable enterprises
and of management that will lead SMEs to grow into
profitable enterprises. While not all profitable enterprises
have a strong inclination towards investment, it is clearthat the more enterprises are aware of the need to grow,the greater their appetite for investment. We have also
shown that Japan has many enterprises that have strong
latent potential to grow into “profitable enterprises”.
In order for these enterprises with their ample latent471

Chapter 6 Management capabilities that determine SME earning power

Summary of the 2016 White Paper on Small and Medium Enterprises in JapanIn Part I, we demonstrated a number of trends among
SMEs. These showed that, on the one hand ordinary
profits have climbed to equal past peaks, business failures
are in decline and the pace at which the number of SME
businesses are declining has slowed, while on the other
hand sales by SMEs are not increasing, growth in capital
investment is softening, infrastructure is deteriorating andworker shortages are becoming increasingly severe.
Given this situation where ordinary profits have risen tohistorically high levels, it is vital that SMEs increase theirearning power through measures such as labor savings,
streamlining and sales expansion. So in Part II onwards,
we conducted consistent analyses focusing on the earning
power of SMEs. In Chapters 2 to 4, we analyzed the useof IT to improve productivity, overseas expansion as away to expand sales and the role of risk management insupporting earning power. The analysis results showed
a number of points held in common across all profitableenterprises, namely that the managers: (1) showed clear
vision; (2) welcomed feedback from employees; (3)undertook human resource development; (4) used moreadvanced business processes, and; (5) pursued measured
and systematic investment, etc.
In Chapter 5, we looked at the funding available toassist SMEs and showed that, while there is improvement
in financial institutions’ attitudes towards lending toSMEs, loans by financial institutions to SMEs are not
growing as fast as loans to large enterprises. Also, thoughenterprises who borrow from financial institutions tend
to have higher profitability than enterprises with noborrowings and both SMEs and financial institutions stressthe importance of feasibility assessment-based funding asa future financing method, assessments tend to be based472

on the current financial information and assets in reserve.
In addition, we also discussed the fact that, in order toproceed with financing based on feasibility assessments,
enterprises need to effectively communicate informationsuch as business plans to the financial institutions, andthat support for the financial institutions themselves needs
to be boosted through cooperation with other support
agencies.
Then, in Chapter 6, we looked at management
capabilities in profitable enterprises and showed that,while low-profit enterprises tended to have conservative
attitudes towards investment, particularly with regard
to capital investment and investment in human resource
development, high-profit enterprises have a systematicand positive approach to investment and are generally
engaging in measures to deal with risks. We also showed
that, as the age of management rises, appetite forinvestment declines and there is a growing shift towards
risk avoidance, while in enterprises where managers havebeen replaced, profit rates tend to increase, albeit only
slightly.
Based on these findings, we would like to conclude
this 2016 White Paper on Small and Medium Enterprises
in Japan with the expectation that future managers will
listen carefully to feedback from their workplaces, willclearly set out their management concepts and will work
hand-in-hand with financial institutions and other external
agencies to provide positive management. We also expectthat they will positively engage in investment in growth,such as investment in IT and overseas expansion, and thatthey will take steps to boost productivity and rejuvenate
their organizations so that they can increase their own
earning power.

SME policies implemented
in fiscal 2015

Contents
SME policies implemented in fiscal 2015
Chapter 1 Detailed support for SMEs in disaster-affected regions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 476
Section 1 SME and micro-businesses measures with respect to the Great East Japan
Earthquake .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 476
Section 2 Countermeasures for the overlapping debt problem .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 476
Section 3 Support for restoration of plants, etc. . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 477
Section 4 Other measures. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 477

Chapter 2 Support for productivity improvement among SMEs. . . . . . . . . . . . . . . . . . . . . 479
Section 1 Enhancement of technological capacity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 479
Section 2 Improvement of transaction conditions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 480
Section 3 Examination of policies by advisory councils, etc. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 481

Chapter 3 Support for overseas expansion by SMEs and micro-businesses.  .  .  .  .  .  .  .  .  .  . 482
Section 1 Development of an information provision and consultation framework .  .  .  .  .  . 482
Section 2 Support for the development of new products and services .  .  .  .  .  .  .  .  .  .  .  .  .  . 482
Section 3 Other support policies for overseas expansion .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 482

Chapter 4 Support for sustainable development of micro businesses .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 485
Section 1 Strengthening the framework of accompanying-style management support.  .  .  . 485
Section 2 Support for market cultivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
Section 3 Development of the business environment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 485

Chapter 5 Promotion of regional economic revitalization and regeneration .  .  .  .  .  .  .  .  .  .  .  . 487
Section 1 Strengthening management support frameworks .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 487
Section 2 Utilization of local resources .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 487
Section 3 Revitalization of shopping districts and city centers. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 488
Section 4 Support for market and demand cultivation .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 489
Section 5 Human resource and employment measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 490
Section 6 Support for new and secondary business startups .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 492
Section 7 Support for business succession .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 494
Section 8 Other regional revitalization measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 495

Chapter 6 Development of the business environment .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 497
Section 1 Cash-flow assistance and business generation support .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 497
Section 2 Enhancing financial capacity. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 499
Section 3 Measures for pass-throughs of consumption tax.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 500
Section 4 Measures for business stabilization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 500
Section 5 Measures concerning public demand. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 501
Section 6 Promotion of human rights awareness .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 502

474

SME policies implemented in fiscal 2015

Chapter 7 Initiatives by industries and area .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 503
Section 1 Measures for SMEs in agriculture, forestry and fisheries .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 503
Section 2 Measures for SMEs in the transport industry .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 504
Section 3 Measures for small and medium building contractors and realtors .  .  .  .  .  .  .  .  . 505
Section 4 Measures for the environmental sanitation business .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 506

Chapter 8 Other SME policies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 507
Section 1 Environmental and energy measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 507
Section 2 Promotion of IT .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 508
Section 3 Measures on intellectual property.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 508
Section 4 Promotion of standardization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 511
Section 5 Promotion of surveys and public information activities .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 511

475

Chapter 1 Detailed support for SMEs in disaster-affected regions
Section 1 SME and micro-businesses
measures with respect to theGreat East Japan Earthquake
1. Great East Japan Earthquake Recovery Special
Loan[Fiscal 2015 budget: Included in ¥20.5 billion]
Since May 2011, there has been ongoing provisionof the Great East Japan Earthquake Recovery Special
Loan program, which is provided by the Japan FinanceCorporation (JFC) (SME Unit and Micro Business andIndividual Unit) and the Shoko Chukin Bank to assist
SMEs and micro-businesses affected by the Great East
Japan Earthquake with their cash-flow issues. Between
the start of this program’s operation on 23 May
2011 and the end of January 2016, a total of approx.
288,000 loans have been made with a total value ofapprox. ¥6 trillion. Those measures that were createdin fiscal 2011 (measures as of 22 August 2011) for
implementation by prefectural level foundations andsimilar institutions to effectively eliminate the burdenof interest payments on loans received by SMEs andmicro-businesses with business establishments locatedin restricted areas or similar zones when they were
imposed following the nuclear accident in Fukushima,
and for SMEs and micro-businesses with businessestablishments and other assets that were completely
destroyed or swept away by the earthquake or tsunami,
were continued in fiscal 2015.

2. Loan ceilings and lowering of interest rates
on Managerial Improvement Loans (Marukei
loans) and Managerial Improvement Loans forEnvironmental Health Business Loans (Eikei
loans)[Fiscal investment and loan program]
The loan ceilings for unsecured, unguaranteed andlow-interest Marukei and Eikei loans provided by
the JFC to micro businesses affected directly or
indirectly by the Great East Japan Earthquake wereraised continually (by ¥10 million separately fromordinary loans) and interest rates were lowered (by anadditional 0.9% from the normal interest rate for each
¥10 million loaned separately, limited to 3 years fromwhen the loan is taken out). Between April 2015 andthe end of January 2016, a total of 547 Marukei and11 Eikei loans were made, respectively worth ¥1.81
billion and ¥30 million.

3. Great East Japan Earthquake
Emergency Guarantee

RecoveryTo assist SMEs and other businesses affected by theGreat East Japan Earthquake, a new guarantee system476

was established in fiscal 2011 as a separate frameworkfrom existing ordinary guarantees, disaster-related
guarantees and safety net guarantees. The system
continued to be implemented in fiscal 2015 in specificdisaster affected areas (100% guaranteed for up to ¥80
million for unsecured loans, and up to ¥280 million
for other loans). Between the start of this program’s
operation on 23 May 2011 and the end of January
2016, a total of approx. 123,000 loans were made witha total value of approx. ¥2.5 trillion.

4. “Special Finance for Small and Medium
Enterprises in the Specified Area” affected by
the nuclear disasterIn order to assist SMEs and other businesses that haveoffices in regions affected by the nuclear power plant
accident, long-term, interest-free, unsecured loans
were offered to provide business funds (working
capital and capital expenditure) required to continue
or resume business in Fukushima prefecture.

Section 2 Countermeasures for theoverlapping debt problem
1. Business revival assistance from Industrial
Recovery Consultation Centers and Industry
Reconstruction Corporations[Fiscal 2015 budget: ¥3.06 billion]
In fiscal 2011, support for the revival of SMEs
damaged by the Great East Japan Earthquake wasenhanced by strengthening the SME Revitalization
Support Councils and establishing Industrial Recovery
Consultation Centers in the affected prefectures, andby establishing Industry Reconstruction Corporations
to buy receivables, etc. Up to 26 February 2016, 4,989
consultations from business owners have been handled
by Industrial Recovery Consultation Centers in eachprefecture, including 4,859 consultations that werecarried through to completion. A key achievement was
the 902 cases where organizations such as financial
institutions agreed to provide financial support,
including 324 cases of debt-factoring.

2. Business revival assistance from the Incorporated
Organization for Supporting the Turnaround of
Businesses Damaged by the Great East Japan
Earthquake

To cope with the overlapping debt problems ofearthquake-affected businesses, the Incorporated
Organization for Supporting the Turnaround of
Businesses Damaged by the Great East Japan
Earthquake provided assistance such as helping
to relieve the repayment burdens for existingSME policies implemented in fiscal 2015

3. Reduction of interest burden during assessmentof the potential for business regeneration[Fiscal 2015 budget: ¥18.4 billion]
This program supports the early business revivalof SMEs and micro-businesses that have suffereddamage in the Great East Japan Earthquake or the
nuclear power plant accident in Fukushima, byreducing the interest burden of those who workwith an Industrial Recovery Consultation Center torebuilt their business. More specifically, with respect
to businesses that have received assistance from an
Industrial Recovery Consultation Center to formulatea regeneration plan, the program defrays the cost ofinterest they incur during the reconstruction process.
The program was established in fiscal 2011 and was
implemented ongoingly in fiscal 2015.

4. Lease subsidy program to support SMEs in
disaster-affected areas

In order to reduce the burden of overlapping debt
borne by disaster-affected SMEs, SMEs burdenedwith lease obligations due to leased equipment thatwas lost during the Great East Japan Earthquake areprovided with subsidies equivalent to 10% of the costof the new leases to re-install the equipment.

Section 3 Support for restoration ofplants, etc.
1. Post-disaster recovery project on joint facilities
of small and medium business associations, etc.

[Fiscal 2015 budget: ¥40 billion]
In order to promote the restoration and reconstructionof areas affected by the Great East Japan Earthquake,
support was provided through the following subsidies:(1) Subsidization by the national government (one half)and prefectural governments (one quarter) of thecost of restoration work on facilities and equipment
required for implementation of restoration work
planned by groups of SMEs and approved by theprefecture as making an important contribution to theregional economy and maintaining employment; and(2) Subsidization by the national government of (onehalf) the cost of disaster recovery projects such as
for Societies of Commerce and Industry and othersuch instruction and consultation facilities for SMEs,
and support recovery of facilities held by groups ofdisaster-affected SMEs and others.

Support was also provided for the implementationof new initiatives that aim to cultivate demand in
new fields in cases where business resumption orcontinuation or recovery of sales was deemed to bedifficult simply by restoring the abovementioned
facilities.

Chapter 1

debts. Since it began operating on 5 March 2012,
the Incorporated Organization for Supporting theTurnaround of Businesses Damaged by the Great
East Japan Earthquake has so far received 2,416
consultations and in 662 of those cases has decided
to support business owners to revive their businesses
through measures such as debt-factoring (as of the endof February 2016).

2. Loans for restoration and development offacilities and equipment

Loans were provided by the Organization for Small& Medium Enterprises and Regional Innovation,
Japan (SMRJ) in cooperation with the prefectures toprovide funds needed for the repair and developmentof the facilities and equipment required for the
implementation of prefecture approved restorationplans by SMEs that suffered damage caused by theGreat East Japan Earthquake.

3. Projects for maintenance of temporary facilities
and subsidy program for the effective utilizationof temporary facilities[Fiscal 2015 budget: Included in ¥1.42 billion]
So that SMEs affected by the Great East Japan
Earthquake can resume business as quickly as
possible, the SMRJ provided temporary factories
and storefronts and essentially cost-free loans were
provided to business owners via local governments.
As of the end of December 2015, the construction offacilities has been completed at 585 locations in 52
municipalities in six prefectures. Additionally, from
April 2014, subsidies have begun to be provided forcosts required for the construction, relocation andremoval of temporary facilities, and 13 projects havebeen subsidized under this program as of the end ofJanuary 2016.

4. Program to create employment that promotes
business recovery[Fiscal 2015 budget: ¥12.2 billion]
In order to create stable employment in disaster
affected areas, support was provided in the areaof employment in accord with industrial policies.
Additionally, the system was expanded to so that
relocation costs could be subsidized to a certain extent.

Section 4 Other measures
1. Establishment of special help desks

Special help desks were set up at offices of the JFC, theShoko Chukin Bank, credit guarantee corporations,chambers of commerce and industry, federationsof societies of commerce and industry, federationsof small business associations, branches of the
SMRJ, and bureaus of economy, trade and industry
nationwide to provide business and financial advice toSMEs and other enterprises affected by the Great East
Japan Earthquake.

477

2. Navigation dial for SME phone consultations

To help SMEs that do not know where to go foradvice, a “Navi Dial for SME phone consultations”
help line with a single number was provided thatconnects callers to their nearest Bureau of Economy,
Trade, and Industry.

3. Consideration for SMEs in disaster-affected
regions by the government and other publicagencies[Fiscal 2015 budget: Included in ¥550 million]
Under the “Basic Policy on State Contracts with
Small and Medium Enterprises”, which is formulated
each fiscal year, consideration was again given to
SMEs and micro-businesses in areas affected by theGreat East Japan Earthquake and widely publicized.
At the same time, to increase opportunities for SMEs
in affected areas to receive orders, the government
took initiatives to include such SMEs in estimate
comparisons and holding pre-tender meetings inaffected areas.

4. Support provided by NEXIIn April 2011, Nippon Export and Investment
Insurance (NEXI) introduced the following measures
to assist SMEs affected by the earthquake: (1)postponement of insurance policy procedures, (2)deferment, reduction or waiver of insured parties’
obligations, and (3) reduction or elimination of thefinancial burden on insured parties. To deal withthe damage caused by harmful rumors, NEXI also
reviewed the coverage of trade insurance anew andpublished specific examples of losses arising from therestriction or prohibition of import of goods on the
grounds of radioactive contamination, which would becovered by trade insurance. These examples include
cases of importation being limited or prohibited by the
introduction of new regulations and cases of illegal
or discriminatory treatment by the government ofdestination country. Insurance coverage for overseas
transactions of food and other items that are subject toharmful rumors is being continued today.

5. Victims’ Employment Development Subsidy
Program[Fiscal 2015 budget: ¥1.93 billion]
Subsidies were provided employers who hire workers
who lost their jobs due to the Great East Japan
Earthquake and job seekers living in affected areas asa result of referrals from “Hello Work” employment
offices and similar agencies, provided that such
workers are expected to be employed continuously fora period of at least one year. Bonus subsidies wereadditionally provided to employers hiring 10 or moresuch workers.

478

6. Guidance and advice on measuring radiationlevels[Fiscal 2015 budget: ¥40 million]
As a countermeasure against harmful rumors regarding
industrial and other products stemming from theGreat East Japan Earthquake and nuclear disaster, aproject was implemented for dispatching specialist
teams that provide guidance and advice on measuring
radiation levels. (The guidance and advice consistedof measuring surface contamination and radioactive
nuclides on items such as industrial products, andproviding information on those measurements
together with guidance and advice.) Efforts were also
made to disseminate proper understanding of radiation
measurements of industrial products.

7. Support for business matching and productdevelopment related to industrial products[Fiscal 2015 budget: ¥113 million]
To promote sustainable reconstruction of areas affectedby the Great East Japan Earthquake and nuclear
disaster and the revitalization of their economies,
support was provided to all areas of Fukushima
prefecture and areas inundated by the tsunami in
Iwate and Miyagi prefectures in developing markets(business matching, product development, etc.) bothin Japan and abroad for local products produced inthose areas.

8. Support for employment
earthquake disasters, etc.

in

response

to[Fiscal 2015 budget: ¥10.7 billion]
Recovery of employment in disaster-affected areas
requires time, and many people who suffered damage
have yet to return from where they evacuated. For thisreason, a program was launched to provide temporary
places of employment for these people and help themstabilize their living situation.

SME policies implemented in fiscal 2015

Chapter 2 Support for productivity improvement among SMEs
Section 1 Enhancement of technologicalcapacityCore

Technology

Advancement[Fiscal 2015 budget: ¥12.87 billion]
Support was provided for R&D initiatives that SMEs
and micro-businesses having an approved R&D
plan under the SME Technological Advancement
Act implement in cooperation with universities,
public research organizations, and other such R&D
institutions.

2. Program to support collaborative efforts tostrengthen competitiveness in commercial andservice industries[Fiscal 2015 budget: ¥990 million]
Support was provided for the development of newservice models by SMEs and micro-businesses throughindustry-academic-government collaboration, in
accordance with a “plan for cross-field collaboration
for new business development” approved under the
Law Concerning Measures for the Promotion ofCreative Business Activities by Small and Medium
Enterprises.

3. Promotion of R&D initiatives that build bridges
with medium enterprises and SMEs

[Fiscal 2014 supplementary budget: ¥1.42 billion]
Having specific outstanding technologies issometimes not enough for medium enterprises and
SMEs to achieve commercialization. It is therefore
important to have institutions possessing outstanding
basic technologies pass on their technologies tosuch enterprises and promote practical applications.
Under this awareness, the New Energy andIndustrial Technology Development Organization(NEDO) conducted a review of 144 public researchorganizations and other such R&D institutions
nationwide as “bridge building R&D institutions”
that can link innovative technology seeds withcommercialization initiatives, and provided subsidies
to medium enterprises and SMEs that engage in joint
research by utilizing the capabilities of “bridgebuilding R&D institutions” (subsidy rate within 2/3,
up to a ceiling of ¥100 million).

4. The National Institute of Advanced Industrial
Science and Technology (AIST)’s bridgebuilding initiatives for medium enterprises and
SMEs[Included in the grant for AIST operating costs]
AIST supported the R&D initiatives of medium

Chapter 2

1. Strategic
Programenterprises and SMEs by establishing a nationwide
framework of cooperation such as through theappointment of an AIST innovation coordinator in
public research organizations that possess knowledgeof the needs of regional medium enterprises andSMEs, and by strengthening capacities to “bridge”
innovative technology seeds of regional enterprises
with commercialization initiatives.

5. Comprehensive support for enhancement ofcore manufacturing technologies among SMEs

Comprehensive support was provided through theStrategic Core Technology Advancement Programand special loans and guarantees to SMEs andmicro-businesses with approved specific R&D plansthat had been formulated in accordance with theadvancement guidelines under the SME Technological
Advancement Law.

6. R&D promotion tax system (for strengthening
the technological bases of SMEs)[Taxation scheme]
A tax credit equal to 12% of the total cost of testing
and research expenses (not exceeding 25% of the total
amount of corporation tax in the period concerned)
was made available for R&D undertaken by SMEs andmicro-businesses. A tax credit equal to 20% or 30% of
the total cost of special testing and research expenses(testing and research performed jointly or entrusted toa university or such institution, or that are performedby receiving from an SME the right or approval to use
its intellectual property) was also made available (notexceeding 5% of the total amount of corporation tax inthe period concerned).
In addition to the above, a measure was taken whereby
enterprises can choose either (1) a tax scheme that
deducts an amount calculated by multiplying the rateof increase in testing and research expenses to theamount of increase (not exceeding 30%) in cases where
the additional amount of testing and research expenses
exceeds 5% of the average of the past three years, or(2) a tax scheme that deducts an amount calculated bymultiplying a fixed rate to the excess amount in cases
where the amount of testing and research expenditureexceeds 10% of average sales (not exceeding 10%of the total amount of corporation tax in the period
concerned (until the end of fiscal 2016)).

7. Support under the Small Business Innovation
Research (SBIR) Program

The provision of central government-allocated
R&D spending for SMEs and micro-businesses
was expanded and the commercialization of the479

results of technological development activities waspromoted, such as by designating specific subsidies
for the development of new technologies leading
to the creation of new industries, setting targets for
expenditures, and formulating policies for measures tosupport the commercialization of development results
achieved using specified subsidies. Additionally,
to promote the commercialization of technology
development outcomes, SMEs and micro-businesses
were informed and encouraged to take advantageof the available commercialization support, suchas the database of the technological capabilities ofenterprises granted specific subsidies, and the lowinterest loans offered by the JFC. At the same time,the multistage selection process for the allocation of
special subsidies was introduced and expanded.

8. Cross-field collaboration for new businessdevelopment

11. Enterprise vitality enhancement funding[Fiscal investment and loan program]
Japan Finance Corporation (JFC) provided loans
for funds needed to modernize management andrationalize the distribution systems of SME commercial
businesses and service businesses, promote theadvancement of basic manufacturing technologies ofSMEs, and develop SME subcontractors.

Section 2 Improvement of transaction
conditions
1. Countermeasure package for pass-throughs ofincreases in raw material and energy costs[Fiscal investment and loan program]Pursuant to the Law Concerning Measures for the
Promotion of Creative Business Activities by Smalland Medium Enterprises, authorization was provided
for business plans that aim to develop and market new
products and services by effectively combining themanagement resources (technology, markets, etc.) of
SMEs and micro-businesses in different sectors, andSMEs and micro-businesses with such authorizedplans were supported through the program to support
collaborative efforts to strengthen competitivenessin commercial and service industries. Wide-ranging
support was also provided through special loans andguarantees.

A cost pass-through countermeasure package
was formulated and implemented, to ensure that
increases in raw material and energy costs due to thedepreciation of the yen are properly passed through.
More specifically, the Guidelines for the Promotionof Fair Subcontracting Practices for a total of 14
industries were revised as of March 31, 2015, andbest practices on pass-throughs of raw material andenergy costs have been added. Additionally, lecture
presentations on the Subcontractor Payment Act were
held in 543 locations throughout Japan, and efforts
were made to disseminate and provide knowledge ofthe Guidelines. Furthermore, onsite inspections weremade at 533 large enterprises during the first half offiscal 2015 based on the Subcontractor Payment Act.

9. Subsidy for supporting the innovation of
manufacturing, commerce and services

2. Stricter enforcement of the Subcontractor
Payment Act[Fiscal 2015 supplementary budget: ¥102.05
billion]To create new service and manufacturing businesses
that respond to needs in and outside of Japan, a budget
was allocated to supporting capital investments by
SMEs and micro-businesses that aim to develop
innovative services and trial products and improve
production processes in collaboration with approved
support agencies.

10. Program to promote business creation throughmedical-engineering collaborations[Fiscal 2015 budget: ¥3.19 billion]
To promote the network for supporting thedevelopment of medical equipment and toprovide seamless support from the initial stages ofdevelopment to commercialization, accompanyingstyle consultation was provided to approximately 250
collaboration initiatives. Support was also provided
for the commercialization of 52 items of medical
equipment through a demonstration program, to480

promote the development of medical equipment
through collaborations between manufacturing SMEs
and medical institutions.

[Fiscal 2015 budget: Included in ¥550 million]
To ensure fair treatment of subcontractors and protect
their incomes, the Fair Trade Commission (FTC) andSME Agency collaborated closely in enforcing the
Subcontractor Payment Act. In fiscal 2015, the FTC and
SME Agency carried out audits of the documentation
at principal contractors, and otherwise encouraged
rigorous compliance with the Act. Additionally, inthe “Subcontractor Fair Treatment Promotion Month”
held in November, rigorous compliance with the
Act was again encouraged by conducting special
questioning. With the aim of securing the cash-flows
of subcontractors as they moved into the financiallybusy period at the end of the year, active measures
were taken to raise awareness of the Act by having the
Minister of Economy, Trade and Industry and the FTC
Commissioner jointly issue a statement calling for thefair treatment of subcontractors, with the statement
being sent to the CEOs of principal contractors(around 200,000 companies) and the representativesof relevant business organizations (638 bodies).

SME policies implemented in fiscal 2015

3. Strengthening consultation systems andraising awareness of the importance of fair
subcontracting transactions

4. Self-reliance support for SME and micro
subcontractors[Fiscal 2015 budget: Included in ¥500 million]
Under the Act on the Promotion of Subcontracting
Small and Medium-sized Enterprises (hereinafter Act
on the Promotion of Subcontracting), business plansdesigned to solve issues in collaborations between
subcontracting SMEs and micro-businesses that arehighly transaction-dependent on principal contractors
were certified and supported in the form of subsidies,loans and special exemptions for guarantees. In regions
where production centers of principal contractors haveclosed or downsized (or are slated to close), support in
the form of subsidies was provided to subcontracting
SMEs seeking to advance into new fields.

5. Support for market expansion throughsubcontracting business mediation and business
fairs[Fiscal 2015 budget: Included in ¥50 million]
Using Business Matching Stations (BMS), SMEs
looking to solicit new clients were provided withinformation on orders for contract manufacturingissued and received between enterprises for businesssuch as outsourced manufacturing in the SME’s
preferred industry and where the SME can provide
the required equipment or technology. As of the endof March 2016, 26,831 companies were registered.
Broad-area information sessions were also held at 8
venues to support new market development.

Section 3 Examination of policies byadvisory councils, etc.

Chapter 2[Fiscal 2015 budget: Included in ¥550 million]
Consultation services concerning SME transactions
were provided by the 48 Subcontracting Help Centers
set up throughout Japan (5,824 consultations and743 free consultations by lawyers in fiscal 2015(preliminary figures)). To prevent the occurrence of
violations of the Subcontractor Payment Act, seminars
were held targeting the procurement managers at
principal contractors to further raise awareness of
the Subcontractor Payment Act etc., while examples
of initiatives by principal contractors were presented
around the country and symposiums and other eventswere held to promote broader adherence to the
Subcontractor Payment Act.

the financially busy period at the end of the year,
active measures were taken to raise awareness of
the Act by having the Minister of Economy, Tradeand Industry and the FTC Commission jointly issue
a statement calling for the compliance with thedevelopment standards stipulated in the Act, withthe statement being sent to the representatives ofindustrial organizations (864 bodies).

1. Fundamental Issues Subcommittee

SMEs in Japan must respond to rapid changes inthe business environment, including labor supply
constraints brought about by the aging of managers
and employees, and future risks of declining demand.
To discuss the basic direction of SME policies in
response to these issues, the Fundamental Issues
Subcommittee was established in the Small andMedium Enterprise Policy Making Council. In
addition to analyzing the present state of issues facing
SMEs, the Council discussed support measures andlegal frameworks for comprehensive productivity
improvement.

2. Cabinet decision on the bill to partially amend
the Act for Facilitating New Business Activities
of Small and Medium-sized Enterprises

To strengthen the management of SMEs, microbusinesses, and medium enterprises in an environmentof declining labor force and active international
competition among enterprises, guidelines thatoutline initiatives for strengthening management
capabilities were newly formulated for each businessarea by the competent minister. At the same time, abill to partially amend the Act for Facilitating New
Business Activities of Small and Medium-sizedEnterprises (Act for Strengthening the Managementof SMEs, etc.) was approved at a Cabinet meeting on
March 2016 and submitted to the Diet, to provide formeasures that support the initiative.

6. Request for consideration toward small andmedium subcontractors

Courses and other events were organized to raiseawareness of the general standards (development
standards) that subcontractors and principal contractors
are expected to observe under the Subcontracting
Promotion Act. Additionally, with the aim of securing
the cash-flows of subcontractors as they moved into

481

Chapter 3 Support for overseas expansion
by SMEs and micro-businesses
Section 1 Development of an information
provision and consultation
framework
1. Program for supporting overseas expansion by
SMEs and micro-businesses[Fiscal 2015 budget: ¥2.5 billion]
To support overseas expansion by SMEs and microbusinesses, the SMRJ and JETRO collaborated inproviding strategic support through measures that
respond to their needs at various stages of overseas
expansion. They included support for the cultivationof overseas companies through the provisionof information on overseas market trends andregulations, implementation of feasibility studies,and establishment of an export framework, as wellas support for participation in trade fairs in Japanand overseas, support for the cultivation of overseas
markets by inviting overseas buyers to Japan, and local
support once companies advanced overseas. Support
was also provided for the formulation of businessrestructuring plans by companies facing an issue
regarding the management of overseas subsidiaries.

Section 2 Support for the developmentof new products and services
1. Program for supporting hometown specialty
products[Fiscal 2015 supplementary budget: Included in¥3 billion]
Support was provided to SMEs and micro-businesses
that engage in the development of new products andservices that target markets in and outside of Japan andthe development of new markets by utilizing regional
resources and collaborating with agriculture, forestry
and fishery businesses. Support was also provided
to businesses that pursue product development by
utilizing regional resources and collaborating with
agriculture, forestry and fishery businesses in theform of information provision concerning consumer
preferences surveyed by general incorporated
associations and matching services.

2. JAPAN Brand Development Assistance Program[Fiscal 2015 budget: Included in ¥1.61 billion]
To facilitate overseas expansion by SMEs, support
was provided under this program such as for theformulation of strategies built on collaboration among
multiple SMEs and the strengths of those SMEs (rawmaterials, technologies, etc.), product development
based on those strategies and participation in overseas
trade fairs.

482

3. Program for promoting global agriculturalcommercial-industrial collaborations[Fiscal 2015 budget: ¥800 million]
To create overseas demand, support was provided
to 16 demonstration projects and initiatives
implemented through agricultural-commercialindustrial collaborations. Such collaborations are
expected to use the technologies and expertise ofcommercial and industrial businesses to create
advanced production systems (plant factories, etc.)
or an integrated value chain linking production,
processing, distribution and sales and achievecommercialization within three years.

Section 3 Other support policies foroverseas expansion
1. Global alliance support with medium enterprises
and SMEs in JapanTo support investment tie-ups between medium
enterprises and SMEs in Japan and foreign enterprises,
a framework was established in which Japan External
Trade Organization (JETRO) acts as an intermediaryin conveying the requests of foreign enterprises torelevant institutions (SMRJ, Shoko Chukin Bank,
SBIC, etc.), matching medium enterprises and SMEs
in Japan with foreign enterprises, and promoting theutilization of public and private funds.

2. Funding for overseas expansion and businessrestructuring operations[Fiscal investment and loan program]
Loans were provided by the JFC (SME Unit andMicro Business and Individual Unit) to assist withthe funding of SMEs that for business reasons need to
expand overseas or restructure their overseas businessto adapt to structural economic changes.

3. Support for overseas subsidiaries to obtaincapital, etc.

Under the SME Business Capabilities Enhancement
Support Bill, where SMEs had management
innovation plans approved under the New Business
Activity Promotion Act, the JFC provided loan
guarantees to their overseas subsidiaries for loans
from local financial institutions.

4. Global Niche Market Top Support Lending
Facility[Fiscal 2015 budget: ¥18 billion from the fiscal
investment and loan program]To support strategic overseas expansion by medium
enterprises and SMEs who are aiming to make a global

SME policies implemented in fiscal 2015

impact by excelling in a specific field (global niche
leader enterprises) and such candidate companies
and SMEs, the Shoko Chukin Bank provided longterm, lump-sum repayment and successful interest
payment-type loans under the Global Niche Market
Top Support Lending Facility. Loans worth a total of¥13.8 billion were provided to 126 enterprises in fiscal
2015 (as of February 29, 2016).

5. Support for development of human resources tocultivate new markets

6. Trade investment promotion project[Fiscal 2015 budget: Included in ¥1.4 billion]
The following three programs were implemented tosecure markets in developing countries where rapid
growth is anticipated in the future:(1) Training was provided and specialists were dispatched
to promote awareness of the superiority of Japan’s
technology with the aim of increasing the rate ofinfrastructure orders placed. Seven training programs
were implemented and two specialists were dispatchedin fiscal 2015.
(2) Overseas internships were provided to young Japanese
workers to foster “international industry-readypersonnel” with the aim of securing infrastructurebusiness and developing overseas markets for SMEs.
A total of 124 young workers were sent to 22 countries
in fiscal 2015.
(3) Support was provided to Japanese companies
engaging in the development of products and services
that resolve social issues in developing countries incollaboration with universities, research institutes,
NGOs or other companies in developing countries.
Subsidies were provided to 11 projects in fiscal 2015.

7. Utilization of the private-sector collaborative
volunteer program and matchups with returned
JICA volunteers[Fiscal 2015 budget: ¥160 million]
The Japan International Cooperation Agency (JICA)
worked toward developing personnel capable ofactive involvement in the global community by
utilizing the private-sector collaborative volunteer
program to dispatch employees of private-sector
enterprises to developing countries as Japan Overseas

8. Reduction and waiver of fees for credit checks
on SMEs using trade insurance

To support the use of trade insurance by exporting
SMEs, Nippon Export and Investment Insurance(NEXI) continued arrangements to bear the cost ofproviding credit information on business partners
required when using trade insurance. Up to threecredit checks had been provided for free since 2008,
but the number was increased to eight in fiscal 2015,
and the facility was used 503 times in fiscal 2015 (asof 25 January 2016).

Chapter 3[Fiscal 2015 budget: ¥810 million]
In a collaboration between the government and theprivate sector aimed at supporting economic growthin developing countries and assisting in overseas
business expansion by Japanese enterprises, managers,
engineers, and similar personnel from developing
countries who are employed in management,
manufacturing, operations, or similar areas, training
was provided to 799 personnel, and 41 experts
were dispatched to developing countries to provide
instruction, etc. in fiscal 2015.

Cooperation Volunteers (JOCV) and JOCV Senior
Overseas Volunteers in response to the needs of eachenterprise. Additionally, to support the employment ofreturned JICA volunteers, match-ups were promoted
between personnel with expert knowledge of a certain
developing country and enterprises seeking such
personnel.

9. Activities to expand and publicize use of tradeinsurance by SMEs (seminars, consultation
events, etc.)

To promote the use of trade insurance by SMEs, the
NEXI website for SMEs was renewed. Nationwide
seminars and face-to-face consultation events werealso held continuously under the sponsorship of
NEXI, and instructors from NEXI were sent to lecture
in seminars hosted by SME-related organizations
and study meetings of affiliated regional banks inorder to raise awareness and encourage wider useof trade insurance (72 instructors were dispatched).
Furthermore, visits were made to 141 SMEs in theeffort to increase awareness and promote the use of
trade insurance.
As a result of the above initiatives, a total of 48
SMEs and medium enterprises became users of tradeinsurance. (* The numbers above are as of January 25,
2016.)
In fiscal 2015, a video and PR pamphlet of tradeinsurance were produced. The video was posted on
the NEXI website and shown at various trade fairs
and presentation meetings, and the pamphlet was
distributed to enterprises and various locations.

10. Improvement of access to trade insurance

In December 2011, NEXI launched the “SMEOverseas Business Support Network” in collaboration
with 11 regional banks to provide support foroverseas business expansion by SMEs. The numbersof cooperating institutions have increased yearly,
and in fiscal 2013, a Credit Union Network was
established with the participation of credit unions. In
fiscal 2015, the addition of a total of 27 new banks andcredit unions led to the creation of a network of 105
nationwide financial institutions.

483

Furthermore, the Trade Insurance and Investment Act
was revised in 2014, and allowed NEXI to receive
reinsurance from non-life insurance companies inJapan possessing a broad nationwide network. NEXI
thus consulted with non-life insurance companies,
and entered into a reinsurance agreement with twocompanies.
By creating a network with financial institutions
and non-life insurance companies, NEXI will aim to
improve access to trade insurance by regional SMEs
and otherwise enhance its convenience.

11. Support for security export control

To ensure effective security trade control basedon the Foreign Exchange and Foreign Trade Act,
information sessions were held in 60 locations
throughout Japan. Additionally, support was provided
for the development of voluntary administration
structures for security trade control at SMEs thatengage in export and the provision of technology,
by dispatching specialists through schemes such as
the one-stop general support program for SMEs andmicro-businesses.

12. Promotion of BOP business[Fiscal 2015 budget: Included in the JETRO grant]
To promote “base of the pyramid” (BOP) business andvolume zone business, JETRO provided consistent
support to individual enterprises as appropriate totheir business phase, by using local coordinators.
Additionally, consultations were offered in Japan
to Japanese enterprises that are considering BOP
business in India or Bangladesh, and businessmeetings in Japan and local test marketing projects
were implemented for Japanese enterprises aiming tocultivate the BOP/volume zone market in Myanmar
and Kenya. In addition to the above, acceptability
surveys were conducted in Nigeria and Bangladesh,and business demonstration projects were operated in
Africa.

13. ODA match-up program for SME products andtechnologies[Fiscal 2015 budget: ¥4.56 billion, Fiscal 2015
supplementary budget: ¥1.74 billion]
This program aims to apply the outstanding products
and technologies of Japanese SMEs to the growth ofdeveloping countries via ODA, and thereby achieve abalance between the growth of developing countries
and economic revitalization in Japan. In fiscal 2015,
130 projects were adopted under this program. (Surveyof needs: 4; Basic survey: 22; Proposal survey: 66;
Distribution and demonstration program: 38)484

14. Support for overseas expansion by SMEs
(provision of equipment that use SME products)[Fiscal 2015 budget: Included in ¥160.5 billion]
Products from Japanese SMEs are donated todeveloping countries based on request from theirgovernments and development needs, not only tosupport the development of developing countries,
but also to increase recognition of such products.
Specifically, lists of products from SMEs (not lists ofindividual brand names) are drawn up based on thedevelopment needs of the developing countries andshown to those countries in the form of packages foreach of the various sectors, such as medical services,
agriculture, and job training, and products are donatedin accordance with the requests from the developing
countries.

15. Program for facilitating the use of economic
partnership agreements[Fiscal 2015 budget: Included in ¥30 million]
To promote trade that utilizes the advantages of
economic partnership agreements (EPA), a consulting
service for businesses was launched in May 2015, to
respond to inquiries concerning procedures related torules of origin and certificates that are needed whenusing an EPA. (Approximately 1,700 consultations
were received as of February 2016.) Seminars werealso held throughout Japan (twelve seminars in ten
locations nationwide) to foster greater understandingof EPAs.

16. Program for supporting the establishmentof overseas markets by regional medium
enterprises and SMEs

[Fiscal 2015 budget: Included in ¥1.49 billion]
A budget was allocated to realizing the initiatives of
medium enterprises and SMEs to cultivate overseas
markets by subsidizing part of the expenses (costs of
employing specialists, registration agency expenses,etc.) that are needed by medium enterprises, SMEs
and micro-businesses to advance into newly emerging
countries.

SME policies implemented in fiscal 2015

Chapter 4 Support for sustainable development of micro businesses
Section 1 Strengthening the frameworkof accompanying-style
management support
1. Micro business promotion program

2. Program to foster personnel and support
personnel for micro businesses[Fiscal 2015 budget: ¥450 million]
Micro service businesses and human resources whobear the responsibility of revitalizing the regional
service industry were matched up with successful
enterprises (including enterprises in different
industries) and successful regions, internship-type
training programs that go beyond lectures wereorganized, and subsidies were provided to cover for
expenses incurred by such match-ups and internships.
Training sessions were also held throughout Japan
with the objective of enabling business advisors who
support micro businesses to analyze the strengthsof each micro business and propose and implement
measures tailored to those strengths. Particularly
advanced support organizations were provided
opportunities to acquire management support andother such knowhow.

Section 2 Support for market cultivation
1. Support package programs for micro businesses[Fiscal 2015 supplement budget: ¥10 billion]
Micro businesses were supported in their initiatives
to create a management plan through the use of
locally-based commerce and industry associations

Section 3 Development of the businessenvironment
1. Managerial Improvement Loans (Marukei
Loans) for micro businesses

Chapter 4[Fiscal 2015 budget: ¥4.65 billion]
Support for micro businesses was promoted
through the “accompaniment” style of support
provided by societies and chambers of commerce
and industry in line with management development
support plans that are certified based on the Small
Business Support Act, and support was provided
for the formulation of business plans and market
development in consideration of demand by microbusinesses. Support was also provided for regional
initiatives that aim to develop specialty products andmarkets.
To encourage business expansion by regional microbusinesses aiming to target nationwide markets,
societies and chamber of commerce and industry
cooperated with businesses to provide wide-ranging
support for programs that develop special regional
products and tourism and to develop those markets(survey & research businesses: 123; production
businesses: 56 (first year) and 31 (second year)).

that possess a nationwide network, and subsidies were
provided to cover the costs of cultivating markets
based on the management plan. Support was also
provided to help micro businesses cultivate wide-areamarkets beyond their existing trade area by organizing
specialty product fairs and business meetings andpromoting sales via antenna shops in and outside ofJapan and online sales.
Furthermore, to strengthen the management
capabilities of micro businesses, support wasprovided to an initiative to dispatch supervisors fromnationwide organizations to provide guidance andeducation toward raising the supporting abilities ofmanagement advisors.

[Fiscal 2015 budget: ¥3.98 billion] [Fiscal
investment and loan program]
In order to provide financial support to microbusinesses, the JFC provided unsecured andunguaranteed low-interest loans to micro businesses
that receive management guidance from societies andchambers of commerce and industry and prefecturalfederations of societies of commerce and industry.
Ongoing improvements were also implemented: (1)the term of loans was extended from five to sevenyears for working capital and from seven to 10 years
for capital expenditure; (2) the deferment period was
extended from six months to one year for working
capital and from six months to two years for capital
expenditure; and (3) the ceiling on loans was raised
from ¥15 million to ¥20 million. Between April 2015
and the end of January 2016, a total of 36,200 loans
were provided with a total value of ¥207.8 billion.

2. Micro businesssupport loans

management

development[Fiscal 2015 budget: ¥20 million][Fiscal investment and loan program]To support sustainable business development by microbusinesses, JFC offered low-interest loans to microbusinesses that receive management guidance fromsocieties and chambers of commerce and industry
certified under a management development support
plan. Between April 2015 to the end of January 2016,a total of 34 loans were provided with a total value of¥210 million.

485

3. Program for developing an integrated databaseof micro businesses[Fiscal 2015 budget: ¥200 million]
Information that support organizations have collected
were integrated into an integrated database operated by
SMRJ and analyzed, and a framework was established
for the examination of support policies and provisionof support information in response to the management
issues of micro businesses.

486

SME policies implemented in fiscal 2015

Chapter 5 Promotion of regional economic revitalization
and regeneration
Section 1 Strengthening management
support frameworks
1. Programs promoting measures to support
cooperative SME organizations[Fiscal 2015 budget: ¥710 million]
Where partnerships or other associations work on
management innovation and/or reforms through the
National Federation of Small Business Associations,which is a dedicated agency assisting cooperative
SME organizations, support was provided that
includes partial subsidies for the costs of implementing
those innovations or reforms, along with training
for instructors. Support was also provided for
optimizing the activities of associations (supervisionorganizations) that engage in the training of foreignintern trainees.

Where SMEs work jointly to establish businesscooperatives in order to shore up their administrative
platforms and improve their business environment,
the SMRJ and prefectural governments collaborated
to provide diagnoses and advice on business plans
together with long-term, low-interest (or interest-free)loans to fund the required capital expenditure.

3. One-stop comprehensive support programs for
SMEs and micro-businesses[Fiscal 2015 budget: ¥3.9 billion]“Yorozu support centers” have been set up in eachprefecture as one-stop consultation centers for SMEs
and micro-businesses facing various management
issues, to provide professional detailed advice and to
dispatch specialist advisors to deal with particularly
advanced and specific management issues.

4. Program to foster personnel and support
personnel for micro businesses[Fiscal 2015 budget: ¥450 million]
Micro service businesses and human resources whobear the responsibility of revitalizing the regional
service industry were matched up with successful
enterprises (including enterprises in different
industries) and successful regions, internship-type
training programs that go beyond lectures wereorganized, and subsidies were provided to cover for
expenses incurred by such match-ups and internships.
Training sessions were also held throughout Japan
with the objective of enabling business advisors who
support micro businesses to analyze the strengths

5. Formulation of local benchmarks

Local benchmarks have been formulated as “healthcheck-up” tools for assessing the business conditionof enterprises.
They provide a basic framework that allows enterprisemanagers, financial institutions, support organizations,and other such relevant parties to assess the conditionof enterprises and mutually engage in dialogue fromthe same perspective, and are expected to serve as thestarting point of business assessment. The businessconditions of an enterprises can be assessed byentering “financial information” (6 indicators*1) and“non-financial information” (4 perspectives*2) in a“reference tool” provided in Excel format. This allows
early detection of changes in business conditions sothat discussions and support can be implemented froman early stage.
(*1) 6 indicators:(1) sales growth rate (sales sustainability), (2)operating profit ratio (profitability), (3) laborproductivity (productivity), (4) EBITDA debt-toequity ratio (soundness), (5) operating working
capital turnover period (efficiency), (6) capital
adequacy ratio (safety)(*2) 4 perspectives:(1) focus on the manager, (2) focus on relevant
persons, (3) focus on the business, (4) focus on theinternal control framework

Chapter 5

2. Support for capital investment throughadvancement programs integrated with businesssupportof each micro business and propose and implement
measures tailored to those strengths. Particularly
advanced support organizations were provided
opportunities to acquire management support andother such knowhow. (Cited earlier)Section 2 Utilization of local resources
1. Program for supporting hometown specialty
products[Fiscal 2015 budget: Included in ¥1.61 billion]
Support was provided to SMEs and micro-businesses
that engage in the development of new products andservices that target markets in and outside of Japan andthe development of new markets by utilizing regional
resources and collaborating with agriculture, forestry
and fishery businesses. Support was also provided
to businesses that pursue product development by
utilizing regional resources and collaborating with
agriculture, forestry and fishery businesses in theform of information provision concerning consumer
preferences surveyed by general incorporated
associations and matching services. (Cited earlier)487

2. JAPAN Brand Development Assistance Program[Fiscal 2015 budget: Included in ¥1.61 billion]
To facilitate overseas expansion by SMEs, support
was provided under this program such as for theformulation of strategies built on collaboration among
multiple SMEs and the strengths of those SMEs (rawmaterials, technologies, etc.), product development
based on those strategies and participation in overseas
trade fairs. (Cited earlier)

3. Micro business promotion program[Fiscal 2015 budget: ¥4.65 billion]
Support for micro businesses was promoted throughthe “accompaniment” style of support provided bysocieties and chambers of commerce and industry
in line with management development support plansthat are certified based on the Small Business Support
Act, and support was provided for the formulationof business plans and market development inconsideration of demand by micro businesses. Support
was also provided for regional initiatives that aim todevelop specialty products and markets.
To encourage business expansion by regional microbusinesses aiming to target nationwide markets,
societies and chamber of commerce and industry
cooperated with businesses to provide wide-ranging
support for programs that develop special regional
products and tourism and to develop those markets(survey & research businesses: 123; production
businesses: 56 (first year) and 31 (second year)).
(Cited earlier)

4. Designation of traditional crafts

Under the Act on the Promotion of Traditional Craft
Industries (referred to hereinafter as the Traditional
Craft Industries Act), the three traditional craft
products listed below were designated following
surveys and investigations of craft products for which
traditional craft product status has been requested,subject to the views of the Industrial Structure Council.
- Miyagi Prefecture “Sendai Tansu” (chests), Tokyo,
etc. “Edo Bekko” (tortoiseshell products) and “Tokyo
antimony crafts” designated on 18 June 2015.

5. Traditional Craft Product Subsidy Program[Fiscal 2015 budget: ¥1.36 billion](1) Based on the Traditional Craft Industries Act, thefollowing support was provided to promote thetraditional crafts industries below.
1) Subsidization of the following programs
undertaken by local manufacturing cooperatives
and associations:• Successor training programs• Raw materials sourcing programs• Design development programs• Partnership development programs• Local producer programs, etc.

4882) Subsidization of the following programs
undertaken by general incorporated associations
and incorporated foundations under Article 23 of
the Traditional Craft Industries Act:
• Programs to secure human resources andensure transmission of skills and techniques• Production district guidance programs• Promotional programs• Demand development programs, etc.
(2) The following support was provided to assist thereconstruction of government-designated traditional
crafts in three prefectures (Iwate, Miyagi and
Fukushima) devastated by the Great East Japan
Earthquake:
1) Programs implemented in the three affected
prefectures to revitalize areas of production,
including the training of successors, developmentof demand, development of designs and theprovision of information
2) Establishment and strengthening of the production
base, including the development of facilities andthe sourcing of raw materials, with a view torestoring traditional craft production in the threeaffected prefectures to its original level before theGreat East Japan Earthquake

6. Program to promote the spread of traditional
craftsTo promote public awareness of traditional crafts,
November every year has been designated Traditional
Crafts Month, and activities such as the national
convention of the Traditional Crafts Month National
Assembly are held to spread and increase awarenessof traditional crafts. In fiscal 2015, the national
convention was held in Toyama prefecture.

Section 3 Revitalization of shopping
districts and city centers
1. Comprehensive support for the revitalization of
local shopping districts

Pursuant to the Local Shopping District Revitalization
Act, support measures were established for shopping
districts with a government-approved revitalization
project plan.

2. Development of human resources by the Japan
Shopping District Support Center

Support was provided in the form of personnel training
and transfer of expertise by the Japan Shopping
District Support Center, an organization establishedjointly by four SME associations.

3. Program to support the operation of Councils
for the Revitalization of Central Urban Districts[Included in SMRJ subsidy program]
Support was provided for the provision of advisory

SME policies implemented in fiscal 2015services, provision of information via websites ande-mail newsletters, and development of networks
through organization of exchange events led bycouncils for the revitalization of city centers support
centers established in the Organization for Small &Medium Enterprises and Regional Innovation, Japan(SMRJ) to assist the establishment and operation ofsuch councils for the revitalization of city centers.

4. Program to dispatch advisers for city center andshopping district revitalization[Included in SMRJ subsidy program]Experts in a range of fields related to commercial
revitalization registered with SMRJ were dispatchedto help tackle various challenges faced by councils forthe revitalization of city centers and shopping districts.

5. Consultation and support for commercial
revitalization in city centers

6. Special deduction for income from land transfers[Taxation scheme]
Persons transferring land and similar assets to
shopping center promotion associations and similarorganizations approved under the Local Shopping
District Revitalization Act for use in projects basedon approved shopping district revitalization plans andsimilar initiatives were continuously allowed a special
depreciation of up to ¥15 million for income fromsuch transfers.

7. Program to promote independence in regionalcommerce[Fiscal 2015 budget: ¥2.3 billion]
Support was provided for measures aimed at theformation of the regional communities that are thebedrock of activity in regional economies, such ascommunity spaces, and for measures designed to
rejuvenate shopping districts in line with the needsof regional residents, such as attracting shops andproviding the incubation facilities that serve topromote regional economic activity. In fiscal 2015, 60
survey and analysis projects and 53 support projects
were adopted.

[Fiscal 2015 budget: ¥600 million]
Priority assistance was provided to private projects(development of commercial facilities, etc.) thatexhibit strong commitment by local residents and the
local government, and that are expected to stimulate
the economy not only in the relevant central urban
district but in neighboring regions as well. Support
was also provided to projects that aim to create an
attractive central urban district fit to serve as a regional
center, as well as for the utilization of specialist staff
and other such initiatives.

9. Taxation measures to revitalize central urban
districts[Taxation scheme]
Under the “Specific private sector central urban
district economic activity improvement program” setup under the revisions to the Act on the Vitalization ofCity Centers, (1) a special depreciation of 30% over
5 years was provided for the acquisition of a building
and any incidental structures or equipment, and (2) ameasure for the acquisition of an immovable property
was taken that halves the registration and license tax
payable when ownership of that immovable property
is registered or a transfer is registered.

Section 4 Support for market anddemand cultivation

Chapter 5[Included in SMRJ subsidy program]
In order to assist commercial revitalization initiatives
being undertaken in city centers by councils for therevitalization of city centers and similar organizations,seminar planning support and instructors was suppliedand advice, analyses, assistance with identification ofissues, and information, etc. were provided to raise
the efficacy of individual projects using the SMRJ’s
specialist know-how.

8. Strategic program for central urban district
restoration

1. Micro business promotion program[Fiscal 2015 budget: ¥4.65 billion]
Support for micro businesses was promoted throughthe “accompaniment” style of support provided bysocieties and chambers of commerce and industry
in line with management development support plansthat are certified based on the Small Business Support
Act, and support was provided for the formulationof business plans and market development inconsideration of demand by micro businesses. Support
was also provided for regional initiatives that aim todevelop specialty products and markets.
To encourage business expansion by regional microbusinesses aiming to target nationwide markets,
societies and chamber of commerce and industry
cooperated with businesses to provide wide-ranging
support for programs that develop special regional
products and tourism and to develop those markets(survey & research businesses: 123; production
businesses: 56 (first year) and 31 (second year)).
(Cited earlier)489

2. Support for cultivation of markets throughexhibitions, business meeting events, and otherevents[Included in SMRJ subsidy program]
SMRJ provides support for the development andexpansion of markets for products and services
developed by SMEs and micro-businesses throughagricultural-commercial-industrial collaborations or
by using local resources, by organizing exhibitions,business fairs, and other such events.

3. Market Development Coordination Program[Included in SMRJ subsidy program]Market development experts with experience ofworking at trading companies, manufacturers, etc.
(“market development coordinators”) assigned to
SMRJ helped SMEs with newly developed products,
technologies, and services gain a foothold in newmarkets and acquire the capacity for market cultivation
through the implementation of test marketing activities
in the wider Tokyo and Kinki regions.

4. Support program for market cultivation[Included in SMRJ subsidy program]
The SMRJ supported the market cultivation initiativesof SMEs and venture enterprises by promoting
business match-ups between enterprises participatingin SMRJ-sponsored trade fairs or concurrent eventsand buyers, and providing advice.

5. Support for creation of new businesses[Included in SMRJ subsidy program]
Close, integrated support was provided to SMEs andother entities engaging in new business by stationing
experts in marketing and other areas of businessin SMRJ’s 10 branches and offices across Japan tohelp formulate business plans based on the Regional
Resource Utilization Promotion Act, AgriculturalCommercial-Industrial Collaboration Promotion Act,and New Business Activity Promotion Act.

6. J-GoodTech[Included in SMRJ subsidy program]
The SMRJ provided support to SMEs seeking
to cultivate markets in and outside of Japan, byconnecting them to major domestic manufacturers
and overseas enterprises via a website that posts
information about Japanese SMEs boasting top-nicheand only-one technologies and products.

Section 5 Human resource andemployment measures
1. Human resource countermeasures program for
SMEs and micro-businesses[Fiscal 2015 budget: ¥1.61 billion]
To help SMEs and micro-businesses with few
management resources acquire human resources, abudget was allocated to provide end-to-end support
for initiatives to assess the needs of local SMEs andmicro-businesses, excavate human resources sought
by local businesses from among a diverse workforce
that includes youths, women and seniors in and outside
the region, and to introduce them and see through totheir retention by SMEs and micro-businesses.

2. Human resource development program at theInstitute for Small Business Management andTechnology[Included in SMRJ subsidy program]Training was provided at nine Institutes for Small
Business Management and Technology around Japan
in improving the abilities of SME support personnel,
as well as training for SME proprietors, managers, andpeople in similar positions designed to lead directly tothe solution of business challenges.

3. Support program for development of hometown
producers[Fiscal 2015 supplementary budget: Included in¥3.0 billion]
Support was provided to initiatives that aim todevelop attractive products that involve local people
and local resources into local brands and initiatives
for developing human resources who could become
central players in the cultivation of markets with afocus on overseas markets.

4. Measures to maintain workers’ employment[Fiscal 2015 budget: ¥19.27 billion]
Employment Adjustment Subsidies were provided
to assist employers who were forced to downsize
due to fluctuations in business conditions or othereconomic reasons but who have kept workers on by
allowing workers to take temporary leave from workor enter training, or by transferring workers. Active
steps were also taken to prevent fraudulent receipt ofthese subsidies, and efforts were made to ensure more
appropriate disbursement by such means as actively
carrying out on-site checks and publishing the namesof employers who have committed fraud.

5. Support for improvement of employment
management toward the creation of attractive
employment[Fiscal 2015 budget: ¥4.84 billion]
To support initiatives by companies to improve490

SME policies implemented in fiscal 2015

employment management and create attractive
employment conditions, subsidies were provided
to fund SME organizations (business cooperatives,etc.) in key sectors whose improvement plans havebeen certified by the relevant prefectural governor
pursuant to the Act on the Promotion of Improvementof Employment Management in Small and MediumSized Enterprises for Securing Manpower and Creating
Quality Jobs, where they have implemented projects
to improve their working environment. Subsidies
were also provided for SMEs and micro-businesses
in key sectors that introduced and implemented a
new employment management system by changing
their labor agreements and workplace regulations, or
lowered the job separation rate of their employees.

6. Project for promoting the improvement of
employment management plans to secure
human resources in sectors that lack personnel

7. Regional employment development fund[Fiscal 2015 budget: ¥5.04 billion]
To create and provide stable regional employment,
employers who build or establish an office in regions,etc. where employment opportunities are particularly
lacking and who also employ regional job seekers areoffered regional employment development funding inaccordance with the cost of their establishment andthe number of workers they employ.

[Fiscal 2015 budget: ¥9.21 billion]
To promote initiatives aimed at creating favorable
and stable employment opportunities, a project for
employment creation was launched for manufacturingindustries and other strategic industries. The projectwill supplement regional projects for voluntary
employment creation, and will be implemented inconjunction with industrial policies.

9. Tax system to promote employment[Taxation scheme]
A tax measure was implemented that provides atax credit of ¥400,000 for each employee receiving
ordinary employment insurance in enterprises thatsatisfied requirements that include an increase instaffing of at least 10% and that employed at least
5 people (at least 2 people for SMEs) who received
ordinary employment insurance in each fiscal year
starting between 1 April 2011 and 31 March 2016.

10. Promotion of employment shifts with no loss of
employment[Fiscal 2015 budget: ¥34.94 billion]
Funds to assist workers seeking alternative
employment (re-employment assistance payments)
were provided to business owners commissioned
as private-sector employment agencies to support
the reemployment of employees who unavoidably
lose their jobs due to business downsizing, etc. Reemployment support subsidies (walk-in personnel
training support subsidies (human resource
development support)) were also provided to businessowners who conducted training for workers taken
on as a result of transfers or workers who fall undera re-employment support plan. Furthermore, fromfiscal 2015, re-employment support subsidies (walkin personnel training support subsidies (early hiringsupport)) were provided to business owners who
employed workers who fall under a re-employment
support plan within three months of their displacement
as non-fixed-term workers.

11. Regional
programhuman

resources

Chapter 5[Fiscal 2015 budget: ¥1.01 billion]
Support was provided for the creation of attractive
workplaces, such as by supporting the introductionof employment management systems, in cases
where business owners in sectors that lack personnel
improve employee benefits and working environment
or otherwise take measures to improve employment
management and secure human resources.
(1) Model survey course
In sectors where employment management issues thatneed to be addressed by business owners are not yet
clear, fine-tuned consultation was provided to businessowners facing an employment management issue, tohelp them introduce and operate various models of
employment management systems that contribute toresolving their issue.
(2) Practical awareness-raising course
Among sectors that lack sufficient personnel,
demand for human resources is expected to increase
particularly in the nursing and construction sectors.
Business owners in these sectors who face an issue in
implementing improvement measures for employment
management were offered consultation support,with the aim of promoting practical employment
management improvement within the entire industry,or within regional network communities composedof business owners who are actively engaged in
improving employment management.

8. Project for employment creation in strategic
industries

development

A program was launched to support human resources
development initiatives that aim to increase
employment by promoting active participation by
women, young people and the elderly, and promote
wage increases and other improvements in working
conditions in response to regional circumstances.

12. Welfare Worker Recruitment Project[Fiscal 2015 budget: ¥1.46 billion]
To ensure a stable supply of high-quality personnel
capable of supporting services in the welfare sector491

(nursing, healthcare and day care), support wasprovided through services such as in-depth vocationalcounseling, job placements and counseling and advice
for employers, to be provided mainly at a “Welfare
Worker Corner” set up in key “Hello Work” centersthroughout the country.

13. Promotion of the Youth Support Project[Fiscal 2015 budget: Included in ¥510 million]
SMEs that display a positive attitude toward recruiting
and developing young workers and actively publicize
information about their company were designated as“youth support companies” and encouraged in theireffort to disseminate information.

14. “Youth Yell” certification system based on the
Act on Promotion of Youth Employment[Fiscal 2015 budget: Included in ¥510 million]
Based on the Act on Promotion of Youth Employment(1970 Act no. 98), a system was launched in which the
Minister of Health, Labour and Welfare certifies SMEs
that display outstanding employment and managementof youths as “youth yell” certification enterprises. By
encouraging the information dissemination efforts ofSMEs, the system supports the smooth employment of
human resources sought by certified enterprises.

15. Subsidy for employment and retention of
non-new graduates within three years after
graduation
To expand, establish and promote employment
application opportunities among non-new graduatesand dropouts as new graduates, a “subsidy for
employment and retention of non-new graduates
within three years after graduation, etc.” was provided
to business owners who newly offered job openings to
non-new graduates or recruited non-new graduates as
new graduates and retained them for a certain periodof time.

16. Support for SMEs and micro-businesses inraising the minimum wage

[Fiscal 2015 budget: ¥2.41 billion]
The following support measures were provided toraise the minimum wage among SMEs and microbusinesses.
(1) “Comprehensive Minimum Wage Advice andAssistance Centers” were established throughout
Japan (47 locations) as a one-stop portal for
consultation on management reforms and work
condition management, and provided consultation anddispatched experts free of charge.
(2) Subsidies were provided the initiatives of industryspecific SME organizations to increase wages (subsidy
for industry-specific organizations: up to ¥20 million).
(3) Subsidies were provided to SMEs and microbusinesses that made a capital investment to increase492

labor productivity and increase the wages of workers
who work for less than ¥800 an hour in their businessestablishments (subsidy for business improvement:up ¥1 million; to subsidy rate of 1/2 (3/4 for microbusinesses with a workforce of 30 or less)). To enhance
the usability of measure (1) above, “Comprehensive
Minimum Wage Telephone Service Centers” were
established in fiscal 2015 to provide consultation via
telephone and email.

17. Regional Youth Support Station Program[Fiscal 2015 budget: ¥3.72 billion]
To assist young people who are “NEET” (Not in
Education, Employment or Training) or in similar
circumstances, “Regional Youth Support Stations”
have been set up, and a budget was allocated to provide
a diverse employment assistance menu, including
professional consultation by career consultants andvarious other programs. In fiscal 2015, the initiativewas continued to be implemented nationwide, while
also expanding the scope of support that is extended tousers to help them retain their jobs or step up to a morestable career to a nationwide level, and strengthening
employment assistance for achieving vocational
independence.

18. Career-oriented personnel training program(universities, etc.) (Promotion of career
education, etc.)[Fiscal 2015 budget: ¥10 million]
In an initiative targeting career consultants andcore staff in career centers at institutions such asuniversities, courses were held to deepen theirunderstanding of the knowledge of career consulting
and the career consultants on which it depends,
as well as the methods for using that knowledge.
The courses also covered tools that are helpful for
employment assistance and career education as wellas the knowledge regarding employment and workthat is available from the Ministry of Health, Labourand Welfare (MHLW). As well as promoting career
education at institutions such as universities, theprogram aimed to promote the utilization of career
consultants at universities, etc.

Section 6 Support for new andsecondary business startups
1. New and Secondary Business Startup Support
Fund[Fiscal 2015 budget: ¥760 million]
Support was provided to business startups by womenand young people, and secondary startups by businessowners closing their existing business in whole
or in part and breaking new ground on occasion of
succeeding a business from a predecessor, in theform of a subsidy that covers part of the loans forSME policies implemented in fiscal 2015

shops, equipment costs, and other relevant costs (andincluding the costs of closing the existing business inthe case of secondary startups).

2. New Startup Loan Program[Fiscal investment and loan program]
Under this program, unsecured, unguaranteed loans
are provided by the JFC to persons embarking on
new ventures and persons who have just started up in
business.

3. Loan Program for Supporting Female, Young,and Senior Entrepreneurs[Fiscal investment and loan program]To support the creation of new businesses by diverse
entrepreneurs, the JFC (through its SME and MicroBusiness and Individual Units) provides low-interest
loans to women, young people under the age of 30
and older people aged 55 or older, who have started
a business within the past seven years or so. Between
the establishment of the program in 1999 and the endof December 2015, the program has made 135,455
loans totaling ¥679.8 billion.

[Fiscal investment and loan program]
By assessing entrepreneurs with failed businesses
to determine factors such as their qualifications as
managers and their business prospects, the JFC
offered loans to candidates who faced difficult
circumstances in relaunching their businesses.

5. Guarantees for founders

To boost lending to startup entrepreneurs by private
financial institutions, a guarantee program was
implemented, which specifically encourages credit
guarantee corporations to provide guarantees toindividuals who are starting up in business or who
started up in business less than five years ago.

6. Improving supply of “risk money” needed whenstarting a business

The Innovation Network Corporation of Japan(INCJ) invested a total of ¥186.1 billion in 74 venture
enterprises as of the end of January 2016. Additionally,
where “risk money” was required when businesses
start up or are developed, funds were supplied bymaking use of the Development Bank of Japan (DBJ)
and the Shoko Chukin Bank.

7. Fund Investment Program (Startup Support
Fund, SME Growth Support Fund)The creation of investment funds operated by private
sector investment companies to stimulate private funds
was promoted through investment by SMRJ (up to
one half of the total value of the fund concerned) with

8. Program to support venture business creation[Fiscal 2015 budget: ¥340 million]
Intended for entrepreneurs and potential in-houseentrepreneurs who are in charge of cultivating new
businesses in large enterprises, this program aimed
to develop human resources who could create
new businesses from a high perspective, such aswith an eye to advancing into global markets orresolving social issues, by sending them to Silicon
Valley and other such locations that are known to
produce the world’s leading venture enterprises.
In addition, through the Venture Business Creation
Council, composed mainly of entrepreneurs,
venture support personnel and large enterprises, theprogram promoted business matchings and provided
forums for creating broad networks, awarded thePrime Minister’s Award to venture enterprises thathave made a significant contribution to creating
innovation, and established a foundation for thecreation of new businesses.

Chapter 5

4. Funding for renewed startups (lending-support
schemes for renewed startups)

the aim of expanding the range of opportunities forinvestment in ventures (SMEs) at the startup or early
growth stage and in SMEs pursuing growth throughthe development of new business. The Startup Support
Fund now consists of 91 cumulative funds with a total
cumulative investment of ¥150.8 billion invested
in 2,381 enterprises (as of the end of March 2015).
The SME Growth Support Fund now consists of 75
cumulative funds with a total cumulative investmentof ¥435.6 billion invested in 801 enterprises (as of theend of March 2015).

9. Regional Startup Promotion Support Delegation
Program[Fiscal 2015 budget: ¥440 million]“Business Startup Schools” were held throughout
Japan to provide support for uncovering a reserveof potential startups and assisting people hoping tolaunch new businesses, in everything from acquiring
basic knowledge through to formulating a businessplan. In addition, entrepreneurship education wasenhanced such as by providing such education in
universities and other higher education institutions
and promoting exchanges with local entrepreneurs inprimary and junior high schools, to expand the base ofhuman resources who possess an entrepreneurial spirit
based on creativity and an enterprising attitude.

10. Angel tax system[Taxation scheme]
This system assists in the financing of newly founded
venture enterprises by individual investors (“angels”)
by allowing individual investors who invest in an
SME that satisfies certain requirements to receivea preferential treatment on income tax when theindividual investor makes such an investment and493

when shares in that enterprise are transferred. From theestablishment of the system in 1997 through to the endof January 2016, the scheme has been used to invest a
total of around ¥13.3 billion in 635 companies.

11. Taxation measures toinvestment in enterprises

promoteventure[Taxation scheme]
This initiative allows companies that invest in a
venture enterprise through a venture fund certified by
the Minister for Economy, Trade and Industry underthe Industrial Competitiveness Enhancement Act toaccumulate provisional funding for losses of up to
80% of the amount invested and write off that fundas expenses.

12. Management Innovation Support Program

Support was provided for new business activities
undertaken by SMEs through mechanisms suchas low-interest loan programs and special credit
guarantees for the implementation of approved
management innovation plans prepared by SMEs
planning to engage in new business activities toimprove their business performance under the New
Business Activity Promotion Act.

13. Construction of startup support system in theregions

Under the Industrial Competitiveness Enhancement
Act, municipal governments worked with privatesector enterprises assisting with business startups
to formulate a plan for a program assisting businessstartups in order to encourage startups in theregions. Where authorization has been obtained
from the national government, business founders
who have received startup assistance under the plan
are supported through measures such as improved
credit guarantees and tax incentives (reduction inregistration and license tax related to the registrationof incorporation of a kabushiki-kaisha), and support
measures such as credit guarantees were also provided
to enterprises that assist in business startups.

14. Subsidies for business generating regional
economic activity[Fiscal 2015 budget: ¥2.31 billion]
Subsidies were granted for expenditure by local
governments to assist with costs such as the initialstartup funding required by private sector businesses
in the establishment phase. This was to establish aregional round table drawn from industry, academia,
financial institutions and government, and to promote
the “Local 10,000 Project” that aims to create regionbased enterprises with large employment absorption
capacity by making use of regional assets and funding(drawn from regional financial institutions, etc.).

494

Section 7 Support for businesssuccession
1. Program to promote businesses that resolve
regional issues[Fiscal 2015 budget: ¥60 million]
To promote the activities of businesses that seek
to resolve the regional issues of social businesses/
community businesses using business methods,
guidelines were formulated for financial institutions
and businesses with the aim of developing thefunding environment, and symposiums were heldin ten locations throughout Japan to promote theirdissemination.

2. Business succession support[Fiscal 2015 budget: Included in ¥4.48 billion]
To support SMEs and micro-businesses that arefacing problems related to the lack of businesssuccessor, etc., the “Business Succession Help Desks”
established at approved support agencies in each of
the 47 prefectures provided information and advice
on business successions, and “Business Succession
Support Centers” were established in regions thathave a well-developed support framework, to match
up managers who are facing a succession problem
with companies seeking to utilize such management
resources to expand their business. BusinessSuccession Support Centers have been establishednationwide in fiscal 2015.

3. System of deferral and exemption of payment ofinheritance tax and gift tax on non-listed shares(business succession taxation scheme)[Taxation scheme]
The business succession taxation scheme is designed
to help successors to acquire shares and other assets
in non-listed companies approved by the Minister of
Economy, Trade, and Industry, from their predecessors,whether through inheritance, gift, or testamentary
gift. The scheme works by allowing the deferral of
payment of inheritance tax and gift tax on the premisethat the successor will continue the business and, incertain circumstances (e.g., the death of the successor),
exemption from payment of the tax for a grace period.
Approvals to qualify for this scheme commenced infiscal 2009, and as of the end of December 2015, 827
approvals had been granted for inheritance tax and
431 approvals had been made for gift tax.
In the fiscal 2015 tax reform (enforced April 1, 2015),
the business succession taxation system was expanded
as follows. The following represents an example where
shares of stock are given from the first generation to
the second, and then the third.
(1) When the second generation gives shares of stock
to the third generation after the business succession
period (and the third generation agrees to theSME policies implemented in fiscal 2015

application of a tax deferral), the second generation is
exempted from payment of the deferred tax.
(2) During the business succession period, if the second
generation resigns from the position of representative
due to an unavoidable circumstance (*) and gives its
shares to the third generation (and the third generationagrees to the application of a tax deferral), the second
generation is exempted from payment of the deferredtax.
(3) In the above two cases, the third generation’s gift
tax deferral will become an inheritance tax withthe death of the first generation. (It will not become
an inheritance tax with the death of the second
generation.)* Unavoidable circumstances mainly refer to thefollowing:• The individual has received a psychiatric disordercertificate (limited to class 1 disorders)• The individual has received a physical disability
certificate (limited to class 1 and 2 physical disorders)• The individual has received authorization to receive
nursing care (limited to level 5 nursing care)

The Small Enterprise Mutual Relief System is asystem for giving micro business owners a retirement
benefit. To strengthen its function of facilitating
business revitalization, mutual relief money related
to the transfer of business within the family wasincreased.

5. Comprehensive support under the Management
Succession Facilitation Act

The Act on Facilitation of Succession of Managementof Small and Medium Sized Enterprises incorporates
comprehensive support for business successions,involving special treatment under the Civil Code toresolve the constraints on legally secured portionsof successions. By the end of December 2015, 108
confirmations of qualification for this special treatment
had been granted by the Minister of Economy, Trade,and Industry.

6. Support to facilitate business successions[Included in SMRJ subsidy program]Business succession support networks for providing
wide-ranging and in-depth support for SME businesssuccessions have been developed throughout Japan,
and various events were held to provide training for
SME support providers and raise SME proprietors’
awareness through business succession forums.

1. Support to encourage enterprises to locate inregional areas[Fiscal 2015 budget: Included in ¥800 million]
Support was provided for action by regions to
attract enterprises using their local features and torevitalize local industries under the Act on Formation
and Development of Regional Industrial Clusters
through Promotion of Establishment of New Business
Facilities, etc. (Act No. 40, 2007). Budgetary support
was provided for the development of industrial
facilities, and institutional support was provided
through special provisions under the Factory Location
Act, a low-interest loan program for SMEs operated
through JFC, and tax allocations to local governments
taking steps to attract enterprises to their regions.

2. Subsidies for business generating regional
economic activity[Fiscal 2015 budget: ¥2.31 billion]
Subsidies were granted for expenditure by local
governments to assist with costs such as the initialstartup funding required by private sector businesses
in the establishment phase. This was to establish aregional round table drawn from industry, academia,
financial institutions and government, and to promote
the “Local 10,000 Project” that aims to create regionbased enterprises with large employment absorption
capacity by making use of regional assets and funding(drawn from regional financial institutions, etc.).
(Cited earlier)

3. Infrastructure development
strategic industrial support

program

Chapter 5

4. Review of the Small Enterprise Mutual Relief
SystemSection 8 Other regional revitalization
measuresfor[Fiscal 2015 budget: ¥800 million]
Strategic sector coordinators were assigned toeach strategic sector to match large enterprises
and potential core enterprises, by providing wideranging information to potential core enterprises
in consideration of the technical needs of large
enterprises, providing information on the outstanding
technologies of potential core enterprises to large
enterprises, and supporting collaborations with local
support organizations. Furthermore, in strategic
sectors, support was provided for the developmentof corporate clusters and cooperation centers thatpossess support functions for human resource
development and market cultivation, to promote thecreation, development and innovation of potential
core enterprises and peripheral enterprise groups thatare rooted in their local communities.

495

4. Taxation scheme to strengthen the regional
location of enterprises[Taxation scheme]
In order to revitalize the regions, it is necessary tocorrect the over-concentration of population andindustry in Tokyo and create good quality employment
in the regions. Toward this end, the fiscal 2015 tax
reform encouraged initiatives for relocation of thehead office functions of enterprises from Tokyo to theregions and for the expansion and development of theregions. More specifically, certified enterprises were
given a choice of either a 15% special depreciation
deduction on the cost of acquisition of an officebuilding (25% in the case of relocation) or a 4% tax
credit on the cost of acquisition (7% in the case of
relocation). Enterprises that create employment in
the region were offered a special measure under the
taxation scheme to promote employment and a local
tax grant related to strengthening regional corporate
centers.

5. Support for advancement into new sectors[Fiscal 2015 budget: Included in ¥1.67 billion]
Able “project managers” provided consistent support
to core enterprises, would-be core enterprises andtheir partners (medium enterprises and SMEs) thatare rooted in their community. The support will range
from the formulation of new business advancement
concepts to the development of industry-academia
partnerships and business partners during thedevelopment stages and cultivation of new markets.

6. Building new regional cooperation from regionalcore cities[Fiscal 2015 budget: ¥200 million]
Support was provided for the policy and initiative ofcreating regional core city areas for maintaining vibrantsocial economies with a population of a certain size
through downsizing and networking efforts between
central cities of substantially large core urban regions
and neighboring municipalities. From fiscal 2015, a
local tax grant was offered to municipalities that haveentered into a cooperation agreement and formulated
a vision, in support of initiatives that contribute todriving economic growth in their area as a whole,amassing and strengthening advanced city functions,and enhancing lifestyle-related functions and services.
As of the end of February 2016, regional core city
areas have been created in five urban regions.

7. Enterprise vitality enhancement funding[Fiscal investment and loan program]
Japan Finance Corporation (JFC) provided loans
for funds needed to modernize management andrationalize the distribution systems of SME commercial
businesses and service businesses, promote theadvancement of basic manufacturing technologies of496

SMEs, and develop SME subcontractors. A total of¥89 billion was loaned to 10,315 businesses in fiscal
2015 (as of the end of January 2016).

8. Tax measure for expanding tax-free shops andenhancing their convenience[Taxation scheme]
In the fiscal 2015 tax reform, a new system wasestablished, which allows shopping districts andshopping centers to outsource tax exemption
procedures to businesses that operate tax-free service
counters. This has made it possible to reach theminimum purchase amount by adding together theamounts of purchases at multiple stores in the same
shopping district or shopping center.

9. Loan program for supporting regional coreenterprises[Fiscal 2015 budget: ¥8 billion from the fiscal
investment and loan program]Medium enterprises and SMEs that are core regionalpresences having a certain influence on their regional
economy were supported in their initiatives to achieve
innovation such as by advancing into a new sector
or making strategic initiatives for management
improvement. Under a loan program for supporting
regional core enterprises, the Shoko Chukin Bank
provided long-term, lump-sum repayment andsuccessful interest payment-type loans to suchenterprises. In fiscal 2015, loans were provided to
52 enterprises, worth a total of ¥6.6 billion (as ofFebruary 29, 2016).

SME policies implemented in fiscal 2015

Chapter 6 Development of the business environment
Section 1 Cash-flow assistance andbusiness generation support
1. Detailed cash-flow assistance and businessgeneration support

2. Safety net loans

The safety net loan program provides loans worth up
to a total of ¥720 million (from JFC’s SME Unit andthe Shoko Chukin Bank) and ¥48 million (from JFC’s
Micro Business and Individual Unit) to SMEs thathave experienced, for example, a temporary decline
in sales or profits caused by the effects of changes
in the social or economic environment. Under the
fiscal 2014 supplementary budget, an interest rate

3. Managerial Improvement Loans (Marukei
Loans) for micro businesses[Fiscal 2015 budget: ¥3.98 billion] [Fiscal
investment and loan program]
In order to provide financial support to microbusinesses, the JFC provided unsecured andunguaranteed low-interest loans to micro businesses
that receive management guidance from societies andchambers of commerce and industry and prefecturalfederations of societies of commerce and industry.
Ongoing improvements were also implemented: (1)the term of loans was extended from five to sevenyears for working capital and from seven to 10 years
for capital expenditure; (2) the deferment period was
extended from six months to one year for working
capital and from six months to two years for capital
expenditure; and (3) the ceiling on loans was raised
from ¥15 million to ¥20 million. Between April 2015
and the end of January 2016, a total of 36,200 loans
were provided with a total value of ¥207.8 billion.
(Cited earlier)

4. Micro businesssupport loans

management

development

Chapter 6

New lending systems were created and existing
systems were expanded by the JFC and Shoko Chukin
Bank under the fiscal 2014 supplementary budget that
was approved on February 3, 2015. More specifically,
generous cash-flow assistance that includes
management support was offered to businesses
facing cash-flow difficulties and business promoting
investments in energy conservation in response to theimpacts of rising raw material and energy costs.
Loans were also promoted for forward-looking
regional initiatives, such as business startups by
women and initiatives for smooth business succession,and for new businesses and employment creation by
NPOs and other such organizations.
With respect to the credit guarantee system, Credit
Guarantee Corporations in each region prepared toprovide support that combines cash-flow assistancewith management support under said supplementarybudget. They will strengthen their initiatives for
management support in cooperation with regional
financial institutions, and promote refinancing
guarantees through the management strengthening
guarantee system, etc. Furthermore, prompt andflexible support was provided to SMEs and microbusinesses affected by disaster based on Safetynet Guarantee No. 4. The credit guarantee system
responds to damage in the event of a natural disaster,and has been given greater flexibility in terms of its
operational criteria, so that safety-net guarantees may
be approved at the same time the Disaster Relief Act
is applied.
The fiscal 2014 supplementary budget also provided
for business generation support in the form ofstrengthening the support framework of SME
Revitalization Support Councils in each region, andaccelerating support for the formulation of drastic
business regeneration plans by SMEs and microbusinesses.

incentive was given to SMEs and micro-businesses
experiencing cashflow difficulties amid the impacts of
the high costs of raw materials and energy, in cases
where their profit margin has declined or their severebusiness condition requires them to receive businesssupport from an approved support agency. In fiscal
2015, 150,000 loans were made with a total value of¥3.1 trillion (as of the end of January 2016).

[Fiscal 2015 budget: ¥20 million][Fiscal investment and loan program]To support sustainable business development by
micro businesses, Japan Finance Corporation (JFC)
offered low-interest loans to micro businesses thatreceive management guidance from societies andchambers of commerce and industry certified undera management development support plan. Between
April 2015 to the end of January 2016, a total of 34
loans were provided with a total value of ¥210 million.
(Cited earlier)

5. Promotion of subordinated lending[Fiscal 2015 budget: Included in ¥15 billion]
The subordinated lending program is a financing
mechanism of the JFC, which solicits joint financing
from the private sector to stabilize the financing of
SMEs and micro-businesses by providing them withhigh-risk, long-term, “bullet loans” (capital funds)
to enhance their financial underpinnings. Under

497

the fiscal 2014 supplementary budget, the program
was expanded to newly provide loans for businesssuccession and overseas expansion. In fiscal 2015,
approx. 1,000 subordinated loans were provided,
worth a total value of ¥59.8 billion (as of the end of
February 2016).
(Note) Loans under this program are limited bullet loans.
In the event that the SMEs or micro-business taking
out the loan enters legal bankruptcy, its repayment
precedence is subordinated to other claims. By
designing the program so that the interest rate istied to the success rate for loan repayments in eachperiod, these subordinated loans can be taken to beequity in financial inspections.

6. SME and micro-business management
enhancement loan/guarantee program[Fiscal 2015 budget: ¥1.1 billion]
On the premise that support is being provided byapproved support agencies, the management of SMEs
and micro-businesses was strengthened throughmeasures such as low-interest loans from the JFC(0.4% below the standard rate, or 0.65% below thestandard rate for women, young people and seniorbusiness startups) for business startups, businesses
diversification, and changes of business.

7. Encouragement of refinancing guarantees[Fiscal 2015 supplementary budget: ¥1 billion]
Refinancing guarantees are promoted with the aimof encouraging credit guarantee corporations toconsolidate multiple outstanding debts and relieve therepayment burdens at hand. In fiscal 2015 (up to theend of February 2016), 161,831 refinancing guarantees
were approved, worth a total value of ¥3 trillion.

8. Safety-net Guarantees (Nos. 4 & 5)

Safety-net Guarantee Nos. 4 and 5 call for credit
guarantee corporations to provide guarantees separate
from ordinary guarantees to SMEs and microbusinesses experiencing a management instability due
to either a natural disaster in the case of Safety-net
Guarantee No. 4 or an industrial structural slowdown
in the case of Safety-net Guarantee No. 5 (100%guaranteed for up to ¥80 million for unsecured loans,and up to ¥280 million for other loans).
In fiscal 2014, the disaster designation criteria
for Safety-net Guarantee No. 4 was reviewed inconsideration of the marked damage caused by theincreasing frequency of short-term downpours andother changes in disaster risks. This has allowed for
greater flexibility and speed in the system. In fiscal
2015, 288 guarantees were approved under Safety-net
Guarantee No. 4, totaling ¥4.7 billion (as of the end of
February 2016).
Safety-net Guarantee No. 5 was actively provided
to SMEs in designated industries whose average498monthly sales, etc., for the latest three months fall by aset proportion or more compared with the same period
in the previous year. In fiscal 2015, 24,733 guarantees
were approved under Safety-net Guarantee No. 5,
totaling ¥579.2 billion (as of the end of February2016).

9. Expansion of SME credit insurance to NPOs
that support local economies and employment

In recent years, NPOs have strengthened theirpresence as entities that support new employment andbusinesses in local communities, and are beginningto be acknowledged as main players capable ofunearthing new local demand by resolving local
issues and revitalizing local economies. As theiractivities hardly different from those of existing
SMEs, the Small Business Credit Insurance Act wasamended to newly include NPOs in the scope of SME
credit insurances, and other such necessary measures
were taken. The inclusion of NPOs in the scope ofcredit insurance from October 2015 has facilitated thefinancing of NPOs that engage in business activities
related to medical care, welfare and childcare.

10. Program to assist with formulating management
reform plans by approved support agencies

For SMEs and micro-businesses that are unable toformulate management reform plans on their own,
approved support agencies (certified public tax
accountants, lawyers, financial institutions, etc.)
provided assistance in formulating management
reform plans, as well as follow-up for those plans.
Under the Act for Facilitating New Business
Activities of Small and Medium-sized Enterprises,
the program defrayed part (two-thirds) of the costs
incurred by those activities. Between April 2015
and the end of February 2016, 9,283 consultations
were received, including 3,097 cases that were taken
up by the program. This brought the total numberof consultations received between the inception of
the program (March 2013) to the end of February
2016 to 31,211, including 10,621 cases in which theformulation of reform plans has been completed.

11. SME Revitalization Support Councils[Fiscal 2015 budget: Included in ¥4.48 billion+ ¥1.8 billion carried over from the fiscal 2014
supplementary budget]
The SME Revitalization Support Councils establishedat the chambers of commerce and industry andsimilar entities in each prefecture provided SMEs
and micro-businesses that had profitable businesses
but faced financial problems with advice on solving
their problems through consultation services, andassisted with the drafting of revitalization plans that
also included coordination with relevant financial
institutions and similar entities. Between April 2015

SME policies implemented in fiscal 2015

and the end of December 2015, the councils received
1,374 consultations and formulated 786 revitalizationplans, for a total of 36,516 consultations and theformulation of 10,518 revitalization plans from their
inception to the end of December 2015.
Additionally, subsidy projects were implemented
to strengthen the support framework of SME
Revitalization Support Councils and accelerate theassisted formulation of drastic revitalization plans by
SMEs and micro-businesses.

12. SME Rehabilitation Plan through Succession(secondary companies)

Where an SME rehabilitation plan through succession
is authorized under the Industrial Competitiveness
Enhancement Act and business succession occurs as
set out in that plan, measures were implemented toreduce the tax burden and support financing, alongwith special provisions for permissible succession.
From April 2015 to the end of February 2016, eightsuch cases were approved, for a total of 31 cases
since the system was established based on the Act on
Special Measures concerning Industrial Revitalization(June 2009).

13. SME revitalization funds

14. Promotion of the use of “Guidelines for Personal
Guarantees Provided by Business Owners”[Fiscal 2015 budget: ¥100 million]
To promote the use of the “Guidelines for Personal
Guarantees Provided by Business Owners” publishedon 5 December 2013, help desks were set up in theregional headquarters of the SMRJ in fiscal 2013,
and there was ongoing implementation of the systemfor dispatching specialist advisors for people whowant to use the guidelines. There was also ongoing
implementation of financing and guarantee systems
independent of business owner guarantees by public
sector financial institutions created or enhanced infiscal 2013. Additionally, to ensure the guidelines
are absorbed and retained as part of financing
practices, initiatives that should be widely taken werecompiled into a collection of examples and published.
Furthermore, explanatory meetings on the guidelines

15. Enhanced management support for financial
administration among SMEs

To promote support for the growth of enterprises andindustries via financial administration, support for
management reforms, productivity improvement andthe financial standing of SMEs, financial institutions
were encouraged to provide enhanced management
support to SMEs. Based on the financial monitoring
policy, they were encouraged to provide loans
based on proper assessment (business assessment)of the business performance and growth potentialof borrower companies without relying more thannecessary on securities and guarantees, in addition toproviding consultation services.

16. Promote liquidity of SMEs’ export receivables
covered by trade insurance

To promote the financing of SMEs, NEXI iscollaborating with the Shoko Chukin Bank and thethree megabanks to establish a scheme for transferring
an export receivable covered by trade insurance froman SME to a financial institution and promoting theutilization of the scheme by SMEs.

17. Support for SMEs in Okinawa

Regarding support for SMEs in Okinawa delivered
via the Okinawa Development Finance Corporation(ODFC), the operations and initiatives undertaken
by JFC were performed as usual, while ODFC’s own
system of lending was expanded to meet the specificneeds of businesses in Okinawa.

Chapter 6

In order to deliver the funds needed by SMEs toimplement their revitalization plans and provide themwith financing and management support, the SMRJ,
regional financial institutions, and credit guarantee
corporations in unison promoted the establishment
and utilization of regional funds to assist local SMEs’
revitalization efforts and national funds to assist
SMEs’ revitalization efforts over a wide area. Up to theend of February 2016, 43 funds have been established,amounting to approximately ¥136.4 billion in total.
By the end of January 2016, the funds have invested
approximately ¥68.6 billion in 332 companies.

were held in 50 locations throughout Japan between
September 2015 and December 2015 for SMEs andmicro-businesses.

18. Adoption and application of “Basic procedures
for SME accounting”

The adoption and application of the “Basic procedures
for SME accounting” was promoted so as to encourage
SMEs to clarify their business conditions, improve
the ability of proprietors to explain their business,and strengthen their ability to obtain financing. As adissemination measure, the 0.1% discount on credit
guarantee rates was continued to be provided in fiscal
2015 to SMEs and micro-businesses that adopt the“Basic procedures” as their accounting rule.

Section 2 Enhancing financial capacity
1. Lowering of reduced tax rate for SMEs

[Taxation scheme]
This measure lowers the rate of corporate tax (19%)
incurred on annual income amounts up to ¥8 million to15%. Its effective period of application was extended
two years under the fiscal 2015 tax reform.

499

2. SME investment promotion tax system[Taxation scheme]
This system offers a 30% special depreciation or a 7%
tax credit (the tax credit is not offered to corporate
entities with a capital of more than ¥30 million) forthe price of purchasing machinery or equipment. It
also allows for immediate depreciation or provides
a 10% tax credit (7% for corporate entities with acapital of more than ¥30 million) for the introductionof machinery and equipment that leads to productivity
improvement.

3. Special provision for inclusion of SMEs incharges against revenue of acquisition cost of
petty sum depreciable assets[Taxation scheme]
The special provision that allows enterprises toinclude in full depreciable assets worth less than
¥300,000 in charges against revenue (limited toa total of ¥3 million a year) was continued to beoffered.

4. Carryover and refund carryback of loss

[Taxation scheme]
The carryover of loss is a scheme that allows loss
arising in the current business year to be deducted
as a loss carried over from the amount of income in
the following and subsequent business years. Under
the fiscal 2015 tax reform, the carryover period was
decided to be extended to 10 years (from 9 years under
the current scheme) from fiscal 2017. The measurethat allows businesses to receive a one-year carryback
refund for losses arising in the current business year
was continued.

5. Taxation system for the revitalization of thecommercial, service and agriculture/forestry/
fishery industries[Taxation scheme]
The tax measure that allows SMEs in the commercial
and service industries that acquire facilities based on
advice on business improvement from a chamber ofcommerce and industry or other such institution toreceive a 30% special depreciation deduction from thecost of acquisition or a 7% tax credit was continued(the tax credit is offered only to corporate entities
with a capital of no more than ¥30 million). Under
the fiscal 2015 tax reform, the effective period of themeasure was extended two years.

6. Special exemption from inclusion in charges
against revenue of entertainment and social
expenses, etc.

[Taxation scheme]
The selective application of (1) the measure that
permits entertainment and social expenses to be
included in charges against revenue up to the fixed500

deduction amount (¥8 million) or (2) the measurethat allows 50% of food and drink expenses to be
included in charges against revenue was continued to
be offered.

7. Investment by Small and Medium Business
Investment and Consultation Co., Ltd.

In order to help enhance SMEs’ capital adequacy andcontribute to their sound growth and development,
the Small and Medium Business Investment andConsultation Co., Ltd. operated a number of programs
to assist in SME development. These include businessconsultations, assistance with business successions
and investment programs involving the underwritingof shares, share warrants and corporate bonds with
subscription warrants.

Section 3 Measures for pass-throughs ofconsumption tax
1. Programs to enhance monitoring and inspection
regimes for consumption tax imputation[Fiscal 2015 budget: Included in ¥3.87 billion]
To ensure that consumption tax is passed throughappropriately, 474 “cost pass-through inspectors”
were assigned throughout Japan. At the same time,
to collect information such as on refusals to passthrough the consumption tax, a large-scale written
survey was carried out in conjunction with the Fair
Trade Commission (FTC) in the effort to monitor
and regulate acts of refusal to pass through theconsumption tax.

Section 4 Measures for businessstabilization
1. Mutual Relief System for the Prevention of
Bankruptcies of SMEs (Mutual Safety-net Relief
System)[Included in SMRJ subsidy program]
The Mutual Relief System for the Prevention of
Bankruptcies of SMEs is a system that provides
unsecured, unguaranteed, low-interest loans to preventa chain reaction of bankruptcies when the bankruptcy
of a supplier or customer has made it difficult for an
enterprise to recover moneys due on account. As ofthe end of December 2015, 398,000 companies wereenrolled in the system, with 36,000 new subscribers in
the period from April 2015 to end of December 2015
and new loans totaling ¥5.56 billion.

2. Special Business Stability Consultation Centers[Fiscal 2015 budget: ¥37 million]
To assist in the resolution of the many and diverse
administrative problems of SMEs facing management
risks, special business stability advice centers havebeen established in key chambers of commerce andSME policies implemented in fiscal 2015

industry and prefectural federations of societiesof commerce and industry across the country. To
facilitate management consultations related tobusiness stability in a wide range of business sectors
at these centers, support was provided to initiatives
such as guidance programs run by the Japan Chamberof Commerce and Industry and the Central Federationof Societies of Commerce and Industry.

3. Promotion of wider adoption of BCPs by SMEs

[Fiscal investment and loan program]To support the formulation and operation of BCPs
by SMEs and micro-businesses and aim to further
disseminate and establish the plans, the support projectfor strengthening business continuation among SMEs
and micro-businesses, which was launched under the
fiscal 2014 supplementary budget, was continued as ameasure for supporting the formulation and operationof BCPs by SMEs and micro-businesses. Additionally,
to enhance the dissemination and support framework,
support was given to BCP training and seminars forsupport managers operated by SME-related bodies.
Furthermore, low-interest loans were provided by
the JFC for the establishment of disaster prevention
facilities in accordance with BCPs formulated by
SMEs and micro-businesses themselves.
[Financial results] (April 2015 to January 2016):
87 loans totaling ¥7.68 billion

4. Relief for damage caused by dumped imports

Section 5 Measures concerning publicdemand
1. Formulation and dissemination of the “FY
2015 Policy on State Contracts with Small andMedium Enterprises”[Fiscal 2015 budget: Included in ¥550 million]
The Government and Public Office Demand Act
was revised to promote the participation of newly
established SMEs and micro-businesses that havebeen newly established within the past ten years in

Chapter 6[Fiscal 2015 budget: ¥50 million]
Trade remedy measures include anti-dumping (AD)programs to provide relief to domestic industries
impacted by dumped imports to Japan from foreign
enterprises, including measures to ensure equitable
market competition such as by imposing extra customs
duties following a petition by the affected Japaneseindustry and an investigation by the government. An
AD investigation into South Korean and Chinese
manufactured potassium hydroxide was begun in May
2015, and is being pursued fairly and appropriately
based on international rules and Japanese laws andregulations. Studies were also conducted to ensure thatinvestigations are consistent with WTO conventions,and information sessions were held for enterprises.

receiving orders from the government/public sector.
Additionally, the Policy on State Contracts with Smalland Medium Enterprises was renamed the Basic
Policy on State Contracts with Small and Medium
Enterprises, and Cabinet approval was given on
August 28 for setting 54.7% as the target contract ratio
among SMEs and micro-businesses in fiscal 2015, andfor roughly doubling the ratio of state contracts with
new SMEs over the three years from fiscal 2015 to2017, compared to fiscal 2014 (estimated at around1%). As measures for increasing opportunities for
SMEs to receive orders, the Basic Policy included ameasure not to overly seek results from new SMEs,
a measure to include new SMEs among requests for
quotations for low-price negotiated contracts, anda measure to provide information to order-placing
entities by developing and operating a procurementsite where new SMEs register their products andservices.
The following initiatives were implemented to fully
disseminate the Basic Policy.
(1) The Minister for Economy, Trade and Industry
issued a request regarding the Cabinet approval of
the Basic Policy on State Contracts with Small andMedium Enterprises to the heads of each agency andministry, prefectural governors, all municipal mayors,and mayors of the Tokyo special wards (1,805
organizations), and also requested that they makeefforts to increase opportunities for SMEs and microbusinesses to receive orders.
(2) From August to September, 50 information sessions(Councils to Promote Local Access to Public Sector
Demand) were held throughout Japan to actively raiseawareness of the Basic Policy in regional areas.
(3) A conference was organized to discuss policies
for information sharing and cooperation regarding
initiatives for promoting procurement from new
SMEs in regional areas.
(4) A “Guide to Contracts in the Public Sector” wasproduced and distributed to central and local
government agencies and other commerce andindustry-related organizations.

2. Operation of the “Public Demand Portal Site”
to expand opportunities for SMEs and microbusinesses to receive orders from the public
sector[Fiscal 2015 budget: Included in ¥550 million]
A Public Demand Information Portal Site has been
operated that provides SMEs and micro-businesses
with one-stop access to order information posted onnational government and other local public websites
in order to improve access by SMEs and microbusinesses to information on public sector orders.

501Section 6 Promotion of human rights
awareness
1. Human rights awareness[Fiscal 2015 budget: ¥190 million]
In order to widely propagate respect for human rights
and cultivate awareness of human rights among
SMEs and micro-businesses, seminars and otherawareness-raising activities were organized. Travelingconsultation services and training programs were alsooffered to revitalize micro businesses in regions orindustries where there are particularly large numbersof micro businesses that require concentrated support.

502

SME policies implemented in fiscal 2015

Chapter 7 Initiatives by industries and area
Section 1 Measures for SMEs inagriculture, forestry andfisheries
1. Promotion of diversification of primary
producers into processing and distribution(sixth sector industrialization)(1) Wood Industry Upgrading Promotion Fund andForestry and Wood Industry Improvement Fund
[Fiscal 2015 commitment line: ¥70 billion]
In order to streamline lumber production anddistribution, loans were provided through the
Wood Industry Upgrading Promotion Fund, whileloans through the Wood Industry Improvement
Fund were provided to implement measures suchas management reforms in the forestry and lumber
industries.
(2) Interest subsidy for the installation of lumber
processing facilities[Fiscal 2015 budget: ¥10 million]
An interest subsidy was provided for borrowings
required for the introduction of facilities towardadding value to lumber products and diversifying
management, and for dismantling facilities andequipment accompanying the introduction of new
facilities.
(3) Support for creation a framework in the wood industry
by means of the Subsidy for Establishment of theFoundation for Forest and Forestry Regeneration[Fiscal 2015 budget: Included in ¥2.7 billion]
To create a supply chain for stable and efficient supply
in terms of cost, volume and quality, support wasprovided for the development of lumber processing
and distribution facilities needed to realize schemes
for wide-area distribution and regional circulation.
(4) Support for reorganization and development of thedairy industry by means of subsidies for building
a strong agricultural industry and comprehensive
measures for the revitalization of production areas[Fiscal 2015 budget: Subsidies for building a strong
agricultural industry: Included in ¥23.09 billion;
Comprehensive measures for the revitalization of
production areas: Included in ¥2.34 billion](Objectives of the measure)• To promote a stronger management culture in the
SME dairy industry, such as by restructuring andrationalizing dairy plants and enhancing sanitarycontrol, toward contributing to business stabilization
among dairy farmers, amid a stagnation in the
consumption of milk.
(Overview of the measure)• To reduce the production and selling costs of SMEs
in the dairy industry and promote the advancementof sanitary standards, support was provided for the
additional construction and closing down of dairy
plant facilities and for the closing down of dairy
plants in cases where it is not accompanied by theconstruction of new plants.

Chapter 7(1) Subsidy for sixth sector industrialization network
activities[Fiscal 2015 budget: ¥2.33 billion]
Support was provided for initiatives in whichbusinesses make coordinated efforts that maximize
regional characteristics and create a network todevelop new products, cultivate markets and operatefacilities for processing and marketing agriculture,
forestry and fishery products. Support was also
provided for sixth sector industrialization initiatives
that are implemented by the entire region in line withsixth sector industrialization strategies and conceptsof the municipality.
(2) Active utilization of the Agriculture, Forestry and
Fisheries Fund Corporation for Innovation, Valuechain and Expansion Japan
Support was provided through measures such as
investment for business activities aimed at sixth
sector industrialization by agriculture, forestry andfishery businesses in cooperation with distribution
and processing businesses through the Agriculture,
Forestry and Fisheries Fund Corporation for
Innovation, Value-chain and Expansion Japan(A-FIVE).
(3) Program for promoting the protection and utilizationof intellectual properties[Fiscal 2015 budget: ¥200 million]
A consultation center for supporting applications
for registering geographical indications (GI Support
Center) was established to provide support for
consultations regarding the registration application ofgeographical indications, and support was provided
for initiatives to strengthen measures against
infringements of Japan’s agriculture, forestry andfishery products and food products overseas.
(4) Comprehensive program to promote renewableenergy to revitalize rural areas[Fiscal 2015 budget: ¥200 million]
Growth in regional agricultural, forestry and fisherybusinesses was promoted by pursuing communitybased initiatives to supply renewable energy and to
feed the benefits of such initiatives back into local
communities.

2. Support for small and medium agricultural,
forestry, and fishery businesses503

• To promote steady initiatives toward increasing
the efficiency of collecting and transporting milk
and restructuring the dairy industry, support wasprovided for assessing and examining regional
issues, formulating specific plans, and rationalizing
employees.
(5) Support for raising the standard of food manufacturing
process management
To improve the safety of food products and gain
the confidence of consumers, financial support wasprovided for the following initiatives under the Act
on Temporary Measures concerning Sophisticationof Management of Food Manufacturing Process: (1)Provision of infrastructure and equipment for HACCP
introduction; and (2) Provision of infrastructure andequipment for hygiene and product quality control
as preliminary steps towards HACCP introduction(advanced platform provision). (Fund for promoting
advanced quality control in the food industry)(6) Comprehensive export support project by JETRO[Fiscal 2015 budget: ¥1.38 billion](Objectives of the measure)• To implement initiatives for the promotion of exports
in line with the “Export Strategies for Agriculture,
Forestry and Fishery Products and Foods by Country
and Item” (formulated Aug, 2013), through privatepublic cooperation toward achieving the target of¥1 trillion by 2020.
(Overview of the measure)• Through subsidies to the Japan External Trade
Organization (JETRO), comprehensive businesssupport for upstream to downstream operations ofexport businesses was strengthened.
(Changes from fiscal 2014)• The “one-stop station for export consultation”
was established to strengthen export consultation
services, “marketing centers in emerging markets”
were established to test-market the products ofbusinesses that engage in export and provide
feedback of local responses, and an “overseas liaisoncouncil” was established for resolving various
bilateral issues that are difficult to resolve throughthe efforts of individual enterprises alone.
(7) Measures for export businesses[Fiscal 2015 budget: ¥840 million](Objectives of the measure)• To implement initiatives for the promotion of exports
in line with the “Export Strategies for Agriculture,
Forestry and Fishery Products and Foods by Country
and Item” (formulated Aug, 2013), through privatepublic cooperation toward achieving the target of¥1 trillion by 2020.
(Overview of the measure)• Export organizations for each export category
including marine products, rice and rice products,
flowers, animal products, tea, and forestry products(wood) held examination committees in Japan,

504

conducted overseas market surveys, and implemented
initiatives for resolving issues regarding the export
environment, with the objective of establishing theJapan brand.
• To create an export promotion framework based oncooperation among production regions, initiatives
were implemented to extend export periods andpromote relay exports through cooperation amongproduction regions.
• To respond to requests for quarantine boardingthat is sought by relevant countries and regions,the acquisition and renewal of international
certifications, and realize transportation costs inaccordance with the export conditions of each item,
initiatives were implemented for the development
and demonstration of an optimal export model.
(Changes from fiscal 2014)• Overseas market surveys, development of export
managers, and production region promotion meetingsand other business meetings in Japan were abolished.

3. Support for R&D and other cross-field activities(1) Promotion of studies of scientific technologies for the
agriculture, forestry, fishery and food industries[Fiscal 2015 budget: ¥5.24 billion]
R&D initiatives were promoted at each stage oftechnological development, including the basic stage
involving the development of the technological seeds
that will lead to innovative technologies and solutions
for problems in the agriculture, forestry, fishery andfood industries (elemental technologies that leadto the creation of new technologies, businesses andagribusiness); the application phase involving thefurther development of those seeds towards R&D forpractical application; and the practical application
stage in which technologies meet the requirementsof key national policies and address the needs of the
agriculture, forestry, fishery and food industries. The
development of new varieties will also be promoted
in response to the diverse needs of actual demands
by utilizing the technical capabilities of industry,
government and academia.
(2) Various forms of lending by JFC[Fiscal investment and loan program]

Section 2 Measures for SMEs in thetransport industry
1. Support for the warehousing industry

Upgrading of the physical distribution functions offacilities was promoted in order to encourage third
party logistics (3PL) programs and more efficient
distribution under the Law for Integration and
Improvement of Physical Distribution. This is aimed
at meeting the need for increasingly sophisticatedphysical distribution services as a response to changes
in the socioeconomic environment.

SME policies implemented in fiscal 2015

2. Measures for the coastal and domestic passenger
shipping industries(1) Interim measures for coastal shipping
In order to ensure the smooth and steady
implementation of interim measures for coastal
shipping, support was provided by establishing aseparate system of government guarantees for theloans required to fund these measures.
(2) Joint shipbuilding program[Fiscal investment and loan program][Fiscal 2015 budget: ¥28.4 billion]
Through the joint shipbuilding program of the Japan
Railway Construction, Transport and Technology
Agency (JRTT), the construction of ships with highpolicy significance, such as ships that contributeto greenifying coastal shipping or contribute to themaintenance and activation of remote island routes,
was promoted.

3. Measures for small and medium shipbuilders
and related manufacturers

Section 3 Measures for small andmedium building contractors
and realtors
1. Support program for revitalization of regional
construction industries[Fiscal 2015 budget: ¥190 million]
To support small, medium-sized and second-tierconstruction companies and construction-relatedcompanies (surveying, construction consultancy andgeological surveying businesses) that support local
communities such as by improving, maintaining andoperating social capital and contributing to disasterprevention and mitigation, revitalization support
advisors such as human resource development
specialists and SME business consultants provided
wide-ranging advice to help resolve management
issues and technical issues such as construction
management.

Chapter 7[Fiscal 2015 budget: (1) Included in ¥50 million;(2) ¥16 billion (fiscal 2013 budget); (3) Included in¥810 million; (4) ¥100 million](1) In addition to taking steps to develop a safety net
for business stabilization, (1) [courses aimed atmodernizing management techniques were held ineight locations nationwide, and a health and safety
manager training course was also held to help prevent
industrial accidents].
(2) All 37 shipyards and shipbuilders on the Pacific coastof Tohoku together suffered devastating damage
in the Great East Japan Earthquake, as did many
shipbuilding-related businesses. The Ministry ofLand, Infrastructure and Transport, in cooperation
with the SME Agency and other relevant ministries
and agencies, supported the utilization of the Subsidy
for Restoration and Reconstruction of (Groups of)SMEs, and helped in the procurement of materials andequipment needed for the prompt recovery of theirfacilities. Additionally, to promote the reconstructionof local shipbuilding industries that make a significant
contribution to the fishery industry in disaster-affectedareas, a fund was established for groups of small andmedium shipbuilding businesses that contribute to
the fishery industry in areas where the industry is acore industry but face reconstruction difficulties due
to ground subsidence, as well as for assisting with thecosts of constructing and repairing facilities to be used
jointly by the businesses and for constructing berthingfacilities. A total of 19 businesses in 8 projects wereselected to receive a subsidy of ¥11.42 billion in
total, and two of those subsidized businesses received
a subsidy upon their completion. (2) Subsidy forreconstruction assistance projects in the shipbuilding
industry(3) Subsidies were provided for 32 research anddevelopment projects (including 11 involving
the participation of SMEs) for marine resource
development technologies that contribute to thestrategic growth of Japan’s maritime industries andfor world-leading marine environment technologies
for reducing CO2 from vessels. (3) Subsidy for R&D
for technologies related to the maritime industry(4) To deepen understanding of the shipbuilding industry
and attract a larger number of young people to theindustry, shipyard tours, shipyard internships for highschool and university students, and educational study
groups composed of local high school teachers andshipbuilding companies were held. (Ongoing, new)As an urgent and temporary measure from April 2015
to the end of fiscal 2020, a program for accepting
foreign shipbuilding workers was introduced, whichallows prospective workers who have completed
technical intern training to work for up to three years
in the shipbuilding industry. Under this programapproximately 900 foreign workers worked in
the shipbuilding industry as of January 2016. (4)Recruitment and development of human resources inthe shipbuilding industry

2. Financial support in the construction industry(1) Implementation of the Local Construction Management
Enhancement Loan Program
To further facilitate funds procurement by construction
companies acting as the main contractor, the operating
period of the Local Construction Management
Enhancement Loan Program, which allows small andmedium-sized construction enterprises and secondtier construction companies to receive a loan fromloan businesses in proportion to the construction work
using the contract value credit from public works as
collateral, was extended. The program aims to secure505

loan funds and reduce procurement interest rates byattaching a loan guarantee to sublease funds that loanbusinesses borrow from financial institutions whenproviding a loan.
(2) Implementation of the Subcontracting Receivables
Protection Support Program
The operating period of the Subcontracting
Receivables Protection Support Program, which was
implemented to facilitate the procurement of funding
and the protection of receivables held by building
subcontractors and similar enterprises, was extended.
The main purpose of this program is to minimize
risk and compensate for losses by small, mediumsized and second-tier building subcontractors when areceivable payable to a building subcontractor by themain building contractor for subcontracted building
work is guaranteed by a factoring company.

3. Support for overseas business expansion in theconstruction industry[Fiscal 2015 budget: ¥40 million]
Seminars on formulating overseas expansion
strategies were held for business managers, and a
mission was dispatched to Indonesia, to support
overseas expansions by second-tier and SME
construction companies. Overseas Business Forum2016 and individual consultation meetings wereorganized for enterprises in the construction and realestate industries, and initiatives were implemented
for introducing the latest information via a databaseof overseas construction and real estate markets andfor supporting overseas expansions through the use of
intellectual properties.

4. Financial measures for small and medium
realtors

Loan guarantee programs designed to provide
guarantees for business loans for regional revitalizationand for loans to fund joint initiatives by small andmedium realtors were continued so as to supplement
credit and facilitate financing of small and medium
realtors.

5. Regional housing greenification program[Fiscal 2015 budget: ¥11 billion]
To strengthen the regional production framework forwooden housing and reduce environmental burden,
support was provided for the development of energy
efficient and durable wooden housing and buildings
through groups comprising businesspersons in related
fields involved at all stages from provision of materials
through to design and implementation.

6. Program for developing a framework forwooden housing construction techniques[Fiscal 2015 budget: ¥600 million]
Support was provided for initiatives related to the506

development of new carpenters and implementationof courses on renovation techniques for enhancing thetechnical level of skilled carpenters.

Section 4 Measures for theenvironmental sanitation
business
1. Measures for the environmental sanitation
business[Fiscal 2015 budget: ¥1.03 billion]
Subsidies was provided to environmental sanitation
associations, the national environmental sanitation
guidance center, and prefectural environmental
sanitation guidance centers, to promote the creationof safe and comfortable lifestyle environments fromthe perspective of sanitation. Support was provided
specifically for rehabilitating the management ofenvironmental sanitation businesses such as the
hairdressing, dry cleaning and restaurant businesses,
maintaining and improving sanitation standards, andprotecting user and consumer interests. In fiscal 2015,a plan will be formulated that maximizes the strengths
and characteristics of environmental sanitation
businesses, and particular focus will be placedon initiatives that aim to establish and promote a
virtuous cycle in the industry as a means for breaking
away from the structural negative cycle entrapping
environmental sanitation businesses, revitalizing theindustry, and driving sustainable development.

2. Loans for ES businesses[Fiscal 2015 budget: ¥2.18 billion]
The JFC provided low-interest loans (environmental
sanitation loans) with the aim of improving andotherwise promoting public health, by providing
financial assistance to environmental sanitation
businesses.
Under the fiscal 2015 budget, the terms of the loans
were improved, such as by lowering the interest rate
on loans for barrier-free facilities, and under the
fiscal 2015 supplementary budget, the interest rate onloans was lowered for businesses that employ young
people in the regions or relocate their head office tothe regions.

SME policies implemented in fiscal 2015

Chapter 8 Other SME policies
Section 1 Environmental and energy
measures
1. Administrative support for the system forcertifying greenhouse gas reductions by SMEs
(J-Credit Scheme)[Fiscal 2015 budget: ¥580 million]
The J-Credit Scheme is a system for certifying theamounts of greenhouse gas emission reductions
achieved through capital investment by SMEs
as “credits”, and assistance was provided withadministering the scheme and formulating businessplans.
This program also develops the foundation for the
carbon offset mechanism whereby CO2 emissions
from products and services are offset with carbon
credits, by taking advantage of the “visualization”
of carbon emissions from products by the Carbon
FootPrint (CFP) system, and promoted demand for thecredits created under the J-Credit Scheme. By boosting
low-energy investments by SMEs and promoting thecirculation of funds in Japan through the use of these
credits, the program achieved a good balance between
the environment and economy.

2. Promotion of environment-conscious businessactivities based on the “visualization” of CO2
emissions and carbon credits

3. Environment and Energy Measure Fund (foranti-pollution measures)
To promote anti-pollution measures by SMEs, the JFC
provides low-interest loans to businesses who install
pollution prevention equipment. In fiscal 2015, theperiod of the scheme was extended to 31 March 2016
upon conducting a necessary review.

4. Anti-pollution tax system[Taxation scheme]
The anti-pollution tax system supports the antipollution initiatives of businesses, including SMEs,
by offering measures such as a special exemption
from the tax base for anti-pollution equipment(wastewater or liquid waste treatment facilities) anda special depreciation measure for the acquisition ofanti-pollution equipment. The special exemption fromthe tax base for anti-pollution equipment (wastewateror liquid waste treatment facilities) was extended two
years from its expiration at the end of fiscal 2015.

5. Energy Use Rationalization Business Support
Program[Fiscal 2015 budget: ¥41 billion]
This program subsidized the costs required for energy
conservation and power peak countermeasures thatare implemented when enterprises replace theirenergy-saving facilities and systems in their plants
and offices, improve their manufacturing processes
or otherwise make modifications. From fiscal 2015,
energy-conservation initiatives that cut across multiple
plants were included in the scope of the program.

6. Program to promote the installation ofdesignated equipment to rationalize energy use[Fiscal 2015 budget: ¥2.61 billion]
To promote the introduction of energy-saving facilities
and certain top-runner equipment, an interest subsidy
was provided to businesses receiving financing
from private financial institutions. The program wasoperated through collaboration with local financial
institutions, to encourage active investment inenergy conservation by regional SMEs and medium
enterprises.

Chapter 8[Fiscal 2015 budget: ¥100 million]
Support was provided to disseminate carbon offset
products, by operating a system that certifies the
products and services of SME and micro-businesses
that use the Carbon Footprint system to visualize andoffset the amount of carbon dioxide that is emitted
from them throughout their lifecycle with carbon
credits, and providing a dedicated label (chestnutmark) as proof of certification.
Collection of the dedicated label has promoted theoperation of schemes to return environmentallyfriendly products and services to schools and otherlocal organizations, encouraged consumers topurchase environmentally friendly products, andgave a boost to eco-conscious business activities by
SMEs and micro-businesses. Thirty three businesses
participated in this system through 104 schemes.

[Financial results] (April 2015 to January 2016)
Projects
Funding
Atmospheric pollution
4 projects ¥111 million
relatedWater contamination
3 projects¥57 million
relatedIndustrial waste/
53 projects ¥4.183 billion
recycling-related

7. Program for promoting the introduction ofenergy-saving measures[Fiscal 2015 budget: ¥550 million]
This program implemented measures such as
assessments to identify potential energy savings by
SMEs and similar businesses, and the case examples

507

and information on energy-saving technologies gained
from them were disseminated via a range of media.

8. Program for promoting investments in energysaving and productivity innovations among
SMEs[Fiscal 2015 supplementary budget: ¥44.2 billion]
The upgrading of facilities to high-efficiency energysaving facilities was supported by establishinga system for simple application according to theenergy-saving effect of each facility to be introduced,
as a means for enhancing business productivity andenergy conservation performance and strengthening
competitiveness of SMEs.

9. Taxation scheme to promote environmentrelated investment[Taxation scheme]
The taxation scheme that offers individuals andcorporate entities that file a blue tax return a 30%
special depreciation or a 7% tax credit (SMEs only)
during the first year for the cost of acquiring facilities
that contribute to promoting energy conservation andrecycling was continued to be offered. Additionally,
the scheme that allows a special depreciation(immediate depreciation) of the cost of acquiring solar
or wind power generation facilities in addition to thenormally allowed depreciation limit, if those facilities
are thereafter used for business, was extended a year
under the fiscal 2015 tax reform.

10. Program to create a fund to promote regional
low-carbon investment[Fiscal 2015 budget: ¥4.6 billion]
In order to call in private funding to low-carbon
projects such as renewable energy projects that arelikely to be profitable but lack sufficient private
funding due to risks stemming from long lead times
or long investment recovery periods, funding wasprovided from the low-carbon investment promotion
fund.

11. Eco-Lease promotion program[Fiscal 2015 budget: ¥1.8 billion]
The widespread adoption of low-carbon devices
was supported by subsidizing part of the total lease
payment and promoting the utilization of a no-deposit“lease” scheme among SMEs that have difficulty
coping with the very high initial investment costs(deposits) of installing low-carbon devices.

12. Eco-Action 21

Eco-Action 21 has approved and registered 7500
businesses as of the end of December 2015. To provide
an environmental management system that is readily
accessible to second-tier businesses and small andmedium enterprises, an examination for the revision508

of the Eco-Action 21 Guidelines was begun. Basedon the Eco-Action 21 scheme, a program dedicatedto CO2 reduction was operated on a test basis, and250 second-tier companies and SMEs commenced
environmental management.

Section 2 Promotion of IT
1. Lending by governmental financial institutions
for investment in IT (IT Fund)[Fiscal investment and loan program]
The JFC acted as a reliable source of lending toenable SMEs to keep up with changes in the businessenvironment associated with the spread of and changes
in IT and digital content.
In fiscal 2015 (as of the end of January 2016), loans
were provided to 2,493 projects, amounting to a totalof ¥27.2 billion.

Section 3 Measures on intellectual
property
1. Surveys of technical trends of patent application[Fiscal 2015 budget: ¥1.17 billion]
To assist in the development of R&D strategies andIP strategies in Japan’s industries, trends in patentapplications were surveyed and were made publicly
available via such sources as the Japan Patent Office’s
website.
In fiscal 2015, 20 technological themes were surveyed,
mainly related to technical sectors that are garneringsocial attention, such as information security
technologies, and technical sectors in which patentapplications by China are rapidly increasing, such as
designs and user interfaces of information terminals.

2. Support for international patent applications by
SMEs[Fiscal 2015 budget: ¥630 million]
In order to encourage SMEs to file strategic
applications for international patents, subsidies
were provided to partially defray the costs incurred(such as application fees to overseas patent offices,expenditure on hiring Japanese agents and local
agents overseas, and translation costs) by SMEs
aspiring to expand their business overseas. In addition
to prefectural SME support centers, support wasalso provided by JETRO as a nationwide regional
implementation body.

3. Promotion of the wider use of IP systems[Fiscal 2015 budget: ¥80 million]
Information sessions were held for individuals, tailoredaccording to their different levels of knowledge
and expertise on the intellectual property system.
These included sessions outlining the IP system andexplaining basic knowledge for beginners, along with

SME policies implemented in fiscal 2015sector-specific sessions with more specialized content
for people with some experience, looking at topics
such as the examination criteria for patents, designs,
and trademarks, the application of the trial system andprocedures for international applications. Information
sessions on legal reforms were also held, to widely
explain the latest changes to IP-related laws andregulations.
In fiscal 2015, 57 information sessions for beginners
were held in 47 prefectures, and 62 information
sessions for working-level personnel were held inmajor cities throughout Japan, in addition to 33
information sessions on legal reforms.

4. Program supporting measures by SMEs tocounter overseas infringement[Fiscal 2015 budget: ¥120 million]
To promote the timely and appropriate exercise ofindustrial property rights overseas by SMEs, the costs
required for an investigation of imitation products
through to procedures for issuing warning statements
and government seizure against the manufacturer ofimitation products were subsidized through JETRO.
The program supported 23 cases in fiscal 2015,
corresponding to double the number in fiscal 2014.
Additionally, from fiscal 2015, a new measure was
implemented to subsidize the cost of consulting witha lawyer and the cost of a lawsuit in the case where an
SME is sued overseas for infringement of intellectual
property by a local company. This measure wasapplied to 2 cases.

5. Patent strategy portal site

[Fiscal 2015 budget: ¥10 million]
The patent strategy portal site on the Patent Office’s
website provided online access to “data for selfanalysis”, which includes individual data on thenumber of patent applications, the number of
examination requests, and the patent allowance rateover the preceding 10 years, for applicants who haveapplied for a password.
SMEs actively pursuing R&D continued tobe subsidized through the reduction by half of
examination request fees and patent charges (for 10
years from the first year).
Two measures were implemented from 2014 forsmall and medium venture enterprises and microbusinesses. One measure reduces examination request
fees, patent charges (for 10 years from the first year),and administrative charges for overseas patents(administrative charges for investigations, forwarding
and preliminary examinations) by one third, andthe other measure subsidizes amounts equivalent to
two-thirds of the amount paid in international patentadministration fees and handling fees.

In cases where the applicant or appellant is an SME
or micro business, a system was adopted whereby
examinations and appeal examinations could be fast
tracked by filing an “explanation of situation for
accelerated examination” or “explanation of situation
for accelerated appeal examination.” In fiscal 2015,as many as 12,412 businesses applied for accelerated
examination (as of the end of December, 2015).

8. Provision of a one-stop IP service for SMEs
(General IP Help Desks)[Fiscal 2015 budget: ¥2.19 billion; Included in
INPIT subsidy]“General IP Help Desks” have been established ineach prefecture and staffed by support staff in order toprovide a one-stop service for on-the-spot resolutionof IP concerns and problems encountered by SMEs inthe course of business administration. The use of IP by
SMEs was further promoted by such means as using
IP experts to work with SMEs to jointly resolve highly
specialist issues, collaborating with SME support
agencies and similar organizations, and identifying
SMEs and other enterprises that are not making
effective use of IP.
In fiscal 2015, the support framework wasstrengthened, such as by principally doubling thenumber of lawyers assigned to all help desks, andaugmenting specialists who provide support in regard
to employee invention regulations pursuant to thefiscal 2015 amendment to the Patent Act. The help
desks supported approximately 140,000 cases in fiscal
2015 (as of January 2016).

9. Development of a one-stop support framework
for trade secrets (“Trade secret/IP strategy
consultation center—Trade secret hot line—”)[Fiscal 2015 budget: Included in INPIT subsidy]
The “Trade secret/IP strategy consultation center—
Trade secret hot line—” that was newly establishedin the National Center for Industrial Property
Information and Training (INPIT) on February 2,2015 cooperated with the IP comprehensive support
center in responding to consultations mainly from
SMEs through IP experts. The consultations dealt withspecific IP strategies, such as the open/close strategy
that involves the rights of patents and confidentialityof trade secrets, as well as methods of managing
confidential trade secrets and leaks and outflows oftrade secrets. Particularly with respect to cases ofleakage and outflows of trade secrets, information
security measures and cyberattacks, the consultation
center maintained its framework of responding toconsultations in cooperation with the National Police
Agency and Information Technology Promotion
Agency, Japan (IPA), in accordance with the content

Chapter 8

6. Reductions in patent fees for SMEs

7. Accelerated examination and accelerated appeal
examination system509

of the consultation. Seminars on trade secrets andintellectual properties were also organized, andactivities were implemented for dissemination andawareness-raising regarding trade secrets through thedevelopment of e-learning contents.

10. Emerging Country IP Information Databank[Fiscal 2015 budget: ¥30 million; Included in
INPIT subsidy]
This is an informational website aimed at legal andIP managers in Japanese enterprises doing business indeveloping countries and similar regions. Its purpose
is to provide a wide range of IP information forvarious developing countries, including information
on application procedures, examination and litigation
procedures, licensing procedures and statistical andinstitutional trends.
In fiscal 2015, new content was created focusing
primarily on the Middle East and Africa areas (No. ofcontent items as of the end of February 2016: 1,467).

11. Dispatch of Global IP Producers[Fiscal 2015 budget: Included in INPIT subsidy]
The National Center for Industrial Property
Information and Training (INPIT) has dispatchedexperts in IP management (“Global IP Producers”)
to assist SMEs and other enterprises with promisingtechnologies that are likely to drive overseas
expansion. These Global IP Producers support
overseas business expansion by SMEs throughthe use of intellectual property, by assisting in theformulation of IP strategies tailored to the natureof the overseas operations and factors such as thesituations and systems in the target countries.
In fiscal 2015, five Global IP Producers provided
support to 282 businesses (as of the end of February2016).

12. On-site and TV interview examinations[Fiscal 2015 budget: ¥20 million]
To provide support to staff in small and medium
venture enterprises throughout Japan, onsite interview
examinations were held by inspectors sent to interview
venues across Japan, and TV interview examinations
were held via the Internet using the applicants’ own PCs.

13. Program to support the analysis and utilizationof patent information by SMEs

[Fiscal 2015 budget: ¥140 million]
To promote the utilization of intellectual property rights
by SMEs, including their effective R&D and acquisitionof rights, support was provided for the comprehensive
analysis of patent information in response to needs
at the R&D, application and examination request
stages, not only to SMEs, but also to regional publicorganizations, public research organizations, andassociations and chambers of commerce and industry.

510

14. Promotion of intellectual property financing[Fiscal 2015 budget: ¥100 million]
A comprehensive initiative was implemented to“visualize” the value and assessment of businesses
that utilize SME intellectual property and promote
financing by financial institutions. For example,
by creating IP business assessment documents thatprovide information on the value and assessment ofsuch businesses visualized by a research company
and providing the document to financial institutions
that lack personnel who specialize in IP matters,
the initiative aimed to ensure that such businesses
are properly taken into consideration in judgments
regarding financing to SMEs. Support was provided
for the creation of 150 IP business assessment
documents.
Measures were also implemented for disseminating
and supporting IP management.

15. Program for promotion of businesses that utilize
Japanese intellectual properties[Fiscal 2015 budget: ¥560 million]
The following initiatives were implemented via
JETRO, to support the promotion of overseas businessexpansion through the use of intellectual properties of
medium enterprises and SMEs.
(1) Support was provided for the creation of businessmodels that lead to license businesses overseas, andevent and business opportunities were provided via
seminars and training programs in Japan held byspecialists and multiple occasions for individualinterviews overseas.
(2) Support was provided, such as by arranging
opportunities for business meetings with business
partner candidates, through participation in trade fairs
and business meetings in overseas.
(3) Advice was provided through intellectual property
specialists, with a view to preventing the outflow oftechnologies.
(4) The attractiveness of Japanese medium enterprises
and SMEs having prospective intellectual properties
was widely communicated overseas in multiple
languages, with careful consideration to prevent theoutflow of technologies.

16. Program for strengthening capacities to support
the intellectual properties of regional SMEs

[Fiscal 2015 budget: ¥150 million]
To promote the protection and utilization of theintellectual properties of SMEs through detailed
support in consideration of the various issues andregional characteristics of SMEs, pioneering andadvanced initiatives for supporting intellectual
properties were sought by Bureaus of Economy,
Trade and Industry, and support was provided to 15
initiatives that emphasize the establishment of widearea pioneering schemes.

SME policies implemented in fiscal 201517. Provision of patent information

In response to advanced and diversified user needs
for patent information, the Industrial Property Digital
Library (IPDL) was revamped, and a new service forpatent information provision called Japan Platform
for Patent Information (J-PlatPat) was launchedin March 2015. Through a user-friendly interface,
J-PlatPat allows searches through official bulletins forpatents in Japan, utility model patents, designs, andtrademarks, and inquiries regarding the progress ofpatent applications.
Furthermore, to enable foreign patent documents
and particularly the increasing numbers of Chineseand South Korean patent documents to be searched
in Japanese, the Chinese and Korean Document
Translation and Search System was launched in
January 2015, and the Foreign Patent Information
Service (FOPISER) was launched in August 2015
for referencing patent information in the ASEAN andforeign countries that are prominent destinations ofoverseas expansion by Japanese enterprises.

Section 4 Promotion of standardization
1. Promotion of the strategic utilization ofstandardization by medium enterprises and
SMEs

Section 5 Promotion of surveys andpublic information activities
1. Publicizing of policy

To publicize SME policy, pamphlets and leafletssummarizing the main points were produced anddistributed to local governments, SME support
agencies and financial institutions, etc. Further
publicity was generated by issuing information via
Mirasapo (portal site for SME support) and organizing“One-day SME Agency” events.
(1) Publication of booklets
Guidebooks for utilizing SME policies have been

Chapter 8Under the Standardization System for New Market
Creation that is based on the 2015 revision of theJapan Revitalization Strategy and IP Promotion Plan
2015, the Japan Industrial Standards Committee(JISC) approved the standardization of nine proposals
made by medium enterprises and SMEs, May andDecember 2015 and January 2016.
Furthermore, local government bodies, industrial
promotion organizations, regional finance institutions,and university and public research institutions (partner
institutions) cooperated with the Japanese Standards
Association (JSA) in creating and launching theStandardization Support Partnership in November
2015 to provide information and advice concerning
the strategic utilization of standardization in eachregion.

produced, including the “Guide to the Use of SME
Policy,” which contains an introduction of more than
200 policies, and pamphlets on specific policies. These
have been distributed to a wide range of interested
parties, including SMEs, local government bodies,
SME support agencies (commerce and industry
associations, chambers of commerce and industry,etc.), financial institutions, and certified public tax
accountants, lawyers, certified public accountants,
and SME management consultants who provide
support to SMEs.
(2) Organization of “One-day SME Agency” events
Co-hosted by the SME Agency and host prefectures,
these events were held both to explain the latest
measures to local SMEs and deepen their understandingof the measures. The events also provided a forum forexchanges of ideas and interaction, which contributed
to future revisions and improvements in SME policy.
These events have been held every year since 1964
and were held in Okinawa prefecture and Fukushima
prefecture in fiscal 2015.
(3) Publicity using the Internet
1) Website based publicity
The SME Agency website hosted up-to-date
information on SME measures, information on
public offerings, and publicity materials such as
flyers and booklets. In fiscal 2015, the website
received around 35 million page views for theyear.
2) E-mail newsletters
The e-mail newsletter was produced in association
with SME support agencies and sent out to
subscribers every Wednesday. It showcased
dynamic SMEs and contained policy information,
local updates and information on topics suchas surveys and research reports. The e-mailnewsletter has roughly 89,000 registered readers(as of the end of December 2015).
(4) “Mirasapo” (portal website for supporting the futureof SMEs and micro-businesses)
Through the Mirasapo site, the latest support
information, information on how to apply for
subsidies, case examples of the utilization of support
schemes, etc. were delivered to nationwide SMEs in atimely and easy-to-understand manner. (Membership:
93,000 enterprises; Mirasapo e-mail newsletter
subscribers: 59,000 enterprises; as of January 2016).

2. Production of the White Paper on Small andMedium Enterprises in Japan and the White
Paper on Small Enterprises

In order to ascertain the current situation of SMEs
and the challenges that they face, an annual report(2015 White Paper on Small and Medium Enterprises
in Japan) was produced in accordance with theprovisions of Article 11 of the Small and Mediumsized Enterprise Basic Act. Also to ascertain the current

511

situation of small enterprises and the challenges they
face, an annual report (2015 White Paper on SmallEnterprises) was produced in accordance with theprovisions of Article 12 of the Small Enterprises
Promotion Act.

3. Basic Survey of Small and Medium Enterprises

The Basic Survey of Small and Medium Enterprises
was conducted in accordance with the provisions ofArticle 10 of the Small and Medium-sized Enterprise
Basic Act, and provided statistics concerning
management and financial information such as SME
sales figures and numbers of workers employed by
SMEs.

4. Publication of the Survey on SME BusinessConditions

The Survey on SME Business Conditions is publishedquarterly by the SMRJ to ascertain business trends
among SMEs.

512

SME policies planned
for fiscal 2016

Contents
SME policies planned for fiscal 2016
Chapter 1 Detailed support for SMEs in disaster-affected regions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 516
Section 1 Cash-flow assistance .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 516
Section 2 Countermeasures for the overlapping debt problem .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 516
Section 3 Support for the restoration of plants, etc. . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 517
Section 4 Other measures. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 517

Chapter 2 Support for productivity improvement among SMEs. . . . . . . . . . . . . . . . . . . . . 519
Section 1 Enhancement of technological capacity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 519
Section 2 Improvement of transaction conditions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 520

Chapter 3 Support for overseas expansion by SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 522
Section 1 Development of an information provision and consultation framework .  .  .  .  .  . 522
Section 2 Support for the development of new products and services .  .  .  .  .  .  .  .  .  .  .  .  .  . 522
Section 3 Other support policies for overseas expansion .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 522

Chapter 4 Support for sustainable development of micro businesses .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 525
Section 1 Strengthening the framework of accompanying-style management support.  .  .  . 525
Section 2 Development of the business environment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 525

Chapter 5 Promotion of regional economic revitalization and regeneration .  .  .  .  .  .  .  .  .  .  .  . 526
Section 1 Strengthening management support frameworks .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 526
Section 2 Utilization of local resources .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 526
Section 3 Revitalization of shopping districts and city centers. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 527
Section 4 Support for market and demand cultivation .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 528
Section 5 Human resource and employment measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 529
Section 6 Support for new and secondary business startups .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 531
Section 7 Support for business succession .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 533
Section 8 Other regional revitalization measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 534

Chapter 6 Development of the business environment .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 536
Section 1 Cash-flow assistance and business generation support .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 536
Section 2 Enhancing financial capacity. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 538
Section 3 Measures for pass-throughs of consumption tax.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 539
Section 4 Measures for reduced consumption tax rate system .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 539
Section 5 Measures for business stabilization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 539
Section 6 Measures concerning public demand. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 540
Section 7 Promotion of human rights awareness .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 540

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SME policies planned for fiscal 2016

Chapter 7 Initiatives by industries and area .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 541
Section 1 Measures for SMEs in agriculture, forestry and fisheries .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 541
Section 2 Measures for SMEs in the transport industry .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 543
Section 3 Measures for small and medium building contractors and realtors .  .  .  .  .  .  .  .  . 543
Section 4 Measures for the environmental sanitation business .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 544

Chapter 8 Other SME policies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 546
Section 1 Environmental and energy measures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 546
Section 2 Promotion of IT .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 547
Section 3 Measures on intellectual property.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 547
Section 4 Promotion of standardization .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 550
Section 5 Promotion of surveys and public information activities .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 550

515

Chapter 1 Detailed support for SMEs in disaster-affected regions
Section 1 Cash-flow assistance
1. Great East Japan Earthquake Recovery Special
Loan[Fiscal 2016 budget: Included in ¥15.7 billion]
Since May 2011, there has been ongoing provisionof the Great East Japan Earthquake Recovery Special
Loan program, which is provided by the Japan FinanceCorporation (JFC) (SME Unit and Micro Business andIndividual Unit) and the Shoko Chukin Bank to assist
SMEs and micro-businesses affected by the Great East
Japan Earthquake with their cash-flow issues. Those
measures that were created in fiscal 2011 (measures asof 22 August 2011) for implementation by prefecturallevel foundations and similar institutions toeffectively eliminate the burden of interest payments
on loans received by SMEs and micro-businesses withbusiness establishments located in restricted areas orsimilar zones when they were imposed following thenuclear accident in Fukushima, and for SMEs andmicro-businesses with business establishments andother assets that were completely destroyed or swept
away by the earthquake or tsunami, will be continued
in fiscal 2016. (Ongoing)

2. Loan ceilings and lowering of interest rates
on Managerial Improvement Loans (Marukei
loans) and Managerial Improvement Loans forEnvironmental Health Business Loans (Eikei
loans)[Fiscal investment and loan program]
The loan ceilings for unsecured, unguaranteed andlow-interest Marukei and Eikei loans provided by
the JFC to micro businesses affected directly or
indirectly by the Great East Japan Earthquake will
be raised continually (by ¥10 million separately fromordinary loans) and interest rates will be lowered (byan additional 0.9% from the normal interest rate foreach ¥10 million loaned separately, limited to 3 years
from when the loan is taken out). (Ongoing)

3. Great East Japan Earthquake
Emergency Guarantee

RecoveryTo assist SMEs and other businesses affected by theGreat East Japan Earthquake, a new guarantee system
was established in fiscal 2011 as a separate frameworkfrom existing ordinary guarantees, disaster-related
guarantees and safety net guarantees. The system
will continue to be implemented in fiscal 2016 inspecific disaster affected areas (100% guaranteed
for up to ¥80 million for unsecured loans, and up to¥280 million for other loans). (Ongoing)516

4. “Special Finance for Small and Medium
Enterprises in the Specified Area” affected by
the nuclear disasterIn order to assist SMEs and other businesses that haveoffices in regions affected by the nuclear power plant
accident, long-term, interest-free, unsecured loans
will be offered to provide business funds (working
capital and capital expenditure) required to continue orresume business in Fukushima prefecture. (Ongoing)

Section 2 Countermeasures for theoverlapping debt problem
1. Business revival assistance from Industrial
Recovery Consultation Centers and Industry
Reconstruction Corporations[Fiscal 2016 budget: ¥2.56 billion]
Support will continue to be provided for the revival of
SMEs damaged by the Great East Japan Earthquake
via Industrial Recovery Consultation Centers in theaffected prefectures, which were established in fiscal
2011 by strengthening the framework of the SME
Revitalization Support Councils in each disasteraffected prefecture, and Industry Reconstruction
Corporations, which engages in accounts receivablefinancing. (Ongoing)

2. Business revival assistance from the Incorporated
Organization for Supporting the Turnaround of
Businesses Damaged by the Great East Japan
Earthquake

To cope with the overlapping debt problems ofearthquake-affected businesses, the Incorporated
Organization for Supporting the Turnaround of
Businesses Damaged by the Great East Japan Earthquake
will provide assistance such as helping to relieve therepayment burdens for existing debts. (Ongoing)

3. Reduction of interest burden during assessmentof the potential for business regeneration

This program supports the early business revivalof SMEs and micro-businesses that have suffereddamage in the Great East Japan Earthquake or the
nuclear power plant accident in Fukushima, byreducing the interest burden of those who workwith an Industrial Recovery Consultation Center torebuild their business. More specifically, with respect
to businesses that have received assistance from an
Industrial Recovery Consultation Center to formulatea regeneration plan, the program defrays the cost ofinterest they incur during the reconstruction process.
The program was established in fiscal 2011 and willcontinue to be implemented in fiscal 2016. (Ongoing)SME policies planned for fiscal 2016

In order to reduce the burden of overlapping debt
borne by disaster-affected SMEs, SMEs burdenedwith lease obligations due to leased equipment thatwas lost during the Great East Japan Earthquake will
be provided with subsidies equivalent to 10% of thecost of the new leases to re-install the equipment.
(Ongoing)

Section 3 Support for the restoration ofplants, etc.
1. Post-disaster recovery project on joint facilities
of small and medium business associations, etc.

[Fiscal 2016 budget: ¥29.0 billion]
In order to promote the restoration and reconstructionof areas affected by the Great East Japan Earthquake,
support will be provided through the following
subsidies:(1) Subsidization by the national government (one half)and prefectural governments (one quarter) of thecost of restoration work on facilities and equipment
required for implementation of restoration work
planned by groups of SMEs and approved by theprefecture as making an important contribution to theregional economy and maintaining employment; and(2) Subsidization by the national government of (onehalf) the cost of disaster recovery projects such as
for Societies of Commerce and Industry and othersuch instruction and consultation facilities for SMEs,
and support recovery of facilities held by groups ofdisaster-affected SMEs and others.
Support will also be provided for the implementationof new initiatives that aim to cultivate demand in
new fields in cases where business resumption orcontinuation or recovery of sales was deemed to bedifficult simply by restoring the abovementioned
facilities. (Ongoing)

2. Loans for restoration and development offacilities and equipment

Loans will be provided by the Organization for Small& Medium Enterprises and Regional Innovation,
Japan (SMRJ) in cooperation with the prefectures toprovide funds needed for the repair and developmentof the facilities and equipment required for the
implementation of prefecture approved restorationplans by SMEs that suffered damage caused by theGreat East Japan Earthquake. (Ongoing)

3. Projects for maintenance of temporary plants
and stores[Fiscal 2016 budget: Included in ¥830 million]
Maintenance support will continue to be provided
to SMEs that must depend on temporary facilities
to resume business in regions where full-scalereconstruction has yet to commence. Additionally,
toward effective utilization of such temporary
facilities, subsidies will continue to be provided todisaster-affected municipalities for costs required
for the construction, relocation, dismantlement andremoval of temporary facilities. (Ongoing)

Chapter 1

4. Lease subsidy program to support SMEs in
disaster-affected areas

4. Program to create employment that promotes
business recovery[Fiscal 2016 budget: ¥4.06 billion]
In order to create stable employment in disaster
affected areas, support will be provided in the areaof employment in accord with industrial policies.
(Ongoing)

Section 4 Other measures
1. Establishment of special help desks

Special help desks that are set up at offices of the JFC,
the Shoko Chukin Bank, credit guarantee corporations,chambers of commerce and industry, federations ofsocieties of commerce and industry, federations ofsmall business associations, regional head offices of
the SMRJ, and bureaus of economy, trade and industry
nationwide will provide business and financial advice
to SMEs and other enterprises affected by the Great
East Japan Earthquake. (Ongoing)

2. Navigation dial for SME phone consultations

To help SMEs that do not know where to go foradvice, a “Navi Dial for SME phone consultations”
help line with a single number will be provided thatconnects callers to their nearest Bureau of Economy,
Trade, and Industry. (Ongoing)

3. Consideration for SMEs in disaster-affected
regions by the government and other publicagencies[Fiscal 2016 budget: ¥990 million]
Under the “Basic Policy on State Contracts with
Small and Medium Enterprises”, which is formulated
each fiscal year, consideration will again be given to
SMEs and micro-businesses in areas affected by theGreat East Japan Earthquake, and will be publicized
as follows. (Ongoing)(1) The Minister for Economy, Trade and Industry will
issue a request regarding the Cabinet approval of
the Basic Policy on State Contracts with Small andMedium Enterprises to the heads of each agency andministry, prefectural governors, all municipal mayors,and mayors of the Tokyo special wards, and will also
request that they make efforts to increase opportunities
for SMEs and micro-businesses to receive orders.
(2) Information sessions (Councils to Promote Local
Access to Public Sector Demand) will be held
throughout Japan to actively raise awareness of the
Basic Policy in regional areas.

517

(3) A “Guide to Contracts in the Public Sector” will
be produced and distributed to central and local
government agencies and other commerce andindustry-related organizations.

4. Support provided by NEXIIn April 2011, Nippon Export and Investment
Insurance (NEXI) introduced the following measures
to assist SMEs affected by the earthquake: (1)postponement of insurance policy procedures, (2)deferment, reduction or waiver of insured parties’
obligations, and (3) reduction or elimination of thefinancial burden on insured parties. Additionally, todeal with the damage caused by harmful rumors, NEXI
will publish specific examples of losses arising fromthe restriction or prohibition of import of goods on the
grounds of radioactive contamination, which would becovered by trade insurance. These examples include
cases of importation being limited or prohibited by the
introduction of new regulations and cases of illegal
or discriminatory treatment by the government ofdestination country. Furthermore, a help desk will be
set up within NEXI to provide consultation regarding
damage caused by harmful rumors to insured anduninsured businesses alike. (Ongoing)

5. Victims’ Employment Development Subsidy
Program[Fiscal 2016 budget: ¥220 million]
Subsidies will be provided to employers who hire
workers who lost their jobs due to the Great East Japan
Earthquake and job seekers living in affected areas asa result of referrals from “Hello Work” employment
offices and similar agencies, provided that such
workers are expected to be employed continuously
for a period of at least one year. Additional bonus
subsidies will also be provided to employers hiring 10
or more such workers. (Ongoing)

6. Guidance and advice on measuring radiationlevels[Fiscal 2016 budget: ¥30 million]
As a countermeasure against harmful rumors regarding
industrial and other products stemming from theGreat East Japan Earthquake and nuclear disaster, aproject will be implemented for dispatching specialist
teams that provide guidance and advice on measuring
radiation levels. (The guidance and advice will consistof measuring surface contamination and radioactive
nuclides on items such as industrial products, andproviding information on those measurements
together with guidance and advice.) (Ongoing)518

7. Industry-academia-government collaboration
support project for Fukushima Prefecture, etc.

[Fiscal 2016 budget: ¥100 million]
In Fukushima and Miyagi Prefectures, where
harmful rumors stemming from the Great East Japan
Earthquake and nuclear disaster are still in effect,
product development and market cultivation efforts
will be promoted by providing opportunities forcollaboration between disaster-affected enterprises
and universities, public research institutions or major
companies, and assisting in the development of trial
products. (New)

8. Program for employment support in response to
the nuclear disaster[Fiscal 2016 budget: ¥4.24 billion]
A program will be implemented to provide temporary
places of employment to people in Fukushima
Prefecture who have been affected by the nuclear
disaster, to help them stabilize their living situation.
(New)

9. Support for employment
earthquake disasters, etc.

in

responseto

A program will be implemented to provide temporary
places of employment to people in earthquake-struck
regions to help them stabilize their living situation.
(Ongoing)

SME policies planned for fiscal 2016

Chapter 2 Support for productivity improvement among SMEs
innovative technology seeds of regional enterprises
with commercialization initiatives. (Ongoing)

1. Strategic Core Technology Advancement andCollaboration Program

4. Comprehensive support for enhancement ofcore manufacturing technologies among SMEs

[Fiscal 2016 budget: ¥13.97 billion]
Support will be provided for R&D initiatives that
SMEs and micro-businesses having an approved R&D
plan under the SME Technological Advancement
Act implement in cooperation with universities,
public research organizations, and other such R&D
institutions.
Support was provided for the development of newservice models by SMEs and micro-businesses throughindustry-academic-government collaboration, in
accordance with a “plan for cross-field collaboration
for new business development” approved under the
Law Concerning Measures for the Promotion ofCreative Business Activities by Small and Medium
Enterprises. (Ongoing)

2. Promotion of R&D initiatives that build bridges
with medium enterprises and SMEs

[Fiscal 2015 supplementary budget: ¥1.1 billion]
Having specific outstanding technologies issometimes not enough for medium enterprises and
SMEs to achieve commercialization. It is therefore
important to have institutions possessing outstanding
basic technologies pass on their technologies to suchenterprises and promote practical applications.
The New Energy and Industrial Technology
Development Organization (NEDO) will thus
conduct a review of 144 public research organizations
and other such R&D institutions nationwide as“bridge building R&D institutions” that can link
innovative technology seeds with commercialization
initiatives, and will provide subsidies to medium
enterprises and SMEs that engage in joint researchby utilizing the capabilities of “bridge-building R&D
institutions” (subsidy rate within 2/3, up to a ceiling of¥100 million). (Ongoing)

3. The National Institute of Advanced Industrial
Science and Technology (AIST)’s bridgebuilding initiatives for SMEs

[Included in the grant for AIST operating costs]
AIST will support the R&D initiatives of medium
enterprises and SMEs by establishing a nationwide
framework of cooperation such as through theappointment of an AIST innovation coordinator in
public research organizations that possess knowledgeof the needs of regional medium enterprises andSMEs, and by strengthening capacities to “bridge”

Comprehensive support will be provided through theStrategic Core Technology Advancement Programand special loans and guarantees to SMEs and microbusinesses with approved specific R&D plans that had
been formulated in accordance with the advancement
guidelines under the SME Technological Advancement
Law. (Ongoing)

Chapter 2

Section 1 Enhancement of technologicalcapacity

5. R&D promotion tax system (for strengthening
the technological bases of SMEs)[Taxation scheme]
A tax credit equal to 12% of the total cost of testing
and research expenses (not exceeding 25% of the total
amount of corporation tax in the period concerned)
will be made available for R&D initiatives undertaken
by SMEs and micro-businesses. A tax credit equal to
20% or 30% of the total cost of special testing andresearch expenses (testing and research performed
jointly or entrusted to a university or such institution,or that are performed by receiving from an SME theright or approval to use its intellectual property) will
also be made available (not exceeding 5% of the total
amount of corporation tax in the period concerned).
In addition to the above, a measure will be taken
whereby enterprises can choose either (1) a tax schemethat deducts an amount calculated by multiplying therate of increase in testing and research expenses tothe amount of increase (not exceeding 30%) in cases
where the additional amount of testing and researchexpenses exceeds 5% of the average of the past three
years, or (2) a tax scheme that deducts an amountcalculated by multiplying a fixed rate to the excess
amount in cases where the amount of testing andresearch expenditure exceeds 10% of average sales(not exceeding 10% of the total amount of corporation
tax in the period concerned (until the end of fiscal
2016)). (Ongoing)

6. Support under the Small Business Innovation
Research (SBIR) Program

The provision of central government-allocated R&D
spending for SMEs and micro-businesses will be
expanded and the commercialization of the resultsof technological development activities will bepromoted, such as by designating specific subsidies
for the development of new technologies leading
to the creation of new industries, setting targets for
expenditures, and formulating policies for measures to519

support the commercialization of development results
achieved using specified subsidies. Additionally,
to promote the commercialization of technology
development outcomes, SMEs and micro-businesses
will be informed and encouraged to take advantageof the available commercialization support, suchas the database of the technological capabilities ofenterprises granted specific subsidies, and the lowinterest loans offered by the JFC. At the same time,the multistage selection process for the allocation of
special subsidies will be expanded. (Ongoing)

7. Cross-field collaboration for new businessdevelopment[Fiscal investment and loan program]Pursuant to the Law Concerning Measures for the
Promotion of Creative Business Activities by Small andMedium Enterprises, authorization will be provided
for business plans that aim to develop and market new
products and services by effectively combining themanagement resources (technology, markets, etc.) of
SMEs in different sectors. Wide-ranging support will
be provided to such SMEs through subsidies, as well
as special loans and guarantees. (Ongoing)

8. Program to promote business creation throughmedical-engineering collaborations[Fiscal 2016 budget: ¥3.5 billion]
Accompanying-style consultation will be provided topromote the network for supporting the developmentof medical equipment and to provide seamlesssupport from the initial stages of development tocommercialization. In fiscal 2016, support will also
be provided for the commercialization of 50 items of
medical equipment through a demonstration program,to promote the development of medical equipment
through collaborations between manufacturing SMEs
and medical institutions. (Ongoing)

9. Enterprise vitality enhancement funding (formanufacturing enterprises)[Fiscal investment and loan program]
Japan Finance Corporation (JFC) will provide loans
for funds needed to modernize management andrationalize the distribution systems of SME commercial
businesses and service businesses, promote theadvancement of basic manufacturing technologies ofSMEs, and develop SME subcontractors. (Ongoing)

Section 2 Improvement of transaction
conditions
1. Improvement of the transaction conditions of
SME subcontractors
To widely improve the transaction conditions of
SME subcontractors, a large-scale survey is being
conducted on large enterprises and SMEs under520

the Liaison Council of Ministries and Agencies
Concerned with the Improvement of the Transaction
Conditions of SME Subcontractors. Based on the
results of the survey, the necessary measures will betaken hereafter. (New)

2. Stricter enforcement of the Subcontractor
Payment Act[Fiscal 2016 budget: Included in ¥990 million]
To ensure fair treatment of subcontractors and protect
their incomes, the Fair Trade Commission (FTC) andSME Agency will collaborate closely in enforcing
the Subcontractor Payment Act. In fiscal 2016, thetwo institutions will carry out a document-based
audit of principal contractors, and promote rigorouscompliance with the Act by collecting information
through a Declaration and Information Desk thatreceives information and reports concerning breachesof the Subcontractor Payment Act. Additionally, inthe “Subcontractor Fair Treatment Promotion Month”
to be held in November, rigorous compliance with
the Act will be encouraged by conducting special
questioning. With the aim of securing the cash-flows
of subcontractors as they move into the financiallybusy period at the end of the year, active measures will
be taken to raise awareness of the Act by having the
Minister of Economy, Trade and Industry and the FTC
Commissioner jointly issue a statement calling for thefair treatment of subcontractors, with the statement
being sent to the CEOs of principal contractors(around 200,000 companies) and the representativesof relevant business organizations (approx. 600
bodies). (Ongoing)

3. Strengthening consultation systems andpromoting fair subcontracting transactions[Fiscal 2016 budget: Included in ¥990 million]
Consultation services concerning SME transactions
will be provided by the 48 Subcontracting Help
Centers that will be set up throughout Japan (5,473
consultations and 681 free consultations by lawyers
in fiscal 2014). Additionally, under the fiscal 2015
supplementary budget, individual guidance sessions
and seminars will be held to provide managers
and sales representatives of SME subcontractors
the knowhow of cost negotiation that they need tonegotiate costs with the procurement department ofprincipal contractors. To prevent the occurrence of
violations of the Subcontractor Payment Act, seminars
will also be held targeting the procurement managers
at principal contractors to further raise awareness of
the Subcontractor Payment Act etc., while examples
of initiatives by principal contractors will be presented
around the country and symposiums and other events
will be held to promote broader adherence to the
Subcontractor Payment Act. Furthermore, nationwide
information sessions will be held on the guidelines

SME policies planned for fiscal 2016

4. Self-reliance support for SME and micro
subcontractors[Fiscal 2016 budget: Included in ¥990 million]
Under the Act on the Promotion of Subcontracting
Small and Medium-sized Enterprises, businessplans designed to solve issues in collaborations
between subcontracting SMEs and micro-businesses
that are highly transaction-dependent on principal
contractors will be certified and supported in theform of subsidies, loans and special exemptions forguarantees. In regions where production centers ofprincipal contractors have closed or downsized (orare slated to close), support in the form of subsidies
will be provided to subcontracting SMEs seeking toadvance into new fields. (Ongoing)

Chapter 2

for building better business relationships between
principal contractors and subcontractors (Guidelines
for the Promotion of Fair Subcontracting Practices;
16 industries under the Ministry of Economy, Tradeand Industry, the Ministry of Land, Infrastructure,
Transport and Tourism, and the Ministry of Internal
Affairs and Communications). (Ongoing)

5. Support for market expansion throughsubcontracting business mediation and business
fairs[Fiscal 2016 budget: Included in ¥990 million]
Using Business Matching Stations (BMS), SMEs
looking to solicit new clients will be provided withinformation on orders for contract manufacturingissued and received between enterprises for businesssuch as outsourced manufacturing in the SME’s
preferred industry and where the SME can provide
the required equipment or technology. Broad-area
information sessions will also be held to support newmarket development. (Ongoing)

6. Request for consideration toward small andmedium subcontractors[Fiscal 2016 budget: Included in ¥990 million]
Courses and other events will be held to promote
greater awareness of the general standards(development standards) that subcontractors andprincipal contractors are expected to observe under
the Subcontracting Promotion Act. Additionally,a statement calling for consideration towardsubcontractors will be sent to the representatives of
relevant business organizations. (Ongoing)

521

Chapter 3 Support for overseas expansion by SMEs
Section 1 Development of an information
provision and consultation
framework
1. Program for supporting overseas expansion by
SMEs and micro-businesses[Fiscal 2016 budget: ¥1.43 billion]
To support overseas expansion by SMEs and microbusinesses, the SMRJ and JETRO will collaborate
in providing strategic support through measures that
respond to their needs at various stages of overseas
expansion. They include support for the cultivationof overseas companies through the provisionof information on overseas market trends andregulations, implementation of feasibility studies,and establishment of an export framework, as wellas support for participation in trade fairs in Japanand overseas, support for the cultivation of overseas
markets by inviting overseas buyers to Japan, support
for the organization of seminars on the certificate oforigin system and establishment of consultation desks,
and local support once companies advanced overseas.
Support will also be provided for the formulation ofbusiness restructuring plans by companies facing
an issue regarding the management of overseas
subsidiaries. (Ongoing)

Section 2 Support for the developmentof new products and services
1. JAPAN Brand Development Assistance Program[Fiscal 2016 budget: Included in ¥1 billion]
To facilitate overseas expansion by SMEs, support
will be provided under this program such as for theformulation of strategies built on collaboration among
multiple SMEs and the strengths of those SMEs (rawmaterials, technologies, etc.), product development
based on those strategies and participation in overseas
trade fairs. (Ongoing)

2. Program for the creation of a global value
chain through agriculture-commerce-industry
collaboration[Fiscal 2015 supplementary budget: ¥1 billion]
Support will be provided to projects that are
implemented by joint businesses composed ofprivate businesses, such as trade firms, and research
institutions to resolve issues in the process ofagricultural production, processing, distribution
and overseas sales through the use of the advanced
technologies and knowhow of commerce andindustry, and the results of such projects will be
widely disseminated. (New)522

Section 3 Other support policies foroverseas expansion
1. Global alliance support with medium enterprises
and SMEs in JapanTo support investment tie-ups between medium
enterprises and SMEs in Japan and foreign enterprises,
relevant institutions such as the Japan External Trade
Organization (JETRO), SMRJ, Shoko Chukin Bank,and SBIC will continue to promote matching services
and other such global alliance initiatives. (Ongoing)

2. Funding for overseas expansion and businessrestructuring operations[Fiscal investment and loan program]
Loans will be provided by the JFC (SME Unit andMicro Business and Individual Unit) to assist withthe funding of SMEs that for business reasons needto expand overseas or restructure their overseas
business to adapt to structural economic changes.
(Ongoing)

3. Support for overseas subsidiaries to obtaincapital, etc.

Under the SME Business Capabilities Enhancement
Support Bill, where SMEs have management
innovation plans approved under the New Business
Activity Promotion Act, the JFC will provide loan
guarantees to their overseas subsidiaries for loans
from local financial institutions. (Ongoing)

4. Global Niche Market Top Support Lending
Facility[Fiscal 2016 budget: ¥13 billion from the fiscal
investment and loan program]To support strategic overseas expansion by medium
enterprises and SMEs who are aiming to make a global
impact by excelling in a specific field (global niche
leader enterprises) and such candidate companies andSMEs, the Shoko Chukin Bank will provide longterm, lump-sum repayment and successful interest
payment-type loans under the Global Niche Market
Top Support Lending Facility. (Ongoing)

5. Program for cultivation of emerging markets
based on technical cooperation[Fiscal 2016 budget: Included in ¥2.4 billion]
The following three initiatives were implemented
to support Japanese companies acquire emerging
markets(1) Support will be provided to managers and engineers
in developing countries who engage in management,
manufacturing, operations, etc., by offering training

SME policies planned for fiscal 2016

6. Support for human resource development
toward promoting the export of low-carbon
technologies[Fiscal 2016 budget: Included in ¥900 million]
To contribute to the reduction of greenhousegases, support will be provided for human resource
development overseas toward promoting (1) the
operations and maintenance management of energy
infrastructure and (2) the energy conservation of
production processes in the plants of local Japanesecompanies overseas, with the ultimate aim ofpromoting the global expansion of the advanced
low-carbon technologies of Japanese companies.
(Ongoing)

7. Utilization of Japan Overseas Cooperation
Volunteers and the private-sector collaborative
volunteer program[Fiscal 2016 budget: ¥160 million]
The Japan International Cooperation Agency (JICA)
will work toward developing personnel capableof active involvement in the global community by
utilizing the private-sector collaborative volunteer
program to dispatch employees of private-sector
enterprises to developing countries as Japan Overseas
Cooperation Volunteers (JOCV) and JOCV Senior
Overseas Volunteers in response to the needs of eachenterprise. Additionally, to support the employment ofreturned JICA volunteers, match-ups will be promoted
between personnel with expert knowledge of a certain
developing country and enterprises seeking such
personnel. (Ongoing)

8. Reduction and waiver of fees for credit checks
on SMEs using trade insurance

To support the use of trade insurance by exporting
SMEs, Nippon Export and Investment Insurance(NEXI) will continue its arrangements to bear the costof providing credit information on business partners
required when using trade insurance. (Ongoing)

9. Activities to expand and publicize use of tradeinsurance by SMEs (seminars, consultation
events, etc.)

To promote the use of trade insurance by SMEs,
seminars and face-to-face consultation events will beheld continuously under the sponsorship of NEXI,
and instructors from NEXI will be sent to lecture inseminars hosted by SME-related organizations andstudy meetings of affiliated regional banks in order
to raise awareness and encourage wider use of tradeinsurance. (Ongoing)

10. Improvement of access to trade insurance

In December 2011, NEXI launched the “SMEOverseas Business Support Network” in collaboration
with 11 regional banks to provide support for overseas
business expansion by SMEs.
Furthermore, the Trade Insurance and Investment Act
was revised in 2014, and allowed NEXI to receive
reinsurance from non-life insurance companies inJapan possessing a broad nationwide network.
By creating a network with financial institutions
and non-life insurance companies, NEXI will aim to
improve access to trade insurance by regional SMEs
and otherwise enhance its convenience. (Ongoing)

Chapter 3

programs in Japan and guidance by dispatchedexperts.
(2) To resolve the lack of “global human resources”
who will play central roles in overseas expansion
initiatives, which is an issue among medium
enterprises and SMEs, young Japanese workers
will be given opportunities for overseas internships,
and foreign workers will be given opportunities forinternships in Japanese companies.
(3) Subsidies will be provided to Japanese companies
engaging in the development of products and services
that resolve social issues in developing countries incollaboration with universities, research institutes,
NGOs or other companies in developing countries.
(New)

11. Support for security export control

Support will be provided for the development ofvoluntary administration structures for security
trade control at SMEs that engage in export and theprovision of technology, by holding information
sessions on effective security trade control based on
the Foreign Exchange and Foreign Trade Act anddispatching specialists through schemes such as theone-stop general support program for SMEs andmicro-businesses. (Ongoing)

12. Promotion of BOP business[Included in the JETRO grant]
To promote “base of the pyramid” (BOP) business andvolume zone business, JETRO will provide individual
support to enterprises by utilizing local coordinators
to ensure consistent support appropriate to theirbusiness phase. Additionally, consultations will beoffered to Japanese enterprises that are considering
BOP business, marketing support will be provided
through the implementation of acceptability surveys,
and market development support will be provided
through test marketing initiatives, to promote active
participation in BOP and volume zone businesses.
Furthermore, demonstration projects will continue tobe implemented in support of enterprises that aim toestablish a business base in Africa. (Ongoing)523

13. ODA match-up program for SME products andtechnologies[Fiscal 2016 budget: Included in ¥149.05 billion]
This program aims to apply the outstanding products
and technologies of Japanese SMEs to the growth ofdeveloping countries via ODA, and thereby achieve abalance between the growth of developing countries
and economic revitalization in Japan. (Ongoing)

14. Support for overseas expansion by SMEs
(provision of equipment that use SME products)[Fiscal 2016 budget: Included in ¥162.9 billion]
Products from Japanese SMEs are donated todeveloping countries based on request from theirgovernments and development needs, not only tosupport the development of developing countries,
but also to increase recognition of such products.
Specifically, lists of products from SMEs (not lists ofindividual brand names) are drawn up based on thedevelopment needs of the developing countries andshown to those countries in the form of packages foreach of the various sectors, such as medical services,
agriculture, and job training, and products are donatedin accordance with the requests from the developing
countries. (Ongoing)

15. New Export Nation Consortium[Fiscal 2015 supplement budget: ¥5.99 billion]
To support the overseas expansion of medium
enterprises and SMEs, a consortium has been
established,widelycomposedof
supportorganizations such as JETRO, SMRJ, NEDO, andfinancial institutions. It provides comprehensive
support, from the development of technologies tomarket cultivation, through experts who offer close
assistance to enterprises and the utilization of various
support schemes. (New)

16. Dissemination and awareness-raising of the TPP
certificate of origin system[Fiscal 2015 supplement budget: ¥480 million]
To take the opportunity of the TPP to expand exports,
it was deemed necessary to increase the understandingof the rules of origin among SMEs that seek to expand
their markets overseas. Thus, guidelines will be
published, seminars will be held, and consultation
desks will be established with the objective ofdisseminating and increasing awareness of the selfcertification system of the certificate of origin among
businesses. (New)524

SME policies planned for fiscal 2016

Chapter 4 Support for sustainable development of micro businesses
Section 1 Strengthening the frameworkof accompanying-style
management support
1. Micro business promotion program

3. Program for developing an integrated databaseof micro businesses[Fiscal 2016 budget: ¥200 million]
Information that support organizations have collected
will be integrated into an integrated database operated
by SMRJ and analyzed, and a framework will beestablished for the examination of support policies andprovision of support information in response to the
management issues of micro businesses. (Ongoing)

Chapter 4[Fiscal 2016 budget: ¥5.15 billion]
Support for micro businesses will be promoted
through the “accompaniment” style of support
provided by societies and chambers of commerce
and industry in line with management development
support plans that are certified based on the Small
Business Support Act, and support will be provided
for the formulation of business plans and market
development in consideration of demand by microbusinesses. Support will also be provided for regional
initiatives that aim to develop specialty products andmarkets.
To encourage business expansion by regional microbusinesses aiming to target nationwide markets,
societies and chamber of commerce and industry will
cooperate with businesses to provide wide-ranging
support for programs that develop special regional
products and tourism and to develop those markets.
(Ongoing)

businesses that receive management guidance fromsocieties and chambers of commerce and industry
certified under a management development support
plan. (Ongoing)

Section 2 Development of the businessenvironment
1. Managerial Improvement Loans (Marukei
Loans) for micro businesses[Fiscal 2016 budget: ¥3.98 billion][Fiscal investment and loan program]
In order to provide financial support to microbusinesses, the JFC will provide unsecured andunguaranteed low-interest loans to micro businesses
that receive management guidance from societies andchambers of commerce and industry and prefecturalfederations of societies of commerce and industry.
Ongoing improvements will also be implemented: (1)the term of loans will be extended from five to sevenyears for working capital and from seven to 10 years
for capital expenditure; (2) the deferment period will
be extended from six months to one year for working
capital and from six months to two years for capital
expenditure; and (3) the ceiling on loans will be raised
from ¥15 million to ¥20 million. (Ongoing)

2. Micro businesssupport loans

management

development[Fiscal 2016 budget: ¥20 million][Fiscal investment and loan program]To support sustainable business development by microbusinesses, JFC will offer low-interest loans to micro

525

Chapter 5 Promotion of regional economic revitalization
and regeneration
Section 1 Strengthening management
support frameworks
1. Programs promoting measures to support
cooperative SME organizations[Fiscal 2016 budget: ¥680 million]
Where partnerships or other associations work on
management innovation and/or reforms through the
National Federation of Small Business Associations,which is a dedicated agency assisting cooperative
SME organizations, support will be provided that
includes partial subsidies for the costs of implementing
those innovations or reforms, along with training
for instructors. Support was also provided for
optimizing the activities of associations (supervisionorganizations) that engage in the training of foreignintern trainees. (Ongoing)

2. Support for capital investment throughadvancement programs integrated with businesssupport

Where SMEs work jointly to establish businesscooperatives in order to shore up their administrative
platforms and improve their business environment, the
SMRJ and prefectural governments will collaborate
to provide diagnoses and advice on business plans
together with long-term, low-interest (or interestfree) loans to fund the required capital expenditure.
(Ongoing)

3. One-stop comprehensive support programs for
SMEs and micro-businesses[Fiscal 2016 budget: ¥5.47 billion]
The support framework for SMEs and microbusinesses will be expanded and strengthened by
setting up “Yorozu support centers” in each prefecture
as one-stop consultation centers for SMEs andmicro-businesses facing various management issues,
augmenting support personnel, and establishingsatellite offices.
Specialist advisors will be dispatched to deal withparticularly advanced and specific management
issues. (Ongoing)

4. Promoting the utilization of local benchmarks

The dissemination and utilization of local benchmarksthat were formulated in fiscal 2015 will be promoted
among support organizations including financial
institutions, and business managers. Follow-up
initiatives will also be taken to collect and analyze
further examples of the utilization of local benchmarks
and basic data, and to collect best practices. At thesame time, the local benchmarks will be linked

526

to relevant ministries and agencies and policies.
(Ongoing)

Section 2 Utilization of local resources
1. Program for supporting hometown specialty
products[Fiscal 2016 budget: ¥1 billion]
Support will be provided to SMEs and microbusinesses that engage in the development of new
products and services and the development of
new markets by utilizing regional resources andcollaborating with agriculture, forestry and fisherybusinesses. Support will also be provided to businesses
that pursue product development by utilizing regional
resources and collaborating with agriculture, forestry
and fishery businesses in the form of information
provision concerning consumer preferences surveyed
by general incorporated associations and matching
services. (Ongoing)

2. JAPAN Brand Development Assistance Program[Fiscal 2016 budget: Included in ¥1 billion]
To facilitate overseas expansion by SMEs, support
will be provided under this program such as for theformulation of strategies built on collaboration among
multiple SMEs and the strengths of those SMEs (rawmaterials, technologies, etc.), product development
based on those strategies and participation in overseas
trade fairs. (Ongoing) (Cited earlier)

3. Micro business promotion program[Fiscal 2016 budget: ¥5.15 billion]
Support for micro businesses will be promoted
through the “accompaniment” style of support
provided by societies and chambers of commerce
and industry in line with management development
support plans that are certified based on the Small
Business Support Act, and support will be provided
for the formulation of business plans and market
development in consideration of demand by microbusinesses. Support will also be provided for regional
initiatives that aim to develop specialty products andmarkets.
To encourage business expansion by regional microbusinesses aiming to target nationwide markets,
societies and chamber of commerce and industry will
cooperate with businesses to provide wide-ranging
support for programs that develop special regional
products and tourism and to develop those markets.
(Ongoing) (Cited earlier)SME policies planned for fiscal 2016

4. Designation of traditional crafts

Under the Act on the Promotion of Traditional Craft
Industries (referred to hereinafter as the Traditional
Craft Industries Act), a traditional craft will be
designated, or a change in designation will be made,following surveys and investigations of craft products
for which traditional craft product status has beenrequested, subject to the views of the Industrial
Structure Council. (Ongoing)

5. Traditional Craft Product Subsidy Program

6. Program to promote the spread of traditional
craftsTo promote public awareness of traditional crafts,
November every year is designated Traditional Crafts
Month, and activities such as the national conventionof the Traditional Crafts Month National Assembly areheld to spread and increase awareness of traditional
crafts. (Ongoing)

Section 3 Revitalization of shopping
districts and city centers
1. Comprehensive support for the revitalization of
local shopping districts

2. Development of human resources by the Japan
Shopping District Support Center

Support will be provided in the form of personnel
training and transfer of expertise by the Japan Shopping
District Support Center, an organization establishedjointly by four SME associations. (Ongoing)

3. Program to support the operation of Councils
for the Revitalization of Central Urban Districts[Included in SMRJ subsidy program]
Support will be provided for the provision of advisory
services, provision of information via websites ande-mail newsletters, and development of networks
through organization of exchange events led bycouncils for the revitalization of city centers support
centers established in SMRJ to assist the establishment
and operation of such councils for the revitalization ofcity centers. (Ongoing)

4. Program to dispatch advisers for city center andshopping district revitalization[Included in SMRJ subsidy program]Experts in a range of fields related to commercial
revitalization registered with SMRJ will be dispatchedto help tackle various challenges faced by councils
for the revitalization of city centers and shopping
districts. (Ongoing)

Chapter 5[Fiscal 2016 budget: ¥1.25 billion](1) Based on the Traditional Craft Industries Act, thefollowing support will be provided to promote thetraditional crafts industries below.
1) Subsidization of the following programs
undertaken by local manufacturing cooperatives
and associations:• Successor training programs• Raw materials sourcing programs• Design development programs• Partnership development programs• Local producer programs, etc.
2) Subsidization of the following programs
undertaken by general incorporated associations
and incorporated foundations under Article 23 of
the Traditional Craft Industries Act:
• Programs to secure human resources and ensuretransmission of skills and techniques• Production district guidance programs• Promotional programs• Demand development programs, etc.
(2) The regional branding of traditional crafts will bepromoted.
To help attract tourists to regions where traditional
crafts are produced and cultivate overseas markets,
support will be provided to initiatives that aim to
invite designers or other external human resources tosuch regions. (Ongoing)

districts with a government-approved revitalization
project plan. (Ongoing)

5. Consultation and support for commercial
revitalization in city centers[Included in SMRJ subsidy program]
In order to assist commercial revitalization initiatives
being undertaken in city centers by councils for therevitalization of city centers and similar organizations,seminar planning support and instructors will be
supplied and advice, analyses, assistance withidentification of issues, and information, etc. will be
provided to raise the efficacy of individual projects
using the SMRJ’s specialist know-how. (Ongoing)

6. Special deduction for income from land transfers[Taxation scheme]
Persons transferring land and similar assets to
shopping center promotion associations and similarorganizations approved under the Local Shopping
District Revitalization Act for use in projects basedon approved shopping district revitalization plans
and similar initiatives will be continuously allowed a
special depreciation of up to ¥15 million for income
from such transfers. (Ongoing)

Pursuant to the Local Shopping District Revitalization
Act, support measures will be established for shopping527

7. Program to support the promotion of inboundvisitors to shopping districts and town centers[Fiscal 2015 supplement budget: ¥1 billion]
Support will be provided to initiatives for developing
an environment conducive to attracting the shopping
demand of foreign tourists to shopping districts, etc.
(New)

8. Program to support commercial revitalization
in local communities and town centers[Fiscal 2016 budget: ¥2.03 billion]
Support will be provided to initiatives forrevitalizing regional commerce in towns (towncenters) that engage in compacting the town and in
shopping districts that maintain and strengthen local
community functions and shopping functions. Suchinitiatives include the development of commercial
facilities and initiatives to attract stores to vacant
store spaces. (Ongoing)

9. Taxation measures to revitalize central urban
districts[Taxation scheme]
Under the “Specific private sector central urban
district economic activity improvement program” setup under the revisions to the Act on the Vitalization ofCity Centers, (1) a special depreciation of 30% over 5
years will be provided for the acquisition of a building
and any incidental structures or equipment, and (2) ameasure for the acquisition of an immovable property
will be taken that halves the registration and license
tax payable when ownership of that immovable
property is registered or a transfer is registered. In thefiscal 2016 tax reform, the effective period of measure(2) will be extended two years. (Ongoing)

Section 4 Support for market anddemand cultivation
1. Micro business promotion program[Fiscal 2016 budget: ¥5.15 billion]
Support for micro businesses will be promoted
through the “accompaniment” style of support
provided by societies and chambers of commerce
and industry in line with management development
support plans that are certified based on the Small
Business Support Act, and support will be provided
for the formulation of business plans and market
development in consideration of demand by microbusinesses. Support will also be provided for regional
initiatives that aim to develop specialty products andmarkets.
To encourage business expansion by regional microbusinesses aiming to target nationwide markets,
societies and chamber of commerce and industry will
cooperate with businesses to provide wide-ranging
support for programs that develop special regional

528

products and tourism and to develop those markets.
(Ongoing) (Cited earlier)

2. Support for cultivation of markets throughexhibitions, business meeting events, and otherevents[Included in SMRJ subsidy program]
SMRJ will support the development and expansionof markets for products and services developed by
SMEs and micro-businesses through agriculturalcommercial-industrial collaborations or by using local
resources, by organizing exhibitions, business fairs,
and other such events. (Ongoing)

3. Market Development Coordination Program[Included in SMRJ subsidy program]Market development experts with experience inworking at trading companies, manufacturers, etc.
(“market development coordinators”) assigned
to SMRJ will help SMEs with newly developed
products, technologies, and services gain a footholdin new markets and acquire the capacity for market
cultivation through the implementation of test
marketing activities in the wider Tokyo and Kinki
regions. (Ongoing)

4. Support program for market cultivation[Included in SMRJ subsidy program]
The SMRJ will support the market cultivation
initiatives of SMEs and venture enterprises bypromoting business match-ups between enterprises
participating in SMRJ-sponsored trade fairs or
concurrent events and buyers, and providing advice.
(Ongoing)

5. Support for creation of new businesses[Included in SMRJ subsidy program]
Close, integrated support will be provided to SMEs andother entities engaging in new business by stationing
experts in marketing and other areas of businessin SMRJ’s 10 branches and offices across Japan tohelp formulate business plans based on the Regional
Resource Utilization Promotion Act, AgriculturalCommercial-Industrial Collaboration Promotion Act,and New Business Activity Promotion Act. (Ongoing)

6. J-GoodTech[Included in SMRJ subsidy program]
The SMRJ will support SMEs seeking to cultivate
markets in and outside of Japan, by connecting
them to major domestic manufacturers and overseas
enterprises via a website that posts information about
Japanese SMEs boasting top-niche and only-one
technologies and products. (Ongoing)SME policies planned for fiscal 2016

Section 5 Human resource andemployment measures
1. Human resource countermeasures program for
SMEs and micro-businesses[Fiscal 2016 budget: ¥1.81 billion]
To help SMEs and micro-businesses with few
management resources acquire human resources, abudget will be allocated to provide end-to-end support
for initiatives to excavate human resources sought by
SMEs and micro-businesses in each region according
to regional characteristics, and to introduce them andsee through to their retention. Additionally, Kaizen
instructors will be developed and dispatched, andhuman resources who could play a central role in SME
service industries, manufacturing sites, and urban
development, and human resources who will support
micro businesses will be developed. (Ongoing)

2. Human resource development program at theInstitute for Small Business Management andTechnology

3. Support program for development of hometown
producers[Fiscal 2016 budget: Included in ¥1 billion]
Support will be provided to initiatives that aim todevelop attractive products that involve local people
and local resources into local brands and initiatives
for developing human resources who could become
central players in the cultivation of markets with afocus on overseas markets. (Ongoing)

4. Measures to maintain workers’ employment[Fiscal 2016 budget: ¥8.26 billion]
Employment Adjustment Subsidies will be provided
to assist employers who were forced to downsize
due to fluctuations in business conditions or othereconomic reasons but who have kept workers on by
allowing workers to take temporary leave from workor enter training, or by transferring workers. Active
steps will also be taken to prevent fraudulent receiptof these subsidies, and efforts will be made to ensure
more appropriate disbursement by such means as
actively carrying out on-site checks and publishing
the names of employers who have committed fraud.
(Ongoing)[Fiscal 2016 budget: ¥6.1 billion]
To support initiatives by companies to improve
employment management and create attractive
employment conditions, subsidies will be provided
to fund SME organizations (business cooperatives,etc.) whose improvement plans have been certified by
the relevant prefectural governor pursuant to the Act
on the Promotion of Improvement of Employment
Management in Small and Medium-Sized Enterprises
for Securing Manpower and Creating Quality Jobs,
where they have implemented projects to improve theirworking environment. Subsidies will also be provided
to SMEs and micro-businesses that introduced andimplemented a new employment management system
by changing their labor agreements and workplace
regulations, or lowered the job separation rate of theiremployees. (Ongoing)
In fiscal 2016, the above support will be expanded asfollows.
(1) The scope of the above subsidies will be extended tobusiness owners in sectors other than key sectors.
(2) A subsidy will be newly created for employment
and management systems for care workers. It
will be provided to business owners of nursing
care businesses, where they have appointed an
employment administrator and established a wage
system (formulation of a wage table, etc.) by
modifying their labor agreement or employment
regulations. Business owners will be required to set
a target regarding employee job separation rate after
completion of the plan period to measure the effect of
the system. ¥600,000 will be provided if the target isachieved after a year of the plan period, and another¥900,000 will be provided if the job separation rate
has not increased after three years of the plan period.

Chapter 5[Included in SMRJ subsidy program]Training will be provided at nine Institutes for Small
Business Management and Technology around Japan
in improving the abilities of SME support personnel,
as well as training for SME proprietors, managers, andpeople in similar positions designed to lead directly tothe solution of business challenges. (Ongoing)

5. Support for improvement of employment
management toward the creation of attractive
employment

6. Project for promoting the improvement of
employment management plans to secure
human resources in sectors that lack personnel[Fiscal 2016 budget: ¥880 million]
Support will be provided for the creation of attractive
workplaces, such as by supporting the introductionof employment management systems, in cases
where business owners in sectors that lack personnel
improve employee benefits and working environment
or otherwise take measures to improve employment
management and secure human resources.
(1) Model survey course
In sectors where employment management issues
that need to be addressed by business owners are notyet clear, fine-tuned consultation will be provided tobusiness owners facing an employment management
issue, to help them introduce and operate various
models of employment management systems that529

contribute to resolving their issue. Case examples
of model initiatives obtained in this process of
consultation will be examined and analyzed interms of their introduction effect and knowhow, andeffective employment management improvement
policies will be explored based on the characteristics
of each sector and widely disseminated for awarenessraising.
(2) Practical awareness-raising course
Among sectors that lack sufficient personnel,
demand for human resources is expected to increase
particularly in the nursing and construction sectors.
Business owners in these sectors who face anissue in implementing improvement measuresfor employment management will be offeredconsultation support, with the aim of promoting
practical employment management improvement
within the entire industry, or within regional network
communities composed of business owners who
are actively engaged in improving employment
management. (Ongoing)

7. Regional employment development fund[Fiscal 2016 budget: ¥3.32 billion]
To create and provide stable regional employment,
employers who build or establish an office in regions,etc. where employment opportunities are particularly
lacking and who also employ regional job seekers will
be offered regional employment development fundingin accordance with the cost of their establishment andthe number of workers they employ. (Ongoing)

8. Project for employment creation in strategic
industries[Fiscal 2016 budget: ¥9.34 billion]
To promote initiatives aimed at creating favorable
and stable employment opportunities, a project
for employment creation will be implemented
for manufacturing industries and other strategic
industries. The project will supplement regional
projects for voluntary employment creation, andwill be implemented in conjunction with industrial
policies. (Ongoing)

9. Extension of the tax system to promote
employment[Taxation scheme]
Where enterprises have satisfied certain requirements
and have created high-quality employment (fulltime, non-fixed-term employment) in regions thatlack employment opportunities (Employment
Development Promotion Regions based on the Act on
Promotion of Job Opportunities in Certain Regions) ineach fiscal year starting between 1 April 2016 and 31
March 2018, a tax measure will be implemented thatprovides a tax credit of ¥400,000 for each increase inemployee.

530(Changes from fiscal 2015)
The applicable period of this measure will be extended
two years, upon reviewing the increased number of
employees, from an increase in the number of generally
insured persons under employment insurance within
an enterprise as a whole, to an increase in the numberof non-fixed-term workers and full-time workers
in business establishments located in Employment
Development Promotion Regions. (Ongoing)

10. Promotion of employment shifts with no loss of
employment (labor insurance special account)[Fiscal 2016 budget: ¥13.2 billion]
Funds to assist workers seeking alternative
employment (re-employment assistance payments)
will be provided to business owners commissioned
as private-sector employment agencies to support
the reemployment of employees who unavoidably
lose their jobs due to business downsizing, etc. Reemployment support subsidies (walk-in personnel
training support subsidies) will also be provided tobusiness owners who employed workers who fallunder a re-employment support plan as non-fixed-term
workers within three months of their displacement, or
provided training to such workers after employing
them.
Furthermore, to enable workers to acquire stable
employment opportunities even after the age of 65,
labor movement facilitation subsidies (subsidies
for supporting career realization) will be provided
to lifelong employment companies (companies thatallow continuous employment after the age of 65)
that take on workers who have voluntarily transferredfrom another company wishing to make a careerchange, and to business owners that take on workers
transferring from another company and provide
training to such workers. (Ongoing)

11. Welfare Worker Recruitment Project[Fiscal 2016 budget: ¥1.68 billion]“Welfare Worker Corners” will be expanded, andmatching services will be strengthened in the welfare
sector (nursing, healthcare and day care). (Ongoing)

12. Promotion of the Youth Support Project[Fiscal 2016 budget: Included in ¥720 million]
SMEs that display a positive attitude toward recruiting
and developing young workers and actively publicize
information about their company will be designatedas “youth support companies” and encouraged in theireffort to disseminate information. (Ongoing)

13. “Youth Yell” certification system based on the
Act on Promotion of Youth Employment[Fiscal 2016 budget: Included in ¥720 million]
Based on the Act on Promotion of Youth Employment(1970 Act no. 98), a system will be launched in which

SME policies planned for fiscal 2016

the Minister of Health, Labour and Welfare certifies
SMEs that display outstanding employment andmanagement of youths as “youth yell” certificationenterprises. By encouraging the information
dissemination efforts of SMEs, the system supports
the smooth employment of human resources soughtby certified enterprises. (Ongoing)

14. Subsidy for employment and retention of
non-new graduates within three years after
graduation[Fiscal 2016 budget: ¥510 million]
To expand, establish and promote employment
application opportunities among non-new graduatesand dropouts as new graduates, a “subsidy for
employment and retention of non-new graduates
within three years after graduation, etc.” will be
provided to business owners who newly offered job
openings to non-new graduates or recruited non-new
graduates as new graduates and retained them for acertain period of time. (Ongoing)

15. Support for SMEs and micro-businesses inraising the minimum wage

16. Regional Youth Support Station Program[Fiscal 2016 budget: ¥3.7 billion]“Regional Youth Support Stations” have been set up to
support the vocational independence of young people
who are “NEET” (Not in Education, Employment
or Training) or in similar circumstances, and offers

17. Dissemination andconsulting services

promotionofcareer

The utilization of career consulting (offering advice
and guidance in response to consultations concerning
occupational selection by workers, occupational life
planning, or the development and improvement ofoccupational capacities) will be disseminated andpromoted by spreading and deepening understanding
about the utilization of career consultants inprivate employment agencies, employment support
organizations, personnel management and humanresource development departments in companies, andcareer education in schools, and through consultations
and support that encourage companies to provide
career development support. (Ongoing)

Chapter 5[Fiscal 2016 budget: ¥1.1 billion]
The following support measures will be provided to
improve productivity toward raising the minimum
wage among SMEs and micro-businesses.
(1) “Comprehensive Minimum Wage Advice andAssistance Centers” will be established throughout
Japan (47 locations) as a one-stop portal for
consultation on management reforms and work
condition management, to provide consultation anddispatched experts free of charge.
(2) Subsidies (up to ¥20 million) will be provided toindustry-specific SME organizations to cover the
expenses required for conducting market surveys anddeveloping business models in their effort to expand
their market with an eye to increasing wages.
(3) Subsidies will be provided to SMEs and microbusinesses in 40 nationwide prefectures that made acapital investment to increase labor productivity andincrease the wages of workers who work for less than¥800 an hour in their business establishments (subsidy
rate of 1/2 (3/4 for micro businesses with a workforceof 30 or less)).
To enhance the usability of measure (1) above,
consultation centers will open for business on a larger
number of days, and the length of expert dispatch
services will be extended from fiscal 2016. (Ongoing)a diverse employment assistance menu, including
professional consultation by career consultants andvarious other programs. Additionally, a retention andstep-up program will provide follow-up services tohelp those who have obtained employment throughthe Support Station retain their jobs, and provide
nationwide support to help them step up to a morestable career. In fiscal 2016, Support Stations willbe established in 160 locations throughout Japanand will continue to provide support that is needed.
At the same time, cooperation will be strengthened
with schools and other such institutions to expand
the support to early leavers from school and provide
seamless support. (Ongoing)

Section 6 Support for new andsecondary business startups
1. New and Secondary Business Startup Support
Fund[Fiscal 2016 budget: Included in ¥850 million]
Subsidies will be provided to business owners whostart a business that aims to provide new products andservices that create new regional demand, to cover thecosts of starting the business, and to business ownersof secondary startups who discontinue their existing
business in whole or in part on occasion of a businesssuccession and foray into a new field, to cover thecosts of starting the new business and closing theexisting business (legal procedural costs, inventory
disposal, etc.). (Ongoing)

2. Support for businesses that support businessstartups[Fiscal 2016 budget: Included in ¥850 million]
Support will be provided to startup support businesses
that engage in business to support startups of designatedbusinesses under the Industrial Competitiveness
Enhancement Act, where they provide startup support
services based on an approved business startup support
plan (continuous management guidance to business531

owners, business upskilling training, operations of
co-working spaces, etc.) or undertake initiatives toenhance the quality of their startup support services.
(Ongoing)

3. New Startup Loan Program[Fiscal investment and loan program]
Under this program, unsecured, unguaranteed loans
will be provided by the JFC to persons embarking on
new ventures and persons who have just started up in
business. (Ongoing)

4. Loan Program for Supporting Female, Young,and Senior Entrepreneurs[Fiscal investment and loan program]
The JFC (through its SME and Micro Business andIndividual Units) will apply preferential interest rates
to loans offered to women, young people under theage of 30 and older people aged 55 or older, who havestarted a business within the past seven years or so,
to support the creation of new businesses by diverse
entrepreneurs. (Ongoing)

5. Funding for renewed startups (lending-support
schemes for renewed startups)[Fiscal investment and loan program]
By assessing entrepreneurs with failed businesses
to determine factors such as their qualifications
as managers and their business prospects, the JFC
will offer loans to candidates who face difficult
circumstances in relaunching their businesses.
(Ongoing)

6. Guarantees for founders

To boost lending to startup entrepreneurs by private
financial institutions, a guarantee program will
be implemented, which specifically encourages
credit guarantee corporations to provide guarantees
to individuals who are starting up in business or
who started up in business less than five years ago.
(Ongoing)

7. Improving supply of “risk money” needed whenstarting a business

The supply of “risk money” that is required to start up
or develop a business will continue to be promoted bymaking use of the Innovation Network Corporation ofJapan (INCJ), the Development Bank of Japan (DBJ)
and the Shoko Chukin Bank. (Ongoing)

8. Fund Investment Program (Startup Support
Fund, SME Growth Support Fund)The creation of investment funds operated by private
sector investment companies to stimulate private funds
will be promoted through investment by SMRJ (up to
one half of the total value of the fund concerned) withthe aim of expanding the range of opportunities for532

investment in ventures (SMEs) at the startup or early
growth stage and in SMEs pursuing growth throughthe development of new business. (Ongoing)

9. Program for strengthening cooperation in the
global venture ecosystem[Fiscal 2016 budget: ¥410 million]
Startup communities in Japan will be revitalized
by promoting business collaborations and network
creations through the activities of the Venture Business
Creation Council, composed mainly of entrepreneurs
who are the bearers of new business creation, venture
enterprises, large enterprises, and venture support
personnel (VCs, etc.). Additionally, the creation of
networks with Silicon Valley will be promoted under
the Project for Bridging Silicon Valley and Japan, bysending entrepreneurs and personnel from medium
enterprises and SMEs to Silicon Valley and holding
US-Japan exchange events. (Ongoing)

10. Business Startup Schools[Fiscal 2016 budget: ¥850 million]
Nationwide support organizations will hold BusinessStartup Schools to provide startup guidance throughto the creation of a business plan and follow up on
activities up to the start of business. A business plancontest will also be held among those who participate
in the schools. (Ongoing)

11. Angel tax system[Taxation scheme]
To promote the financing of newly founded venture
enterprises by individual investors (“angels”),
measures will continue to be taken to increase
recognition of this taxation scheme and develop an
environment that is conducive to promoting businessstartups. (Ongoing)

12. Taxation measures toinvestment in enterprises

promoteventure[Taxation scheme]
This initiative allows companies that invest in a
venture enterprise through a venture fund certified by
the Minister for Economy, Trade and Industry underthe Industrial Competitiveness Enhancement Act toaccumulate provisional funding for losses of up to
80% of the amount invested and write off that fundas expenses.
Measures for widespread dissemination will continue
to be taken, so that the system is utilized effectively,
and many attractive venture enterprises emerge inJapan. (Ongoing)

13. Management Innovation Support Program

Support will be provided for new business activities
undertaken by SMEs through mechanisms suchas low-interest loan programs and special credit

SME policies planned for fiscal 2016

guarantees for the implementation of approved
management innovation plans prepared by SMEs
planning to engage in new business activities toimprove their business performance under the New
Business Activity Promotion Act. (Ongoing)

14. Construction of startup support system in theregions

To realize overseas market cultivation by SMEs,
support will be provided where a group of SMEs
work together to formulate a strategy based on theadvantages and disadvantages of their materials
and technologies, and endeavor to develop products
or participate in overseas trade fairs based on thatstrategy. (Ongoing)

15. Subsidies for business generating regional
economic activity

16. Construction of support networks among female
entrepreneurs[Fiscal 2016 budget: Included in ¥200 million]
The Ministry of Economy, Trade and Industry will
support business startups by women, by creating
female entrepreneur support networks composed
mainly of local financial institutions, industrial support
organizations, and startup support organizations,in ten nationwide locations. Within each network,a framework will be established that could steadily
support women at all stages of entrepreneurship andnovice female entrepreneurs who face an issue related
to business growth, to bridge them over to existingsupport policies for entrepreneurs and otherwise
provide detailed response to women’s needs. (New)[Fiscal 2016 budget: ¥870 million]
To create employment opportunities for middle-aged
and older people and promote the realization of asociety where people can remain active throughout
their lives, a subsidy will be provided to middle-aged
and older entrepreneurs to cover part of the expenses
required to start a business, including the costs ofrecruiting and employing workers and providing
education and training. (New)Section 7 Support for businesssuccession
1. Business succession support[Fiscal 2016 budget: Included in ¥5.84 billion]
To support SMEs and micro-businesses that are facing
problems related to the lack of business successor, etc.,“Business Succession Support Centers” established at
approved support agencies in each of the 47 prefectures
will provide information and advice on businesssuccessions, and offer business matchings throughM&As and other such business schemes. In fiscal
2016, initiatives will be implemented to encouragebusinesses to realize systematic business succession
at an early stage, and the support framework forbusiness matchings will be strengthened to include
even smaller-scale M&As deals and others. (Ongoing)

2. System of deferral and exemption of payment ofinheritance tax and gift tax on non-listed shares(business succession taxation scheme)

Chapter 5[Fiscal 2016 budget: ¥1.61 billion]
Subsidies will be granted for expenditure by local
governments to assist with costs such as the initialstartup funding required by private sector businesses
in the establishment phase. This is to establish aregional round table drawn from industry, academia,
financial institutions and government, and to promote
the “Local 10,000 Project” that aims to create regionbased enterprises with large employment absorption
capacity by making use of regional assets and funding(drawn from regional financial institutions, etc.).
Based on the results of the fiscal 2015 Autumn
review, focus will be placed on relevant businesses
from the perspectives of whether they are public,
new, and have potential as a model, and a system of
local expense burden will be introduced to a certain
extent while giving consideration to financiallyweak local governments in disadvantaged regions,to effectively promote local Abenomics throughout
Japan. (Ongoing)

17. Lifelong startup support subsidy[Taxation scheme]
The business succession taxation scheme is designed
to help successors to acquire shares and other assets
in non-listed companies approved by the Ministerof Economy, Trade, and Industry, from theirpredecessors, whether through inheritance, gift, or
testamentary gift. The scheme works by allowing
the deferral of payment of inheritance tax and gift
tax on the premise that the successor will continue
the business and, in certain circumstances (e.g., thedeath of the successor), exemption from payment of
the tax for a grace period. Approvals to qualify for thisscheme commenced in fiscal 2009, and as of the endof December 2015, 827 approvals had been granted
for inheritance tax and 431 approvals had been madefor gift tax. (Ongoing)

3. Small Enterprise Mutual Relief System

The Small Enterprise Mutual Relief System is asystem for giving micro business owners a retirement
benefit. Ongoing efforts will be made to promote
enrollment in the system and ensure steady supply of
mutual aid money. (Ongoing)533

4. Comprehensive support under the Management
Succession Facilitation Act

The Act on Facilitation of Succession of Managementof Small and Medium Sized Enterprises incorporates
comprehensive support for business successions,involving special treatment under the Civil Code toresolve the constraints on legally secured portions ofsuccessions. Confirmations of qualification for thisspecial treatment will be granted by the Minister of
Economy, Trade, and Industry. (Ongoing)

5. Support to facilitate business successions[Included in SMRJ subsidy program]Business succession support networks for providing
wide-ranging and in-depth support for SME businesssuccessions will be developed throughout Japan, andvarious events will be held to provide training for
SME support providers and raise SME proprietors’
awareness through business succession forums.
(Ongoing)

Section 8 Other regional revitalization
measures
1. Support to encourage enterprises to locate inregional areas

To promote action by regions to attract enterprises using
their local features and to revitalize local industries
under the Act on Formation and Development ofRegional Industrial Clusters through Promotion of
Establishment of New Business Facilities, etc. (ActNo. 40, 2007), institutional support is planned to be
implemented through special provisions under the
Factory Location Act, a low-interest loan program for
SMEs operated through JFC, and tax allocations tolocal governments taking steps to attract enterprises totheir regions. (Ongoing)

2. Subsidies for business generating regional
economic activity[Fiscal 2016 budget: ¥1.61 billion]
Subsidies will be granted for expenditure by local
governments to assist with costs such as the initialstartup funding required by private sector businesses
in the establishment phase. This is to establish aregional round table drawn from industry, academia,
financial institutions and government, and to promote
the “Local 10,000 Project” that aims to create regionbased enterprises with large employment absorption
capacity by making use of regional assets and funding(drawn from regional financial institutions, etc.).
Based on the results of the fiscal 2015 Autumn
review, focus will be placed on relevant businesses
from the perspectives of whether they are public,
new, and have potential as a model, and a system of
local expense burden will be introduced to a certain
extent while giving consideration to financially534

weak local governments in disadvantaged regions,to effectively promote local Abenomics throughout
Japan. (Ongoing) (Cited earlier)

3. Taxation scheme to strengthen the regional
location of enterprises[Taxation scheme]
In order to revitalize the regions, it is necessary tocorrect the over-concentration of population andindustry in Tokyo and create good quality employment
in the regions. Toward this end, initiatives forrelocation of the head office functions of enterprises
from Tokyo to the regions and for the expansion anddevelopment of the regions will be promoted. Morespecifically, certified enterprises will be given a
choice of either a 15% special depreciation deduction
on the cost of acquisition of an office building (25%in the case of relocation) or a 4% tax credit on thecost of acquisition (7% in the case of relocation).
Enterprises that create employment in the region
will be offered a special measure under the taxation
scheme to promote employment and a local tax grant
related to strengthening regional corporate centers.
Under the fiscal 2016 tax reform, the special measurefor the taxation scheme to promote employment will
be able to be applied redundantly with the tax credit
system that is provided for increases in the payment of
employee salaries. (Ongoing)

4. Program for creation and support of regionalcore enterprises[Fiscal 2016 budget: ¥2.05 billion]
To support the initiatives of potential regional coreenterprises to foray into new sectors or businesses
and promote their growth, support will be provided
for the creation of nationwide networks with external
resources (universities, cooperating enterprises,
financial institutions, etc.) using support personnel.
Additionally, for further growth of regional coreenterprises, support personnel will provide hands-on
support for formulating business strategies, cultivating
markets, and other such business activities. (New)

5. Promotion of new regional cooperation throughthe creation of regional core cities[Fiscal 2016 budget: ¥130 million]
Support will be provided for the policy and initiativeof creating regional core city areas for maintaining
vibrant social economies with a population of acertain size through downsizing and networking
efforts between central cities of substantially large
core urban regions and neighboring municipalities. In
addition to offering a local tax grant, from fiscal 2016,
the development of core facilities for undertaking
initiatives that benefit and drive the entire region
will be included in the scope of industrial bonds forregional revitalization. (Ongoing)SME policies planned for fiscal 2016

6. Enterprise vitality enhancement funding[Fiscal investment and loan program]
Japan Finance Corporation (JFC) will provide loans
for funds needed to modernize management andrationalize the distribution systems of SME commercial
businesses and service businesses, promote theadvancement of basic manufacturing technologies ofSMEs, and develop SME subcontractors.
The following expansion measures will be
implemented in fiscal 2016.
(1) Expansion of the low-interest loan system for SMEs
in the retail trade industry (tax-free shops, tax-free
agencies, etc.) that respond to inbound demand by
making a capital investment to accommodate foreign
visitors to Japan.
(2) Expansion of the low-interest loan system to businesses
in the real estate leasing industry in city-center regions(restricted to urban development companies specified
in Article 15 Paragraph 1 of the Act on Vitalization inCity Center). (Ongoing)up or restructure their organization, through a loansystem that provides long-term, lump-sum repayment
and successful interest payment-type loans via the
Shoko Chukin Bank. (New)

10. Support program for increasing
consumption price in globalizing regions

unit[Fiscal 2015 supplement budget: ¥100 million]
With the aim of increasing unit consumption price in theregions, support will be provided for the formulationof strategies for exploring and experimenting withnew services for tourists and for developing attractive
towns that stimulate consumption based on an analysis
and identification of target foreign tourists and theirpreferences and needs. (New)

7. Loan program for supporting regional coreenterprises

Chapter 5[Fiscal 2016 budget: ¥7 billion from the fiscal
investment and loan program]Medium enterprises and SMEs that are core regionalpresences having a certain influence on their regional
economy will be supported in their initiatives toachieve innovation such as by advancing into a new
sector or making strategic initiatives for management
improvement. Under a loan program for supporting
regional core enterprises, the Shoko Chukin Bank
will provide long-term, lump-sum repayment andsuccessful interest payment-type loans to suchenterprises. (Ongoing)

8. Taxation scheme for expanding the tax-freesystem to foreign tourists visiting the regions[Taxation scheme]
The tax-free system for foreign tourists will be
expanded under the fiscal 2016 tax reform. The
minimum purchase amount for tax-free sales will
be lowered, and where a large-scale retail store islocated within a shopping district and is a memberof the shopping district, a measure will be provided
that allows a tax-free desk to be installed for the largescale retail store and the shopping district as a single
designated commercial facility. (New)

9. Loan system
collaborationsforsupporting

regional[Fiscal 2016 budget: ¥3 billion from the fiscal
investment and loan program]Business cooperative associations and enterprisepartnerships that utilize local resources will besupported in their initiatives to develop a new
business, utilize local resources, form a business tie-

535

Chapter 6 Development of the business environment
Section 1 Cash-flow assistance andbusiness generation support
1. Detailed cash-flow assistanceNew lending systems and guarantee systems werecreated and existing systems were expanded bypublic financial institutions under the fiscal 2015
supplementary budget that was approved on January
20, 2016. More specifically, the JFC provides loans
at lower interest rates than usual, for cases where
capital investments are made by SMEs and microbusinesses that contribute to regional revitalization
by creating employment in the region. Additionally,
Credit Guarantee Corporations provide guarantees(refinancing guarantees) that consolidate multiple
outstanding debts into a single amount, to facilitate
new loans to SMEs and micro-businesses that havereceived a change in loan repayment conditions but
show strong promise of achieving management
improvement. (Ongoing)

2. Safety net loans

The safety net loan program provides loans worth up
to a total of ¥720 million (from JFC’s SME Unit andthe Shoko Chukin Bank) and ¥48 million (from JFC’s
Micro Business and Individual Unit) to SMEs thathave experienced, for example, a temporary decline
in sales or profits caused by the effects of changes inthe social or economic environment. Under the fiscal
2016 budget, an interest rate incentive will be given
to SMEs and micro-businesses experiencing cashflow
difficulties, in cases where their severe businesscondition requires them to receive business support
from an approved support agency. (Ongoing)

3. Managerial Improvement Loans (Marukei
Loans) for micro businesses[Fiscal 2016 budget: ¥3.98 billion][Fiscal investment and loan program]
In order to provide financial support to micro businesses,
the JFC will provide unsecured and unguaranteed
low-interest loans to micro businesses that receive
management guidance from societies and chambersof commerce and industry and prefectural federationsof societies of commerce and industry. Ongoing
improvements will also be implemented: (1) the termof loans will be extended from five to seven years forworking capital and from seven to 10 years for capital
expenditure; (2) the deferment period will be extended
from six months to one year for working capital andfrom six months to two years for capital expenditure;and (3) the ceiling on loans will be raised from ¥15
million to ¥20 million. (Ongoing) (Cited earlier)536

4. Micro businesssupport loans

management

development[Fiscal 2016 budget: ¥20 million][Fiscal investment and loan program]To support sustainable business development by
micro businesses, Japan Finance Corporation (JFC)
will offer low-interest loans to micro businesses thatreceive management guidance from societies andchambers of commerce and industry certified undera management development support plan. (Ongoing)(Cited earlier)

5. Promotion of subordinated lending[Fiscal 2016 budget: Included in ¥15.8 billion]
The subordinated lending program is a financing
mechanism of the JFC, which solicits joint financing
from the private sector to stabilize the financing of
SMEs and micro-businesses by providing them withhigh-risk, long-term, “bullet loans” (capital funds) toenhance their financial underpinnings. It will continue
to be implemented in fiscal 2016. (Ongoing)(Note) Loans under this program are limited bullet loans.
In the event that the SMEs or micro-business taking
out the loan enters legal bankruptcy, its repayment
precedence is subordinated to other claims. By
designing the program so that the interest rate istied to the success rate for loan repayments in eachperiod, these subordinated loans can be taken to beequity in financial inspections.

6. SMEandmicro-business
management
enhancement loan/guarantee program[Fiscal 2016 budget: ¥1.6 billion]
On the premise that support is being provided byapproved support agencies, the management of SMEs
and micro-businesses will be strengthened throughmeasures such as low-interest loans from the JFC(0.4% below the standard rate for women, young
people and senior business startups) for businessstartups, businesses diversification, and changes ofbusiness. (Ongoing)

7. Encouragement of refinancing guarantees[Fiscal 2016 supplementary budget: ¥1 billion]
In addition to continuously providing previouslyoffered refinancing guarantees, a new refinancing
guarantee will be promoted among SMEs and microbusinesses that have high potential for achieving
management improvement and whose managers
demonstrate strong motivation but cannot receive
forward-looking financial aid due to a change inrepayment conditions. The new refinancing guarantee
will promote the refinancing of existing guaranteed

SME policies planned for fiscal 2016loans as new guaranteed loans and allow new money
to be added. (Ongoing)

8. Safety-net Guarantees (Nos. 4 & 5)

Safety-net Guarantee Nos. 4 and 5 call for credit
guarantee corporations to provide guarantees separate
from ordinary guarantees to SMEs and microbusinesses experiencing a management instability due
to either a natural disaster in the case of Safety-net
Guarantee No. 4 or an industrial structural slowdown
in the case of Safety-net Guarantee No. 5 (100%guaranteed for up to ¥80 million for unsecured loans,and up to ¥280 million for other loans). (Ongoing)

9. Program to assist with formulating management
reform plans by approved support agencies

To promote business improvement among SMEs
and micro-businesses that are unable to formulate
management reform plans on their own, the program
will defray part of the costs (two-thirds) incurredby approved support agencies (certified public
tax accountants, lawyers, financial institutions,etc.) under the Act for Facilitating New Business
Activities of Small and Medium-sized Enterprises forproviding assistance to SMEs and micro-businesses informulating management reform plans and following
up on those plans. (Ongoing)

10. SME Revitalization Support Councils

11. SME Rehabilitation Plan through Succession(secondary companies)

Where an SME rehabilitation plan through succession
is authorized under the Industrial Competitiveness
Enhancement Act and business succession occurs as
set out in that plan, measures will be implemented tosupport financing, along with special provisions for
permissible succession. (Ongoing)* The special measure concerning registration andlicense tax will be terminated under the fiscal 2016
tax reform.

12. SME revitalization funds

In order to deliver the funds needed by SMEs toimplement their revitalization plans and provide themwith financing and management support, the SMRJ,
regional financial institutions, and credit guarantee

13. Promotion of the use of “Guidelines for Personal
Guarantees Provided by Business Owners”[Fiscal 2016 budget: ¥100 million]
To promote the use of the “Guidelines for Personal
Guarantees Provided by Business Owners” publishedon 5 December 2013, help desks that have been set
up in the regional headquarters of the SMRJ in fiscal
2013 and the specialist dispatch desk for people whowish to use the guidelines will continue to be operated.
Financing and guarantee systems independent ofbusiness owner guarantees by public sector financial
institutions will also continue to be implemented.
Additionally, to ensure the guidelines are absorbed
and retained as part of financing practices, initiatives
that should be widely taken will continue to becollected and published. Furthermore, explanatory
meetings on the guidelines will be held for SMEs andmicro-businesses. (Ongoing)

14. Enhanced management support for financial
administration among SMEs

Based on the financial monitoring policy, financial
institutions will be encouraged to promote productivity
improvement and smooth business succession inregional industries and enterprises through loans
and business support, by amending their lending
attitude that relies more than necessary on security
and guarantees, and ensuring proper assessment of
the business performance and growth potential ofborrower companies. (Ongoing)

Chapter 6[Fiscal 2016 budget: Included in ¥5.84 billion]
The SME Revitalization Support Councils establishedat the chambers of commerce and industry and similar
entities in each prefecture will provide SMEs andmicro-businesses that have profitable businesses but
face financial problems with advice on solving theirproblems through consultation services, and willassist with the drafting of revitalization plans that
also include coordination with relevant financial
institutions and similar entities. (Ongoing)

corporations in unison will promote the establishment
and utilization of regional funds to assist local SMEs’
revitalization efforts and national funds to assist SMEs’
revitalization efforts over a wide area. (Ongoing)

15. Promote liquidity of SMEs’ export receivables
covered by trade insurance

To promote the financing of SMEs, NEXI will
collaborate with the Shoko Chukin Bank and the threemegabanks to promote the utilization of a scheme fortransferring an export receivable covered by tradeinsurance from an SME to a financial institution.
(Ongoing)

16. Support for SMEs in Okinawa

Regarding support for SMEs in Okinawa delivered
via the Okinawa Development Finance Corporation(ODFC), the operations and initiatives undertaken
by JFC will be performed as usual, while ODFC’s
own system of lending will be expanded to meet the
specific needs of businesses in Okinawa. (Ongoing)

17. Adoption and application of “Basic procedures
for SME accounting”

The adoption and application of the “Basic procedures
for SME accounting” will be promoted so as to537

encourage SMEs to clarify their business conditions,improve the ability of proprietors to explain theirbusiness, and strengthen their ability to obtainfinancing. As a dissemination measure, the 0.1%
discount on credit guarantee rates will continue to beprovided in fiscal 2016 to SMEs and micro-businesses
that adopt the “Basic procedures” as their accounting
rule. (Ongoing)

Section 2 Enhancing financial capacity
1. Lowering of reduced tax rate for SMEs

[Taxation scheme]
This measure that lowers the rate of corporate tax(19%) incurred on annual income amounts up to¥8 million to 15% will be implemented. (Ongoing)

2. SME investment promotion tax system[Taxation scheme]
This system offers a 30% special depreciation or a 7%
tax credit (the tax credit is not offered to corporate
entities with a capital of more than ¥30 million) forthe price of purchasing machinery or equipment. It
also allows for immediate depreciation or provides
a 10% tax credit (7% for corporate entities with acapital of more than ¥30 million) for the introductionof machinery and equipment that leads to productivity
improvement. (Ongoing)

3. Special provision for inclusion of SMEs incharges against revenue of acquisition cost of
petty sum depreciable assets[Taxation scheme]
The special provision that allows enterprises toinclude in full depreciable assets worth less than
¥300,000 in charges against revenue (limited to a totalof ¥3 million a year) will continued to be offered.
Under the fiscal 2016 tax reform, enterprises withmore than 1,000 employees will be excluded fromscheme, but the applicable period of the scheme itself
will be extended two years. (Ongoing)

4. Carryover and refund carryback of loss

[Taxation scheme]
The carryover of loss is a scheme that allows loss
arising in the current business year to be deducted
as a loss carried over from the amount of income in
the following and subsequent business years. Under
the fiscal 2016 tax reform, the carryover period was
decided to be extended to 10 years (from 9 years under
the current scheme) from fiscal 2018. The measurethat allows businesses to receive a one-year carryback
refund for losses arising in the current business year
will be continued. Under the fiscal 2016 tax reform,
the effective period of the measure will be extended
two years. (Ongoing)538

5. Taxation system for the revitalization of thecommercial, service and agriculture/forestry/
fishery industries[Taxation scheme]
The tax measure that allows SMEs in the commercial
and service industries that acquire facilities based on
advice on business improvement from a chamber ofcommerce and industry or other such institution toreceive a 30% special depreciation deduction from thecost of acquisition or a 7% tax credit will be continued(the tax credit is offered only to corporate entities witha capital of no more than ¥30 million). (Ongoing)

6. Special exemption from inclusion in charges
against revenue of entertainment and social
expenses, etc.

[Taxation scheme]
The selective application of (1) the measure that
permits entertainment and social expenses to be
included in charges against revenue up to the fixed
deduction amount (¥8 million) or (2) the measurethat allows 50% of food and drink expenses to be
included in charges against revenue will continued
to be offered. Under the fiscal 2016 tax reform, theeffective period of the measure will be extended two
years. (Ongoing)

7. Investment by Small and Medium Business
Investment and Consultation Co., Ltd.

In order to help enhance SMEs’ capital adequacy andcontribute to their sound growth and development,
the Small and Medium Business Investment andConsultation Co., Ltd. will operate a number ofprograms to assist in SME development. These include
business consultations, assistance with businesssuccessions and investment programs involving theunderwriting of shares, share warrants and corporate
bonds with subscription warrants. (Ongoing)

8. Reduction in the fixed assets tax on new
acquisitions of machinery and equipment

Where an SME acquires new machinery or equipment(management improvement facility) (cost of morethan ¥1.6 million, productivity increase of 1% (salescommencement within 10 years), etc.) that is specified
in a management capability enhancement plan thathas been formulated and approved based on the Act
for Strengthening the Management of SMEs, etc., ameasure will be provided to reduce the tax base of theimposed fixed assets tax by one-half over a period of
three years. (New)SME policies planned for fiscal 2016

Section 3 Measures for pass-throughs ofconsumption tax

Section 5 Measures for businessstabilization

1. Programs to enhance monitoring and inspection
regimes for consumption tax imputation

1. Mutual Relief System for the Prevention of
Bankruptcies of SMEs (Mutual Safety-net Relief
System)[Fiscal 2016 budget: ¥3.21 billion]
To ensure that consumption tax is passed throughappropriately, 474 “cost pass-through inspectors”
will be assigned throughout Japan. At the same time,
to collect information such as on refusals to passthrough the consumption tax, a large-scale written
survey will be carried out in conjunction with the
Fair Trade Commission (FTC) in the effort to monitor
and regulate acts of refusal to pass through theconsumption tax. (Ongoing)

Section 4 Measures for reduced
consumption tax rate system
1. Support for the introduction of cash registers
and system renovations among SMEs in theretail trade industry

2. Consultation desks for inquiries regarding the
reduced consumption tax rate system[Fiscal 2015 supplementary budget: ¥17 billion]
Toward the smooth implementation of the reduced
consumption tax rate system, detailed support will
be provided in cooperation with SME organizations,etc. Seminars and forums will be held, consultation
desks will be established, specialists will bedispatched to provide itinerary guidance, and suchsupport measures will be disseminated via pamphlets
and other such media. At the same time, cost passthrough consultation desks will also be established,in response to the consumption tax increase that is
stipulated in the Act to Amend the Consumption Tax
Act, etc., to Make Fundamental Reform of the Tax
System for Securing Revenue to Fund the Increased
Cost of Social Security (Act No. 68 of 2012). (New)

2. Special Business Stability Consultation Centers[Fiscal 2016 budget: ¥37 million]
To facilitate management consultations at special
business stability advice centers that have been
established in key chambers of commerce and industry
and prefectural federations of societies of commerce
and industry across the country, support will continue
to be provided to initiatives such as guidance programs
run by the Japan Chamber of Commerce and Industry
and the Central Federation of Societies of Commerceand Industry. (Ongoing)

3. Promotion of wider adoption of BCPs by SMEs

[Fiscal investment and loan program]To strengthen the capacities of SMEs and microbusinesses to continue business in the event of an
emergency and increase their corporate value, ongoingsupport will be given to promote the formulationand operation of BCPs. Low-interest loans will
also be provided by the JFC for the establishmentof disaster prevention facilities in accordance with
BCPs formulated by SMEs and micro-businesses
themselves. (Ongoing)

Chapter 6[Fiscal 2015 reserve fund: ¥99.58 billion]
Measures will be taken to help businesses prepare
for the introduction and operation of the reduced
consumption tax rate system and prevent confusion.
More specifically, (1) support for introducing cash
registers that are compatible with multiple tax rates
will be provided to SMEs in the retail trade industry,and (2) support for system renovations will be
provided to SMEs in the retail trade and wholesaletrade industries that use electronic ordering systems
that are not compatible with multiple tax rates. (New)[Included in SMRJ subsidy program]
The Mutual Relief System for the Prevention of
Bankruptcies, which provides loans to prevent a
chain reaction of bankruptcies accompanying thebankruptcy of a supplier or customer, will continue
to be promoted among SMEs and will continue toprovide steady loans. (Ongoing)

4. Relief for damage caused by dumped imports[Fiscal 2016 budget: ¥50 million]
Trade remedy measures include anti-dumping (AD)programs to provide relief to domestic industries
impacted by dumped imports to Japan from foreign
enterprises, including measures to ensure equitable
market competition such as by imposing extra customs
duties following a petition by the affected Japaneseindustry and an investigation by the government. An
AD investigation into South Korean and Chinese
manufactured potassium hydroxide was begun in May
2015, and is being pursued fairly and appropriately
based on international rules and Japanese laws
and regulations. Studies will also be to ensure thatinvestigations are consistent with WTO conventions,and information sessions will be held for enterprises.
(Ongoing)

539

Section 6 Measures concerning publicdemandSection 7 Promotion of human rights
awareness

1. Formulation and dissemination of the “FY2016
Basic Policy on State Contracts with Small andMedium Enterprises”

1. Human rights awareness[Fiscal 2016 budget: Included in ¥990 million]
Measures for achieving the target rate of state
contracts with new and existing SMEs and forincreasing opportunities for SMEs to receive orders
will be approved by the Cabinet.
The following initiatives will also be implemented toensure widespread dissemination of the basic policy.
(1) The Minister for Economy, Trade and Industry will
issue a request regarding the Cabinet approval of
the Basic Policy on State Contracts with Small andMedium Enterprises to the heads of each agency andministry, prefectural governors, all municipal mayors,and mayors of the Tokyo special wards, and will also
an make effort to increase opportunities for SMEs andmicro-businesses to receive orders.
(2) Information sessions (Councils to Promote Local
Access to Public Sector Demand) will be held
throughout Japan to actively raise awareness of the
Basic Policy in regional areas.
(3) A conference will be organized to discuss policies
for information sharing and cooperation regarding
initiatives for promoting procurement from new
SMEs in regional areas.
(4) A “Guide to Contracts in the Public Sector” will
be produced and distributed to central and local
government agencies and other commerce andindustry-related organizations. (Ongoing)

2. Operation of the “Public Demand Portal Site”
to expand opportunities for SMEs and microbusinesses to receive orders from the public
sector[Fiscal 2016 budget: Included in ¥990 million]
A Public Demand Information Portal Site will be
operated that provides SMEs and micro-businesses
with one-stop access to order information posted onnational government and other local public websites
in order to improve access by SMEs and microbusinesses to information on public sector orders.
(Ongoing)

540[Fiscal 2016 budget: ¥190 million]
Toward the promotion of sound economic activities,
human rights awareness seminars and other awarenessraising activities will be organized for businesses.
Traveling consultation services and training programs
will also be offered to revitalize micro businesses inregions or industries where there are particularly large
numbers of micro businesses that require concentrated
support. (Ongoing)SME policies planned for fiscal 2016

Chapter 7 Initiatives by industries and area
Section 1 Measures for SMEs inagriculture, forestry andfisheries
1. Promotion of diversification of primary
producers into processing and distribution(sixth sector industrialization)(1) Wood Industry Upgrading Promotion Fund andForestry and Wood Industry Improvement Fund
[Fiscal 2016 budget: ¥70 billion]
In order to streamline lumber production anddistribution, loans will be provided through the
Wood Industry Upgrading Promotion Fund, whileloans through the Wood Industry Improvement
Fund will be provided to implement measures suchas management reforms in the forestry and lumber
industries. (Ongoing)(2) Interest subsidy for the installation of lumber
processing facilities[Fiscal 2016 budget: ¥4 million]
An interest subsidy will be provided for borrowings
required for the introduction of facilities towardadding value to lumber products and diversifying
management, and for dismantling facilities andequipment accompanying the introduction of new
facilities. (Ongoing)(3) Support for creation a framework in the wood industry
by means of the Subsidy for Establishment of theFoundation for Forest and Forestry Regeneration[Fiscal 2016 budget: ¥6.14 billion]
Support was provided for the development of lumber
processing and distribution facilities that are needed
for creating a stable and efficient supply chain interms of cost, volume and quality. (New)(4) Support for reorganization and development of thedairy industry by means of subsidies for building
a strong agricultural industry and comprehensive
measures for the revitalization of production areas[Fiscal 2016 budget: Subsidies for building a strong
agricultural industry: ¥20.79 billion; Comprehensive
measures for the revitalization of production areas:¥2.05 billion](Objectives of the measure)• To promote a stronger management culture in
the SME dairy industry, such as by restructuring
and rationalizing dairy plants and enhancing
sanitary control, toward contributing to businessstabilization among dairy farmers amid a stagnationin the consumption of milk.
(Overview of the measure)• To reduce the production and selling costs of SMEs
in the dairy industry and promote the advancementof sanitary standards, support will be provided forthe additional construction and closing down ofdairy plant facilities and for the closing down ofdairy plants in cases where it is not accompaniedby the construction of new plants.

Chapter 7(1) Subsidy for sixth sector industrialization network
activities[Fiscal 2016 budget: ¥2.03 billion]
Support will be provided for initiatives in which
agriculture, forestry and fishery create a networkwith diverse businesses to develop new products,
cultivate markets and operate facilities forprocessing and marketing agriculture, forestry andfishery products. Support will also be provided
for sixth sector industrialization initiatives that are
implemented by the entire region in line with sixth
sector industrialization strategies and concepts of themunicipality. (Ongoing)(2) Active utilization of the Agriculture, Forestry and
Fisheries Fund Corporation for Innovation, Valuechain and Expansion Japan
Support will be provided through measures suchas investment for business activities aimed at sixth
sector industrialization by agriculture, forestry andfishery businesses in cooperation with distribution
and processing businesses through the Agriculture,
Forestry and Fisheries Fund Corporation for
Innovation, Value-chain and Expansion Japan(A-FIVE). (Ongoing)(3) Promotion of the utilization of intellectual properties[Fiscal 2016 budget: ¥170 million]
Support was provided for the registration applications
relating to the geographical indication (GI) protection
system and for their dissemination and awarenessraising. Support was also provided for the creation ofregional brands and businesses by utilizing GIs, andfor strengthening measures against infringements ofJapan’s agriculture, forestry and fishery products andfood products overseas. (New)(4) Comprehensive program to promote renewableenergy to revitalize rural areas[Fiscal 2016 budget: ¥100 million]
In regions where the program has been implemented
by fiscal 2015, growth in regional agricultural,
forestry and fishery businesses will be promoted
by pursuing community-based initiatives to supply
renewable energy and to feed the benefits of suchinitiatives back into local communities. (Ongoing)

2. Support for small and medium agricultural,
forestry, and fishery businesses541• To promote steady initiatives toward increasing
the efficiency of collecting and transporting milk
and restructuring the dairy industry, support will
be provided for assessing and examining regional
issues, formulating specific plans, and rationalizing
employees. (Ongoing)(5) Support for raising the standard of food manufacturing
process management
To improve the safety of food products and gain theconfidence of consumers, financial support will be
provided for the following initiatives under the Act
on Temporary Measures concerning Sophisticationof Management of Food Manufacturing Process: (1)Provision of infrastructure and equipment for HACCP
introduction; and (2) Provision of infrastructure andequipment for hygiene and product quality control
as preliminary steps towards HACCP introduction(advanced platform provision). (Fund for promoting
advanced quality control in the food industry)(Ongoing)(6) Comprehensive export support project by JETRO[Fiscal 2016 budget: ¥1.48 billion](Objectives of the measure)• To implement initiatives for the promotion ofexports in line with the “Export Strategies for
Agriculture, Forestry and Fishery Products andFoods by Country and Item” (formulated Aug,
2013; hereinafter referred to as “Country and
Item-specific Export Strategies”), through privatepublic cooperation toward achieving the target of¥1 trillion by 2020.
(Overview of the measure)• Through subsidies to the Japan External Trade
Organization (JETRO), comprehensive businesssupport for upstream to downstream operations ofexport businesses will be strengthened.
(Changes from fiscal 2015)• Mainly in regions that have high potential foran expansion of exports, “marketing centers inemerging markets,” which test-market the productsof businesses that engage in export and provide
feedback of local responses, will be establishedthrough public invitation that is also extended to
private businesses, instead of through the provisionof designated subsidies to JETRO.
• Experts will be appointed to respond to businesses
that have an inquiry regarding exports that utilize
geographical indications (GI). (Ongoing)(7) Measures for export businesses[Fiscal 2016 budget: ¥840 million](Objectives of the measure)• To promote exports in line with the “Export
Strategies for Agriculture, Forestry and Fishery
Products and Foods by Country and Item,” towardachieving the target of ¥1 trillion in the export ofagricultural, forestry and fishery products andfoods.

542(Overview of the measure)• Export organizations for each export category
including marine products, rice and rice products,
flowers, animal products, tea, forestry products(wood), and fruits will support initiatives forholding examination committees in Japan,
conducting overseas market surveys, and resolving
issues regarding the export environment, with theobjective of establishing the Japan brand.
• Organizations of major export localities and relevantbusiness in Japan that handle various processed
foods and organizations that handle multiple
categories of items at the regional bloc scale will besupported in their initiatives to organize domestic
study meetings, conduct overseas market surveys
and cultivate overseas markets with the objectiveof creating a year-round or long-term stable supply
framework.
• To respond to requests for quarantine boardingthat is sought by relevant countries and regions,acquire and renew international certifications, andrealize transportation costs in accordance withthe export conditions of each item, initiatives
will be implemented for the development anddemonstration of an optimal export model.
(Changes from fiscal 2015)• Among the initiatives for establishing the Japanbrand, the subsidy amount for domestic review
meetings will be changed from a fixed amount tohalf the incurred cost, and the subsidy amount forthe management of logo marks by item will bechanged from a fixed amount to three-fourths of theincurred cost.
• Initiatives for market cultivation and sales
promotion overseas will be included among theinitiatives for establishing the Japan brand (subsidy
amount of 1/2) (Ongoing)

3. Support for R&D and other cross-field activities(1) Promotion of studies of scientific technologies for the
agriculture, forestry, fishery and food industries[Fiscal 2016 budget: ¥3.21 billion]
R&D initiatives will be promoted at each stage oftechnological development, including the basic stage
involving the development of the technological seeds
that will lead to innovative technologies and solutions
for problems in the agriculture, forestry, fishery andfood industries (elemental technologies that leadto the creation of new technologies, businesses andagribusiness); the application phase involving thefurther development of those seeds towards R&D forpractical application; and the practical application
stage in which technologies meet the requirementsof key national policies and address the needs of the
agriculture, forestry, fishery and food industries. The
development of new varieties will also be promoted
in response to the diverse needs of actual demands

SME policies planned for fiscal 2016

by utilizing the technical capabilities of industry,
government and academia. (Ongoing)(2) Various forms of lending by JFC[Fiscal investment and loan program] (Ongoing)

Section 2 Measures for SMEs in thetransport industry
1. Support for the warehousing industry

To meet the needs for increasingly sophisticatedphysical distribution services and truck drivers
as a response to changes in the socioeconomic
environment, greater efficiency of physical distribution
will be promoted under the Law for Integration
and Improvement of Physical Distribution, toward
upgrading the physical distribution functions offacilities and achieving greater operational efficiency.
(Ongoing)

2. Measures for the coastal and domestic passenger
shipping industries

3. Measures for small and medium shipbuilders
and related manufacturers[Fiscal 2016 budget: (1) Included in ¥50 million;(2) ¥16 billion (fiscal 2013 budget); (3) Included in¥640 million; (4) ¥90 million)(1) In addition to taking steps to develop a safety net
for business stabilization, (1) [courses aimed atmodernizing management techniques will be held, anda health and safety manager training course was also
held to help prevent industrial accidents]. (Ongoing)(2) All 37 shipyards and shipbuilders on the Pacific coastof Tohoku together suffered devastating damage
in the Great East Japan Earthquake, as did many
shipbuilding-related businesses. The Ministry ofLand, Infrastructure and Transport, in cooperation
with the SME Agency and other relevant ministries
and agencies, will provide support for the utilizationof the Subsidy for Restoration and Reconstructionof (Groups of) SMEs, and for the procurement of

Section 3 Measures for small andmedium building contractors
and realtors

Chapter 7(1) Interim measures for coastal shipping
In order to ensure the smooth and steady
implementation of interim measures for coastal
shipping, support will be provided by establishinga separate system of government guarantees for theloans required to fund these measures. (Ongoing)(2) Joint shipbuilding program[Fiscal investment and loan program][Fiscal 2016 budget: ¥18.7 billion]
Through the joint shipbuilding program of the Japan
Railway Construction, Transport and Technology
Agency (JRTT), the construction of ships with highpolicy significance, such as ships that contributeto greenifying coastal shipping or contribute to themaintenance and activation of remote island routes,
will be promoted. (Ongoing)materials and equipment needed for the prompt
recovery of their facilities. (Ongoing) Additionally,
to promote the reconstruction of local shipbuilding
industries that make a significant contribution to thefishery industry in disaster-affected areas, a fund has
been established for groups of small and medium
shipbuilding businesses that contribute to the fisheryindustry in areas where the industry is a core industry
but face reconstruction difficulties due to groundsubsidence, as well as for assisting with the costsof constructing and repairing facilities to be used
jointly by the businesses and for constructing berthingfacilities. A total of 19 businesses in 8 projects havebeen selected to receive a subsidy of ¥11.42 billion
in total. Support will continue to be provided tobusinesses receiving the subsidy, to ensure proper
implementation of the subsidy. (2) Subsidy forreconstruction assistance projects in the shipbuilding
industry (Ongoing)(3) Subsidies will be provided for research anddevelopment projects for marine resource development
technologies that contribute to the strategic growth ofJapan’s maritime industries and for world-leading
marine environment technologies for reducing CO2
from vessels. (3) Subsidy for R&D for technologies
related to the maritime industry (Ongoing)(4) To deepen understanding of the shipbuilding industry
and attract a larger number of young people to theindustry, shipyard internships will be promoted, andefforts will be made to produce attractive educational
materials for high school students who are studying
shipbuilding. (Ongoing, New) The utilizationof foreign workers will also be continuously
promoted, to optimize the program for accepting
foreign shipbuilding workers. (4) Recruitment anddevelopment of human resources in the shipbuilding
industry (Ongoing)

1. Support program for revitalization of regional
construction industries[Fiscal 2016 budget: ¥170 million]
To support small, medium-sized and second-tierconstruction companies and construction-relatedcompanies (surveying, construction consultancy andgeological surveying businesses) that support local
communities such as by improving, maintaining andoperating social capital and contributing to disasterprevention and mitigation, revitalization support
advisors such as human resource development
specialists and SME business consultants will provide
wide-ranging advice to help resolve management
issues and technical issues such as construction
management.

543

For initiatives that provide models for contributing
to securing and developing workers and increasing
productivity, ongoing support will be provided bya team of support specialists for the formulation ofa plan and up to the achievement of the goal as apriority measure, and part of the costs incurred duringexecution of the plan will be subsidized.
Furthermore, best practices that contribute toproductivity improvement will be visualized basedon knowledge acquired through priority support
initiatives and revitalization support advisors, and a“production management model” for the constructionindustry will be created in reference to productivity
improvement initiatives that are implemented inother industries but are applicable to the constructionindustry, for utilization also in the support scheme ofthis program. Additionally, seminars and individual
consultations will be held to provide knowledge ofbest practices and production management models,and efficient and effective online education programs
and methods will be developed and administered on atest basis. (New)

2. Financial support in the construction industry(1) Implementation of the Local Construction
Management Enhancement Loan Program
To further facilitate funds procurement byconstruction companies acting as the main contractor,
the Local Construction Management Enhancement
Loan Program, which allows small and medium-sized
construction enterprises and second-tier construction
companies to receive a loan from loan businesses inproportion to the construction work using the contract
value credit from public works as collateral, willcontinue to be implemented. The program aims tosecure loan funds and reduce procurement interest
rates by attaching a loan guarantee to sublease funds
that loan businesses borrow from financial institutions
when providing a loan.
(2) Implementation of the Subcontracting Receivables
Protection Support Program
The Subcontracting Receivables Protection Support
Program will also continue to be implemented, tofacilitate the procurement of funding and the protectionof receivables held by building subcontractors andsimilar enterprises. The main purpose of this programis to minimize risk and compensate for losses by small,medium-sized and second-tier building subcontractors
when a receivable payable to a building subcontractor
by the main building contractor for subcontracted
building work is guaranteed by a factoring company.
(Ongoing)

3. Support for overseas business expansion in theconstruction industry[Fiscal 2016 budget: ¥70 million]
To support overseas expansions by second-tier and
SME construction companies, support will be provided544

as appropriate to the overseas expansion stage ofeach enterprise. For example, market surveys will be
conducted in the relevant country, and the possibilities
of Japanese construction enterprises to expand into
overseas construction markets will be analyzed. Basedon the results of these activities, nationwide seminars
on formulating overseas expansion strategies will beheld for business managers of second-tier and SME
construction companies considering an expansion into
a foreign country, and missions will be dispatched to
relevant countries. In addition to the above, support
will be provided for their participation in overseas
trade fairs, and initiatives for disseminating andintroducing the latest information will be implemented
via practical seminars on overseas constructionindustries, and a database of overseas construction
and real estate markets. (Ongoing)

4. Financial measures for small and medium
realtors

Loan guarantee programs designed to provide
guarantees for business loans for regional
revitalization and for loans to fund joint initiatives bysmall and medium realtors will be continued so as tosupplement credit and facilitate financing of small andmedium realtors. (Ongoing)

5. Regional housing greenification program[Fiscal 2016 budget: ¥11 billion]
To strengthen the regional production framework forwooden housing and reduce environmental burden,
support will be provided for the development ofenergy efficient and durable wooden housing andbuildings through groups comprising businesspersons
in related fields involved at all stages from provisionof materials through to design and implementation.
(Ongoing)

6. Program for developing a framework forwooden housing construction techniques[Fiscal 2016 budget: ¥510 million]
Support will be provided for initiatives related to thedevelopment of new carpenters and implementationof courses on renovation techniques for enhancing thetechnical levels of skilled carpenters. (Ongoing)

Section 4 Measures for theenvironmental sanitation
business
1. Measures for the environmental sanitation
business[Fiscal 2016 budget: ¥1.03 billion]
Subsidies will be provided to environmental sanitation
associations, the national environmental sanitation
guidance center, and prefectural environmental
sanitation guidance centers, to promote the creationof safe and comfortable lifestyle environments from

SME policies planned for fiscal 2016

the perspective of sanitation. Support was provided
specifically for rehabilitating the management ofenvironmental sanitation businesses such as the
hairdressing, dry cleaning and restaurant businesses,
maintaining and improving sanitation standards, andprotecting user and consumer interests. In fiscal 2016,
support was provided for management improvement
among environmental sanitation businesses, withpriority focus on collecting and compiling examples
of best practices that contribute to productivity
improvement, and on the implementation of model
projects that provide detailed management advice
and guidance in response to business type, size,
and regional characteristics (model project for
productivity improvement among environmental
sanitation businesses). (Ongoing)

2. Loans for ES businesses[Fiscal 2016 budget: ¥2.5 billion]
The JFC will provide low-interest loans(environmental sanitation loans) with the aim of
improving and otherwise promoting public health,by providing financial assistance to environmental
sanitation businesses. In fiscal 2016, the scope ofthe loans for working capital related to earthquake
resistance work will be expanded, and measures willcontinue to be taken to meet the demands for fundingby environmental sanitation businesses. (Ongoing)

Chapter 7545

Chapter 8 Other SME policies
Section 1 Environmental and energy
measures
1. Administrative support for the system forcertifying greenhouse gas reductions by SMEs
(J-Credit Scheme)[Fiscal 2016 budget: ¥440 million]
The J-Credit Scheme is a system for certifying theamounts of greenhouse gas emission reductions
achieved through capital investment by SMEs as“credits”, and assistance is provided with administering
the scheme and formulating business plans.
This program also develops the foundation for the
carbon offset mechanism whereby CO2 emissions
from products and services are offset with carbon
credits, by taking advantage of the “visualization”
of carbon emissions from products by the Carbon
FootPrint (CFP) system, and promoted demand for thecredits created under the J-Credit Scheme. By boosting
low-energy investments by SMEs and promoting thecirculation of funds in Japan through the use of these
credits, the program aims to achieve a good balance
between the environment and economy. (Ongoing)

2. Environment and Energy Measure Fund (foranti-pollution measures)[Fiscal investment and loan program]To promote anti-pollution measures by SMEs, lowinterest loans will continue to be provided by JFC
based on a review of relevant anti-pollution facilities
and interest rates. (Ongoing)[Fiscal 2016 budget: ¥2.7 billion]
To promote the introduction of energy-saving
facilities and the installation of top-runner equipment
before it reaches its target fiscal year, an interest
subsidy will be provided to businesses receiving
financing from private financial institutions. The
program will be operated through collaboration
with local financial institutions, to encourage active
investment in energy conservation by regional SMEs
and medium enterprises that actively engage in energy
conservation. (Ongoing)

6. Program for promoting the introduction ofenergy-saving measures[Fiscal 2016 budget: ¥750 million]
The program will aim to laterally expand the use ofenergy-saving measures by diagnosing the energy
and power saving potential of SMEs and medium
businesses and widely disseminating information
on energy-saving case examples and technologies.
Additionally, to promote energy-saving initiatives thathave been proposed through the diagnosis, a “regionalenergy conservation consultation platform” will beestablished to provide detailed consultation on energy
conservation in each region. (Ongoing)

7. Taxation scheme to promote environmentrelated investment[Taxation scheme]
The anti-pollution tax system will continue to be
implemented, to support the pollution prevention
initiatives of SMEs and micro-businesses. (Ongoing)[Taxation scheme]
To realize the energy mix that was formulated infiscal 2015, the fiscal 2016 tax reform will extend
the applicable period of the scheme two years, uponprioritizing additional investment in geothermal andwoody biomass power generation plants and othersuch relevant facilities. (Ongoing)

4. Energy Use Rationalization Business Support
Program

8. Program to create a fund to promote regional
low-carbon investment

3. Anti-pollution tax system[Fiscal 2016 budget: ¥51.5 billion]
This program subsidizes the costs required for energy
conservation and power peak countermeasures, andenergy conservation measures that cut across multiple
businesses through the replacement of existing
facilities and systems in plants and offices, othermodifications aimed at improving manufacturing
processes. Close attention is paid to compliancewith the Energy Conservation Act, to ensure priority
support to high-level energy conservation initiatives.
(Ongoing)

546

5. Program to promote the installation ofdesignated equipment to rationalize energy use[Fiscal 2016 budget: ¥6 billion]
In order to call in private funding to low-carbon
projects such as renewable energy projects that arelikely to be profitable but lack sufficient private
funding due to risks stemming from long lead times
or long investment recovery periods, funding will be
provided from the low-carbon investment promotion
fund. (Ongoing)

9. Eco-Lease promotion program[Fiscal 2016 budget: ¥1.8 billion]
The widespread adoption of low-carbon devices will
be supported by subsidizing part of the total lease

SME policies planned for fiscal 2016

payment and promoting the utilization of a no-deposit“lease” scheme among SMEs that have difficulty
coping with the very high initial investment costs(deposits) of installing low-carbon devices. (Ongoing)

10. Eco-Action 21

The Eco-Action 21 scheme, which is readily
accessible to second-tier enterprises and SMEs, willcontinue to be promoted, and a draft for revising the
Eco-Action 21 guidelines will be made and examined.
In addition, efforts will be made to increase thenumber of second-tier enterprises and SMEs thatengage in environmental management by continuing
to run trial programs specifically aimed at reducing
CO2. (Ongoing)

Section 2 Promotion of IT
1. Lending by governmental financial institutions
for investment in IT (IT Fund)[Fiscal investment and loan program]
The JFC will act as a reliable source of lending toenable SMEs to keep up with changes in the businessenvironment associated with the spread of and changes
in IT. (Ongoing)

Section 3 Measures on intellectual
property
1. Surveys of technical trends of patent application

2. Support for international patent applications by
SMEs, etc.

[Fiscal 2016 budget: ¥630 million]
In order to encourage SMEs to file strategic
applications for international patents, subsidies will be
provided to partially defray the costs incurred (such as
application fees to overseas patent offices, expenditureon hiring Japanese agents and local agents overseas,
and translation costs) by SMEs aspiring to expand
their business overseas. In addition to prefectural

3. Promotion of the wider use of IP systems[Fiscal 2016 budget: ¥80 million]
Information sessions will be held for individuals,
tailored according to their different levels ofknowledge and expertise on the intellectual propertysystem. These include sessions outlining the IP systemand explaining basic knowledge for beginners, alongwith sector-specific sessions with more specialized
content for people with some experience, looking at
topics such as the examination criteria for patents,
designs, and trademarks, the application of the trial
system and procedures for international applications.
Information sessions on legal reforms will also be
held, to widely explain the latest changes to IP-related
laws and regulations.
In fiscal 2016, information sessions for beginners will
be held in 47 prefectures, and information sessions forworking-level personnel will be held in major cities
throughout Japan. (Ongoing)

4. Program supporting measures by SMEs, etc. tocounter overseas infringement[Fiscal 2016 budget: ¥130 million]
To promote the timely and appropriate exercise ofindustrial property rights overseas by SMEs, the costs
required for an investigation of imitation products
through to procedures for issuing warning statements
and government seizure against the manufacturer ofimitation products will be subsidized through JETRO,
and a subsidy will also be provided to cover the cost of
consulting with a lawyer and the cost of a lawsuit in thecase where an SME is sued overseas for infringementof intellectual property by a local company. In fiscal
2016, a new measure will be offered to subsidize thecost needed to implement trials for the invalidation or
rescission of misappropriated trademark registrations.
(Ongoing)

5. Patent strategy portal site

[Fiscal 2016 budget: ¥10 million]
The patent strategy portal site on the Patent Office’s
website will provide online access to “data forself-analysis”, which includes individual data on
the number of patent applications, the number of
examination requests, and the patent allowance rateover the preceding 10 years, for applicants who haveapplied for a password. (Ongoing)

Chapter 8[Fiscal 2016 budget: ¥900 million]
Survey results that contribute to R&D strategies
and IP strategies in Japan’s industries will be madepublicly available via such sources as the Japan Patent
Office’s website. Based on the results of surveys onmarket trends and patent application trends, thesesurveys will mainly focus on technical sectors thathave potential to capture the market and technicalsectors that ought to be promoted by the government
in its science and technology policies. Also based on
the results of surveys on market trends and patentapplication trends, information on selected technicalsectors that are expected to create a new market indesignated countries will be provided to Japaneseindustries to benefit their formulation of R&D, IP andbusiness strategies. (Ongoing)

SME support centers, support will also be provided
by JETRO as a nationwide regional implementation
body. In fiscal 2016, the initiative will be expanded
to an even larger number of prefectural SME support
centers. (Ongoing)

6. Reductions in patent fees for SMEs

SMEs actively pursuing R&D will continue tobe subsidized through the reduction by half of547

examination request fees and patent charges (for 10
years from the first year).
Two measures will continue to be implemented forsmall and medium venture enterprises and microbusinesses. One measure reduces examination request
fees, patent charges (for 10 years from the first year),and administrative charges for overseas patents(administrative charges for investigations, forwarding
and preliminary examinations) by one third, andthe other measure subsidizes amounts equivalent to
two-thirds of the amount paid in international patentadministration fees and handling fees. (Ongoing)

7. Accelerated examination and accelerated appeal
examination system

In cases where the applicant or appellant is an SME
or micro-business, a system will be adopted whereby
examinations and appeal examinations could be fast
tracked by filing an “explanation of situation for
accelerated examination” or “explanation of situation
for accelerated appeal examination.” (Ongoing)

8. Provision of a one-stop IP service for SMEs
(General IP Help Desks)[Fiscal 2016 budget: Included in INPIT subsidy]“General IP Help Desks” have been established ineach prefecture and staffed by support staff in order toprovide a one-stop service for on-the-spot resolutionof IP concerns and problems encountered by SMEs
in the course of business administration. The use of
IP by SMEs will be further promoted by such means
as using IP experts to work with SMEs to jointly
resolve highly specialist issues, collaborating with
SME support agencies and similar organizations, andidentifying SMEs and other enterprises that are notmaking effective use of IP. In fiscal 2016, the National
Center for Industrial Property Information andTraining (INPIT) will become the main implementing
body of the program, and the scope of support will be
expanded to include medium enterprises. The support
framework will also be strengthened by further
augmenting specialists who provide support in regard
to employee invention regulations. (Ongoing)

9. Development of a one-stop support framework
for trade secrets (“Trade secret/IP strategy
consultation center—Trade secret hot line—”)[Fiscal 2016 budget: Included in INPIT subsidy]
The “Trade secret/IP strategy consultation center—
Trade secret hot line—” that was newly establishedin the National Center for Industrial Property
Information and Training (INPIT) on February 2,2015 cooperates with the IP comprehensive support
center in responding to consultations mainly from
SMEs through IP experts, and will continue to do soin fiscal 2016. The consultations dealt with specific548

IP strategies, such as the open/close strategy thatinvolves the rights of patents and confidentialityof trade secrets, as well as methods of managing
confidential trade secrets and leaks and outflows oftrade secrets. Particularly with respect to cases ofleakage and outflows of trade secrets, information
security measures and cyberattacks, the consultation
center will maintain its framework of responding toconsultations in cooperation with the National Police
Agency and Information Technology Promotion
Agency, Japan (IPA), in accordance with the content
of the consultation. Furthermore in fiscal 2016,activities for dissemination and awareness-raisingregarding trade secrets will be strengthened throughseminars on trade secret and intellectual property
strategies and e-learning contents, and the servicesof the consultation will be widely disseminated topromote their utilization by SMEs. (Ongoing)

10. Emerging Country IP Information Databank[Fiscal 2016 budget: ¥1 million; Included in INPIT
subsidy]
This is an informational website aimed at legal andIP managers in Japanese enterprises doing business indeveloping countries and similar regions. Its purpose
is to provide a wide range of IP information forvarious developing countries, including information
on application procedures, examination and litigation
procedures, licensing procedures and statistical andinstitutional trends. (Ongoing)

11. Dispatch of Global IP Producers[Fiscal 2016 budget: Included in INPIT subsidy]
The National Center for Industrial Property Information
and Training (INPIT) dispatches experts in IP
management (“Global IP Producers”) to assist SMEs
and other enterprises with promising technologies thatare likely to drive overseas expansion. These Global
IP Producers support overseas business expansion
by SMEs through the use of intellectual property, by
assisting in the formulation of IP strategies tailored to
the nature of the overseas operations and factors suchas the situations and systems in the target countries.
(Ongoing)

12. On-site and TV interview examinations[Fiscal 2016 budget: ¥20 million]
To provide support to staff in small and medium
venture enterprises throughout Japan, onsite interview
examinations will be held by inspectors sent tointerview venues across Japan, and TV interview
examinations will be held via the Internet using theapplicants’ own PCs. (Ongoing)SME policies planned for fiscal 201613. Program to support the analysis and utilizationof patent information by SMEs

[Fiscal 2016 budget: ¥140 million]
To promote the utilization of intellectual property
rights by SMEs, including their effective R&D andacquisition of rights, support will be provided forthe comprehensive analysis of patent informationin response to needs at the R&D, application andexamination request stages, not only to SMEs, butalso to regional public organizations, public researchorganizations, and associations and chambers ofcommerce and industry. (Ongoing)

14. Promotion of intellectual property financing[Fiscal 2016 budget: ¥100 million]
A comprehensive initiative will be implemented to“visualize” the value and assessment of businesses
that utilize SME intellectual property and promote
financing by financial institutions. For example,
by creating IP business assessment documents thatprovide information on the value and assessment ofsuch businesses visualized by a research company
and providing the document to financial institutions
that lack personnel who specialize in IP matters,
the initiative aims to ensure that such businesses
are properly taken into consideration in judgments
regarding financing to SMEs.
Support will also be provided in disseminatingknowledge of IP management. (Ongoing)

15. Program for promotion of businesses that utilize
Japanese intellectual properties

16. Program for strengthening capacities to support
the intellectual properties of regional SMEs

[Fiscal 2016 budget: ¥200 million]
To promote the protection and utilization of theintellectual properties of SMEs through detailed
support in consideration of the various issues andregional characteristics of SMEs, pioneering andadvanced initiatives for supporting intellectual
properties will be sought by Bureaus of Economy,
Trade and Industry, and support will be provided fortheir implementation. In fiscal 2016, a new measure
will be offered to support initiatives that primarily aim
to resolve priority issues that are difficult to address
collectively by the government. (Ongoing)

17. Subsidy for trade insurance against IP lawsuits
overseas[Fiscal 2016 budget: ¥60 million]
To allow SMEs to take measures against IP lawsuits
overseas, an overseas IP lawsuit insurance system
will be established and operated by a membership ofnationwide SMEs, to provide funds to cover for thecost of IP lawsuits overseas.
Subsidies will be granted to a nationwide organizationof SMEs, to subsidize 1/2 the premium of overseas IP
lawsuit insurances. By reducing the burden of paying
the insurance premium, the program encourages
subscription by SMEs. (New)

18. Dispatch of business producers for regional
revitalization[Fiscal 2016 budget: ¥100 million]
A new program to dispatch “business producers”
will be launched in fiscal 2016. With the objectiveof expanding business functions in the regions,“business producers” will support the developmentof an environment that is conducive to creating
businesses, by helping to identify hidden needs that
could lead to business, procure business capital by
matching the needs with seeds through the creation
and utilization of a regional network that includes
financial institutions, and cultivate a market. (New)

Chapter 8[Fiscal 2016 budget: ¥360 million]
The following initiatives will be implemented
via JETRO, to support the promotion of overseas
business expansion through the use of intellectual
properties of medium enterprises, SMEs and regionalorganizations that have acquired a regional collective
trademark.
(1) Candidate partners of license businesses with Japaneseenterprises possessing outstanding intellectual
properties will be listed up through a survey, andthe information will be utilized in business meetings
mentioned in (2) and (3) below.
(2) Support will be provided for the creation of businessmodels and the formulation of brand strategies thatlead to license businesses overseas, and event andbusiness opportunities will be provided via seminars
and training programs in Japan held by specialists andmultiple occasions for individual interviews overseas.
(3) Support will be provided, such as by arranging
opportunities for business meetings with business
partner candidates, through participation in trade fairs
and business meetings in Japan and overseas.
(4) Advice will be provided through intellectual property
specialists, with a view to preventing the outflow oftechnologies.

(5) The attractiveness of Japanese medium enterprises and
SMEs having prospective intellectual properties andregional organizations that have acquired a collective
trademark will be widely communicated overseas
in multiple languages, with careful consideration toprevent the outflow of technologies. (Ongoing)

19. Provision of patent information

In response to advanced and diversified user needs
for patent information, the Industrial Property Digital
Library (IPDL) has been revamped, and a new service
for patent information provision called Japan Platform
for Patent Information (J-PlatPat) was launchedin March 2015. Through a user-friendly interface,

549

J-PlatPat allows searches through official bulletins forpatents in Japan, utility model patents, designs, andtrademarks, and inquiries regarding the progress ofpatent applications.
Furthermore, to enable foreign patent documents
and particularly the increasing numbers of Chineseand South Korean patent documents to be searched
in Japanese, the Chinese and Korean Document
Translation and Search System was launched in
January 2015, and the Foreign Patent Information
Service (FOPISER) was launched in August 2015
for referencing patent information in the ASEAN andforeign countries that are prominent destinations ofoverseas expansion by Japanese enterprises.
All services are offered free of charge via the Internet.
(Ongoing)

Section 4 Promotion of standardization
1. Promotion of the strategic utilization ofstandardization by medium enterprises and
SMEs

Under the Standardization System for New Market
Creation that is based on the 2015 revision of theJapan Revitalization Strategy and IP Promotion Plan
2015, standardization of the outstanding technologies
and products of medium enterprises and SMEs will
be promoted, and local government bodies, industrial
promotion organizations, regional finance institutions,and university and public research institutions(partner institutions) will continue to cooperatewith the Japanese Standards Association (JSA) in
implementing the Standardization Support Partnershipto provide information and advice concerning thestrategic utilization of standardization in each region.
(Ongoing)

Section 5 Promotion of surveys andpublic information activities
1. Publicizing of policy

To publicize SME policy, pamphlets and leafletssummarizing the main points will be produced anddistributed to local governments, SME support
agencies and financial institutions, etc. Further
publicity will be generated by issuing information via
Mirasapo (portal site for SME support) and organizing“One-day SME Agency” events.
(1) Publication of booklets
Guidebooks for utilizing SME policies have been
produced, including the “Guide to the Use of SME
Policy,” which contains an introduction of more than
200 policies, and pamphlets on specific policies.
These will be distributed to a wide range of interested
parties, including SMEs, local government bodies,
SME support agencies (commerce and industry
associations, chambers of commerce and industry,

550etc.), financial institutions, and certified public tax
accountants, lawyers, certified public accountants, and
SME management consultants who provide support to
SMEs. (Ongoing)(2) Organization of “One-day SME Agency” events
Co-hosted by the SME Agency and host prefectures,
these events will be held both to explain thelatest measures to local SMEs and deepen theirunderstanding of the measures. They will also provide
a forum for exchanges of ideas and interaction, andcontribute to future revisions and improvements in
SME policy. These events have been held every year
since 1964. (Ongoing)(3) Publicity using the Internet
1) Website based publicity
The SME Agency website will post up-to-date
information on SME measures, information on
public offerings, and publicity materials such as
flyers and booklets. (Ongoing)2) E-mail newsletters
An e-mail newsletter will be produced inassociation with SME support agencies and sentout to subscribers every Wednesday. It introduces
dynamic SMEs and contains policy information,
local updates and information on topics such as
surveys and research reports. (Ongoing)(4) “Mirasapo” (portal website for supporting the futureof SMEs and micro-businesses)
Through the Mirasapo site, the latest support
information, information on how to apply for
subsidies, case examples of the utilization of support
schemes, etc. will be delivered to nationwide SMEs
in a timely and easy-to-understand manner. (Ongoing)

2. Production of the White Paper on Small andMedium Enterprises in Japan and the White
Paper on Small Enterprises

In order to ascertain the current situation of SMEs
and the challenges that they face, an annual report(2016 White Paper on Small and Medium Enterprises
in Japan) will be produced in accordance with theprovisions of Article 11 of the Small and Mediumsized Enterprise Basic Act. Also to ascertain the current
situation of small enterprises and the challenges they
face, an annual report (2016 White Paper on SmallEnterprises) will be produced in accordance withthe provisions of Article 12 of the Small Enterprises
Promotion Act. (Ongoing)

3. Basic Survey of Small and Medium Enterprises

The Basic Survey of Small and Medium Enterprises
will be conducted in accordance with the provisions ofArticle 10 of the Small and Medium-sized Enterprise
Basic Act, to obtain statistics concerning management
and financial information such as SME sales figuresand numbers of workers employed by SMEs.
(Ongoing)

SME policies planned for fiscal 2016

4. Publication of the Survey on SME BusinessConditions

The Survey on SME Business Conditions that is
conducted by the SMRJ will be published quarterly
to ascertain business trends among SMEs. (Ongoing)

Chapter 8551

Appended notes

Contents
Appended note 1-2-1 Numbers of SMEs by prefecture and enterprise size (2012 à 2014) .  .  .  .  .  .  .  .  .  .  .  .  . 555
Appended note 1-3-1 Calculation of labor productivity and TFP by enterprise size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 556
Appended note 1-3-2 Breakdown of SMEs in the living-related and personal services and amusement
services that have a higher labor productivity than the average of large enterprises,by industry (in terms of industrial group) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 557
Appended note 1-3-3 Breakdown of SMEs in the retail trade industry that have a higher labor productivity
than the average of large enterprises, by industry (in terms of industrial group).  .  .  .  . 557
Appended note 1-3-4 Method for comparing the labor productivity of each country(U.K., France, Germany).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 558
Appended note 2-2-1 Status of IT investment in terms of high and low-revenue enterprises .  .  .  .  .  .  .  .  .  .  .  . 559
Appended note 2-3-1 Labor productivity for exporting and non-exporting companies (SMMs). .  .  .  .  .  .  .  .  .  . 560
Appended note 2-4-1 State of BCP establishment at large enterprises.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 560

554

Appended notes

Appended note 1-2-1 Numbers of SMEs by prefecture and enterprise size (2012 à 2014)
SMEs
Increase/decreasein numbers

Of which mid-size enterprises
Rate of change

Increase/decreasein numbers

Rate of change

Of which micro enterprises
Increase/decreasein numbers

Rate of change

Hokkaido

-2667

-1.8%

+1910

+8.5%

-4577

-3.6%

Aomori

-806

-1.9%

+302

+5.4%

-1108

-3.1%

Iwate

-46

-0.1%

+528

+9.8%

-574

-1.7%

Miyagi

+2120

+3.4%

+1243

+13.0%

+877

+1.7%

Akita

-1206

-3.4%

+215

+4.9%

-1421

-4.6%

Yamagata

-1403

-3.4%

+184

+3.7%

-1587

-4.4%

Fukushima

-321

-0.5%

+938

+11.7%

-1259

-2.4%

Ibaraki

-1441

-1.7%

+675

+6.4%

-2116

-2.9%

Tochigi

-1746

-2.7%

+502

+6.4%

-2248

-4.0%

Gunma

-1868

-2.7%

+615

+7.2%

-2483

-4.1%

Saitama

-2392

-1.4%

+1649

+7.4%

-4041

-2.7%

Chiba

-822

-0.6%

+1598

+8.6%

-2420

-2.2%

Tokyo

+4707

+1.1%

+10152+12.2%

-5445

-1.5%

Kanagawa

-188

-0.1%

+3038

+10.0%

-3226

-1.9%

Niigata

-3010

-3.7%

+396

+3.9%

-3406

-4.8%

Toyama

-1086

-3.0%

+244

+4.7%

-1330

-4.2%

Ishikawa

-1027

-2.4%

+407

+7.2%

-1434

-3.9%

Fukui

-803

-2.6%

+302

+7.7%

-1105

-4.1%

Yamanashi

-806

-2.5%

+210

+5.9%

-1016

-3.5%

Nagano

-1254

-1.6%

+563

+6.4%

-1817

-2.6%

Gifu

-1986

-2.7%

+623

+6.4%

-2609

-4.0%

Shizuoka

-2645

-2.1%

+711

+4.3%

-3356

-3.0%

Aichi

-2931

-1.3%

+3098

+8.4%

-6029

-3.3%

Mie

-868

-1.6%

+500

+6.6%

-1368

-2.9%

Shiga

-304

-0.8%

+470

+8.9%

-774

-2.5%

Kyoto

-1417

-1.7%

+870

+7.5%

-2287

-3.1%

Osaka

-5388

-1.8%

+3978

+8.6%

-9366

-3.8%

Hyogo

-119

-0.1%

+2038

+9.0%

-2157

-1.6%

Nara

+190

+0.6%

+329

+7.2%

-139

-0.5%

Wakayama

-1343

-3.7%

+273

+6.5%

-1616

-5.0%

Tottori

-371

-2.2%

+148

+6.1%

-519

-3.5%

Shimane

-714

-3.0%

+183

+6.0%

-897

-4.4%

Okayama

-1048

-1.9%

+642

+7.8%

-1690

-3.6%

Hiroshima

-1790

-2.0%

+828

+6.4%

-2618

-3.5%

Yamaguchi

-1181

-2.9%

+263

+4.5%

-1444

-4.1%

Tokushima

-579

-2.2%

+172

+5.6%

-751

-3.2%

Kagawa

-724

-2.2%

+307

+7.0%

-1031

-3.6%

Ehime

-1006

-2.2%

+319

+5.4%

-1325

-3.3%

Kochi

-597

-2.3%

+193

+6.3%

-790

-3.4%

Fukuoka

+556

+0.4%

+2291

+9.8%

-1735

-1.4%

Saga

-436

-1.7%

+192

+5.2%

-628

-2.9%

Nagasaki

-942

-2.2%

+364

+6.2%

-1306

-3.5%

Kumamoto

-640

-1.2%

+463

+6.2%

-1103

-2.4%

Oita

-570

-1.6%

+339

+6.6%

-909

-2.9%

Miyazaki

-582

-1.6%

+392

+8.1%

-974

-3.0%

Kagoshima

-959

-1.8%

+453

+6.9%

-1412

-3.1%

Okinawa

+753

+1.5%

+744

+10.8%

+9

+0.0%

Total

-43706-1.1%+46854+8.4%-90560-2.8%

Sources: Recompiled from MIC, 2014 Economic Census for Business Frame and MIC, METI, 2012 Economic Census for Business
Activity.

555

Appended note 1-3-1 Calculation of labor productivity and TFP by enterprise size1)
Labor productivity and total factor productivity (TFP) by enterprise size and industry, as mentioned in Part I Chapter 3,
are estimated by the method shown below, using METI’s Basic Survey of Japanese Business Structure and Activities. Notethat enterprise size groupings are determined by applying the standards for capital and employee numbers by industry,
pursuant to the definition provided in the Small and Medium-sized Enterprise Basic Act (see Introductory notes). With
regard to the estimation of total factor productivity, it is normally preferable to take into consideration such factors as
operating rate of facilities and working hours and eliminate cyclical factors, but they are not taken into consideration here
due to the statistical constraints of enterprise size groupings.
1. Labor productivity
Labor productivity = Value added2) / Total number of employees in the head office + offices other than the head office
2. Total factor productivity (TFP)
When taking capital and labor as production factors and assuming the Cobb-Douglas production function, the relationshipamong value added3) (Y), total factor productivity (A), asset (K), labor (L), and labor share (ɑ) is as follows.

Y=A×K(1−α)×Lα··· (1)In Figs. 1-3-8 and 1-3-9, equation (1) was logarithmically differentiated to derive equation (2), to compare the growthrate of total factor productivity.

A' Y'
K'
L' ··· (2)= −(1−α) −α
A YKL(Reference) The following data was adopted from the Basic Survey of Japanese Business Structure and Activities.
Value added (Y)4) =(1) Operating profit + (2) Rent of movable property and real estate + (3) Personnel costs + (4) Taxes and public impositions(1) Net sales − Cost of sales − General administrative expenses (Selling, general and administrative expenses)= Operating profit(2) Rent of movable property and real estate(3) Total salary + Welfare expense = Personnel cost(4) Taxes and public impositions
Labor force (L) = Total number of employees in the head office and offices other than the head office
Asset (K) = Tangible fixed assets (incl. land)Labor share (α) = (Total salary + Welfare expense) / Value added
Capital share (1−α) =1 − (Total salary + Welfare expense) / Value added

1)
2)
3)
4)

556

The estimation of total factor productivity is based on Shoko Research Institute’s Trends in Earning Power and Productivity among SMEs.
Value added is expressed as the real amount after eliminating the impacts of cost fluctuations using a GDP deflator (2005 basis).
Same as above.
Depreciation costs were eliminated, in consideration of making comparisons with corporate statistics that do not include depreciation costs
within the value added amount.

Appended notes

Appended note 1-3-2 Breakdown of SMEs in the living-related and personal services andamusement services that have a higher labor productivity than the
average of large enterprises, by industry (in terms of industrial group)

Ceremonial occasions

11.8%

Race track operations and companies

4.4%
4.4%

36.8%

Miscellaneous amusement
and recreation services
Laundries

5.9%

Sports facilities

5.9%

Travel agency
7.4%

Public gardens and amusement parks
Other

23.5%

Source:Note:(Reference) Entire breakdown
Group nameBreakdown
Race track operations andcompanies

36.7%

Laundries

22.5%

Ceremonial occasions

16.4%

Miscellaneous laundry,
beauty and bath services

4.8%

Sports facilities

4.8%

Miscellaneous amusement
and recreation services

4.2%

Public gardens andamusement parks

3.2%

Travel agency

2.3%

Other

5.14%

(n=313)

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
The above does not include SMEs with less than 50 employees or less than ¥30 million in paid-up capital (or investment
fund).

Appended note 1-3-3 Breakdown of SMEs in the retail trade industry that have a higher
labor productivity than the average of large enterprises, by industry(in terms of industrial group)
1.3%

Motor vehicles

1.0%

5.7%

Fuel stores

Establishments engaged inadministrative or ancillary
economic activities(Food and beverage)(Warehouses, etc.)

26.6%

Stores, n.e.c.
(Home improvement stores, jewelry stores, etc.)

Motor vehicles

23.7%

Stores, n.e.c.
(Home improvement stores,
jewelry stores, etc.)

14.6%

6.3%
6.3%

7.8%

51.4%

8.9%

11.2%

(n=383)(Reference) Entire breakdown
Group nameBreakdown

Retail trade(Machinery and equipment except motor vehicles)

Fuel stores
Establishments engaged in administrative or
Establishments engaged inancillary economic activities
administrative or ancillary(Apparel accessories and notions) (Warehouses, etc.)
economic activities
Establishments engaged in administrative or(Apparel accessories andancillary economic activities
notions) (Warehouses, etc.)(Food and beverage) (Warehouses, etc.)
Retail trade
Medicine and toiletry stores(Machinery and equipment
except motor vehicles)

12.6%

Medicine and toiletry stores

5.8%

Establishments engaged inadministrative or ancillary
economic activities(Nonstore retailers)

1.4%Household utensil stores(Hardware, kitchenwareand chinaware stores)

1.3%

Household utensil stores(Hardware, kitchenware and chinaware stores)
Establishments engaged in administrative or
ancillary economic activities(Nonstore retailers)

8.1%

5.8%

(n=1,095)

Source:Note:

Recompiled from METI, 2014 Basic Survey of Japanese Business Structure and Activities.
The above does not include SMEs with less than 50 employees or less than ¥30 million in paid-up capital (or investment
fund).

557

Appended note 1-3-4 Method for comparing the labor productivity of each country(U.K., France, Germany)
The international comparison of labor productivity in Fig. Column 1-3-2 (2) was calculated based on the concept
described below, using data published by EUROSTAT and the Ministry of Finance’s Financial Statements Statistics ofCorporations by Industry, Annually5).

Labor productivity =Value added1)
Labor input2)

1. Value added○ U.K., France, Germany: EUROSTAT “Value added at factor cost”
http://ec.europa.eu/eurostat/web/structural-business-statistics/structural-business-statistics/sme* EUROSTAT changed its industrial classification in 2005. The new classification corresponds to that used in this column
as shown below6).
Industrial classification (NACE)
NACE Rev.1.1
NACE Rev.2 (2005–)

Classification used in Fig. Column 1-3-2 (2)In English

Manufacturing

Manufacturing

D

C

Wholesale/retail trade

Wholesale and retail tradeG

G

Accommodations, eating and drinking services

Accommodation and food service activities

H

I

Transport and information/communications

Transport, storage and communications

I

H, J

○ Japan: Gross value added has been recorded after adding up the “value added” and “depreciation costs” published in the
Financial Statements Statistics of Corporations by Industry, Annually.
After obtaining the value added amount in each country, purchasing power parity (PPP) was used to enable comparisons,in consideration of changes in price levels in each country.
OECD. Stat “Purchasing power parties for GDP” http://stats.oecd.org/
2. Labor input
In this column, labor input was calculated based on amount of time, in consideration of the differences in working hours
in each country.
○ U.K., France, Germany:• EUROSTAT “Number of persons employed”
http://ec.europa.eu/eurostat/web/structural-business-statistics/structural-business-statistics/sme• EUROSTAT “Number of hours worked by (weekly)”
http://ec.europa.eu/eurostat/web/microdata/european-union-labour-force-survey○ Japan: MOF, Financial Statements Statistics of Corporations by Industry, Annually; MHLW, Monthly Labour Survey5) For the classification of enterprise size, the standard of “250 workers” employed by EUROSTAT was applied to European countries. Thatis, enterprises with less than 250 workers were regarded as SMEs, and enterprises with more than 250 workers were regarded as large
enterprises. For Japan, the standard of “¥100 million in capital” that is employed in the Financial Statements Statistics of Corporations byIndustry, Annually was adopted. That is, enterprises with less than ¥100 million in capital were regarded as SMEs, and enterprises with morethan ¥100 million in capital were regarded as large enterprises.
6) The classification is based on the following document:
http://ec.europa.eu/eurostat/documents/3859598/5902521/KS-RA-07-015-EN.PDF/dd5443f5-b886-40e4-920d-9df03590ff91?version=1.0558

Appended notes

Appended note 2-2-1 Status of IT investment in terms of high and low-revenue enterprises(1) Implementation status of systems for operational efficiency and higher added value
High-revenue enterprises

Low-revenue enterprises

All enterprises(%)

Enterprise systems for operational efficiency

Business support systems for higher added value(2) Status of IT investments
High-revenue enterprises

Low-revenue enterprises

All enterprises

Ins

t al

l at

ion

of
ha
f o r r d wat as re /ska n aut of t w
d a o m areass
i st t i o nanceUu d t iliz ac o tionmp
ut i of
ng
c lo

De
v
an e l o p
ow m en c nt /o m ut il
pa iz any tiowe n o
bs f
i te
De
ve
an l o p
ow m enn
f o r c o m t /u t iov
pa liz aers ny tio
e a we n os m bs f
a r k i te
et s

c ia
so

l m Ut il
e d iz aiat
se ion o
r vi
ce f
s

of
on
at i
iliz
Ut

Ut

iliz

at i

on

of

e-c

e-c

om

om

me
(B rc eto C)me
(B rc e
to B
)

(%)

Source:Note:

Teikoku Databank, Ltd., Questionnaire on Small and Medium Enterprises’ Growth and Investment Activities (December2015), commissioned by the SME Agency.
Total does not always equal 100% as multiple responses were possible.

559

Appended note 2-3-1 Labor productivity for exporting and non-exporting companies(SMMs)
Companies that maintained consistent exports from fiscal 2001 to fiscal 2013 (Exporting companies) (n=897)
Companies that did not conduct any exports between fiscal 2001 and fiscal 2013 (Non-exporting companies) (n=3,353)(Labor productivity; FY2001=100)(Year)

Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.
1.	 Aggregates results for SMEs only.
2.	 Labor productivity calculated as value added domestically divided by number of domestic employees.
3.	 Aggregates results for companies responding to the survey every fiscal year from fiscal 2001 to fiscal 2013.

Source:Notes:

Appended note 2-4-1 State of BCP establishment at large enterprises
Finished establishing

Currently establishing

Planning to establish (incl. plans under consideration)

No plans to establish

Did not know what a BCP is

Other/No response

FY2013(n=1,008)

53.6

45.8

FY2009(n=369)

26.5

27.6

FY2007(n=600)

18.9

0%

560

15.0

8.3

2.2 1.0

0.3

FY2011(n=674)

Source:

19.9

30.8

16.4

21.3

16.9

29.1

5.7

11.1

12.7

12.0

22.7

0.4

1.5

0.3

100%

Cabinet Office, Survey of the Actual State of Business Continuity and Disaster Prevention Initiatives of Enterprises.

Bibliography

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564

Supplementary
statistical data

Contents
Table 1

Number of business establishments and enterprises by industry and size
(private, non-primary industry, 2014). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 566
Table 2 Number of enterprises and number of regular employees/workers by prefecture(private, non-primary industry, 2014). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 569
Table 3 Number of workers by industry and size (private, non-primary industry, 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 572
Table 4 Trends in entry and exit rates (non-primary industries).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 577
Table 5 Trends in entry and exit rates by industry(based on number of business establishments, annual average).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 580
Table 6 Trends in entry and exit rates based on business establishments with employees.  .  .  .  .  .  .  .  .  .  .  .  . 581
Table 7 Trends in number of incorporation registrations and company entry and exit rates. .  .  .  .  .  .  .  .  .  .  .  . 581
Table 8 Number of business establishments and workers and value of shipments in manufacturing .  .  .  .  . 582
Table 9 Capital investment and value added in manufacturing.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 583
Table 10 Number of business establishments and workers and value of sales in wholesale trade .  .  .  .  .  .  .  . 584
Table 11 Number of business establishments and workers and value of sales in retail trade .  .  .  .  .  .  .  .  .  .  .  . 585
Table 12 State of corporate bankruptcies.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 586
Table 13 Outstanding lending to SMEs by type of financial institution.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 587
Table 14 Sales and operating costs of SMEs (surveyed industries) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 588
Table 15 State of SME capital (balance sheet) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 589
Table 16 Financial status, profit status and key financial indices of corporate enterprises (median values). .  .  . 590
Table 17 Financial status, profit status and key financial indices of micro enterprises (median values).  .  .  .  . 592
Table 18 Business conditions DI by prefecture.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 594
Table 19 No. of enterprises, regular employees, total no. of workers, sales and value added by industry,organization and no. of regular employees.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 597
Table 20 No. of sole proprietor, unpaid family worker, officers with payment, regular employees andtemporary employees by industry and size (2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 602
Table 21 No. of enterprises, regular employees, total no. of workers, sales and value added by industry,
size and organization. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 603

Table 1 Number of business establishments and enterprises by industry and size
(private, non-primary industry, 2014)(1) Business establishments
Small and medium business establishments
Of which micro businessestablishments
Industry
Mining and quarrying of stone and gravel% of total

No.

% of total% of total

No.

Total
No.

% of total

1,977

99.8

1,788

90.3

3

0.2

1,980

100.0

Construction

514,841100.0

484,558

94.1

238

0.0

515,079

100.0

Manufacturing483,76299.3

406,982

83.6

3,299

0.7

487,061

100.0Electricity, gas, heat supply and water

4,429

98.3

2,883

64.0

77

1.7

4,506

100.0

Information and communications

65,233

98.5

39,493

59.6

1,003

1.5

66,236

100.0

Transport and postal activities

133,403

99.5

94,048

70.1

715

0.5

134,118100.0

Wholesale and retail trade

1,385,909

98.5

909,39464.6

21,326

1.5

1,407,235

100.0

Wholesale trade379,07399.1

221,195

57.9

3,281

0.9

382,354100.0

1,006,836

98.2

688,199

67.1

18,0451.8

1,024,881

100.0

Finance and insurance

86,693

99.6

68,938

79.2

322

0.4

87,015100.0

Real estate and goods rental and leasing

383,956

99.9

362,638

94.4

284

0.1

384,240

100.0

Scientific research, professional andtechnical services

226,715

99.3

170,449

74.6

1,696

0.7

228,411100.0

Accommodations, eating and drinking
services

718,24599.1

489,571

67.5

6,845

0.9

725,090

100.0

Living-related and personal services andamusement services

484,79199.8

422,717

87.0

1,215

0.2

486,006

100.0

Education, learning support

168,02298.9

117,628

69.2

1,934

1.1

169,956

100.0

Medical, health care and welfare

409,34297.8

175,047

41.8

9,383

2.2

418,725

100.0

Compound services

33,81797.3

18,189

52.3

946

2.7

34,763100.0

Services (not elsewhere classified)

350,624

97.8

246,779

68.9

7,767

2.2

358,391100.0

5,451,759

99.0

4,011,102

72.8

57,0531.0

5,508,812

100.0

Retail trade

Non-primary industry total
Source:Notes:

566

No.

Large businessestablishments

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Agriculture, forestry and fisheries are not included.
2.	Business establishments are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (seeintroductory notes).
3.	 The percentages of the total for micro business establishments indicate their proportion of the total number of business establishments.
4.	 Industries are classified according to the October 2013 revised system of industry classification.
5.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
6. Each figure includes business establishments with only temporary staff (total number of workers = 0).
7.	 The figures are those as of July 2014.

Supplementary statistical data

(2) Enterprises
SMEs
Of whichmicro enterprises
Industry
Mining and quarrying of stone and gravel

No.

% of total

No.

% of total

Large enterprises% of total

No.

Total
No.

% of total

1,454

99.7

1,284

88.1

4

0.3

1,458

100.0

Construction

455,26999.9

435,110

95.5

284

0.1

455,553

100.0

Manufacturing413,33999.5

358,769

86.4

1,957

0.5

415.296

100.0Electricity, gas, heat supply and water

1,000

97.2

708

68.8

29

2.8

1,029

100.0

Information and communications

45,25498.8

29,993

65.5

533

1.2

45,787100.0

Transport and postal activities

73,136

99.7

53,255

72.6

251

0.3

73,387100.0

Wholesale and retail trade896,102

99.5

712,939

79.2

4,182

0.5

900,284

100.0

Wholesale trade

227,908

99.3

162,533

70.8

1,575

0.7

229,483

100.0

Retail trade668,19499.6

550,406

82.1

2,607

0.4

670,801

100.0

Finance and insurance

29,95999.1

28,821

95.4

259

0.9

30,218100.0

Real estate and goods rental and leasing

319,22199.9

311,568

97.5

296

0.1

319,517100.0

Scientific research, professional andtechnical services

188,455

99.7

160,861

85.1

622

0.3

189,077

100.0

Accommodations, eating and drinking
services544,28199.9

464,989

85.3

759

0.1

545,040

100.0

Living-related and personal services andamusement services

382,304

99.9

353,250

92.3

542

0.1

382,846

100.0

Education, learning support

107,479

99.9

94,409

87.7

129

0.1

107,608

100.0

Medical, health care and welfare

210,326

99.9

416,427

69.5

258

0.1

210,584

100.0

3,492

100.0

3,478

99.6

1

0.0

3,493

100.0

138,157

99.3

96,393

69.3

1,004

0.7

139,161100.0

3,809,228

99.7

3,252,254

85.1

11,1100.3

3,820,338

100.0

Compound services
Services (not elsewhere classified)
Non-primary industry total
Source:Notes:

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Number of enterprises = Number of companies + Business establishments of sole proprietors.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4.	 The classification of conditions in 3. includes the numbers of enterprises regarded as SMEs and micro enterprises in laws and regulations
concerning SMEs other than the Small and Medium-sized Enterprise Basic Act.
5.	 The percentages of the total for micro enterprises indicate their proportion of the total number of enterprises.
6.	 Industries are classified according to the October 2013 revised system of industry classification.
7.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
8.	 The figures are those as of July 2014.

567

(3) Companies
SMEs
Of whichmicro enterprises
Industry
Mining and quarrying of stone and gravel% of total

No.

% of total

No.

Total
% of total

No.

1,314

99.7

1,146

86.9

4

0.3

1,318

100.0

Construction

303,52199.9

283,424

93.3

284

0.1

303,805

100.0

Manufacturing

268,55299.3

214,231

79.2

1,957

0.7

270,509

100.0

990

97.2

698

68.5

29

2.8

1,019

100.0

Information and communications

42,98998.8

27,750

63.8

533

1.2

43,522100.0

Transport and postal activities

54,96699.5

35,111

63.6

251

0.5

55,217100.0

Wholesale and retail trade444,316

99.1

291,708

65.1

4,027

0.9

448,343

100.0

Wholesale trade

179,93699.1

116,348

64.1

1,575

0.9

181,511

100.0

Retail trade

264,38099.1

175,360

65.7

2,452

0.9

266,832

100.0

Finance and insurance

23,712

98.9

22,574

94.2

259

1.1

23,971

100.0

Real estate and goods rental and leasing

170,887

99.8

163,355

95.4

296

0.2

171,183

100.0

Scientific research, professional andtechnical services

86,12899.3

65,648

75.7

607

0.7

86,735100.0

Accommodations, eating and drinking
services

108,051

99.3

57,230

52.6

721

0.7

108,772

100.0

Living-related and personal services andamusement services

68,88699.2

44,376

63.9

536

0.8

69,422

100.0

Education, learning support

17,715

99.3

9,622

53.9

125

0.7

17,840100.0

Medical, health care and welfare

39,00099.5

13,869

35.4

187

0.5

39,187

100.0

85

98.8

76

88.4

1

1.2

86

100.0

88,693

98.9

48,083

53.6

1,000

1.1

89,693100.0

1,719,805

99.4

1,278,901

73.9

10,8170.6

1,730,622

100.0Electricity, gas, heat supply and water

Compound services
Services (not elsewhere classified)
Non-primary industry total
Source:Notes:

568% of total

No.

Large enterprises

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Business establishments of sole proprietors are not included.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes)
4.	 The classification of conditions in 3. includes the numbers of enterprises regarded as SMEs and micro enterprises in laws and regulations
concerning SMEs other than the Small and Medium-sized Enterprise Basic Act.
5.	 The percentages of the total for micro enterprises indicate their proportion of the total number of enterprises.
6.	 Industries are classified according to the October 2013 revised system of industry classification.
7.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
8.	 The figures are those as of July 2014.

Supplementary statistical data

Table 2 Number of enterprises and number of regular employees/workers by prefecture(private, non-primary industry, 2014)(1) Number of enterprises
SMEs

Of which micro enterprises

Large enterprises
No.

Total

No.

% of total

No.

% of total% of total

No.

Hokkaido

151,123

99.8

128,686

85.0

279

0.2

151,402% of total
100.0

Aomori41,86399.9

36.319

86.6

52

0.1

41,915

100.0

Iwate

38,66599.8

33,263

85.9

72

0.2

38,737100.0

Miyagi61,68599.8

52,151

84.4

134

0.3

61,819

100.0

Akita

35,09899.9

30,666

87.3

32

0.1

35,130

100.0

Yamagata

40,87499.8

35,940

87.8

64

0.2

40,938100.0

Fukushima

61,56699.9

53,545

86.9

70

0.1

61,636

100.0

Ibaraki

84,26899.9

73,717

87.4

93

0.1

84,361

100.0

Tochigi

63,51699.8

55,713

87.6

99

0.2

63,615

100.0

Gunma

68,79299.9

60,220

87.4

97

0.2

68,889100.0

Saitama

172,182

99.9

149,751

86.8

253

0.2

172,435

100.0

Chiba

128,900

99.8

110,411

85.5

226

0.2

129,126

100.0

Tokyo

447,659

99.0

364,265

80.6

4,538

1.2

452,197

100.0

Kanagawa

199,958

99.7

169,491

84.5

572

0.3

200,530

100.0

Niigata

80,49999.8

70,248

87.1

146

0.2

80,645100.0

Toyama36,68699.8

31,505

85.7

90

0.3

36,776100.0

Ishikawa

42,80799.8

37,193

86.7

88

0.2

42,895

100.0

Fukui

30,62699.9

26,711

87.1

43

0.2

30,669100.0

Yamanashi

32,48599.9

28,906

88.9

38

0.1

32,523

100.0

Nagano77,32699.8

68,597

88.6

130

0.2

77,456

100.0

Gifu

74,44699.9

64,763

86.9

96

0.1

74,542

100.0

Shizuoka

127,440

99.8

111,010

87.0

203

0.2

127,643

100.0

Aichi

220,767

99.7

183,800

83.0

644

0.4

221,411

100.0

Mie

54,82699.8

47,246

86.0

85

0.2

54,911

100.0

Shiga

36,52099.8

31,225

85.4

60

0.2

36,580

100.0

Kyoto

84,702

99.8

73,047

86.0

194

0.3

84,896

100.0

Osaka

292,99399.6

246,927

84.0

1,106

0.4

294,099

100.0

Hyogo

154,64699.8

132,006

85.2

303

0.2

154,949

100.0

Nara

33,29699.9

28,749

86.3

27

0.1

33,323

100.0

Wakayama

36,27099.9

32,099

88.4

26

0.1

36,296100.0

Tottori

17,11899.9

14,709

85.8

25

0.2

17,143

100.0

Shimane23,542

99.9

20,508

87.0

21

0.1

23,563

100.0

Okayama

55,22499.8

47,004

85.0

98

0.2

55,322

100.0

Hiroshima

87,41499.8

74,540

85.1

164

0.2

87,578100.0

Yamaguchi

40,991

99.9

35,091

85.5

49

0.1

41,040100.0Tokushima

26,911

99.9

23,816

88.4

25

0.1

26,936

100.0

Kagawa32,74399.8

28,357

86.4

62

0.2

32,805

100.0

Ehime

45,89999.8

40,008

87.0

76

0.2

45,975

100.0

Kochi

26,37399.9

23,326

88.4

26

0.1

26,399100.0

Fukuoka

143,058

99.8

119,666

83.4

350

0.3

143,408

100.0

Saga

25,521

99.9

21,819

85.4

34

0.2

25,555

100.0

Nagasaki

43,74599.9

37,851

86.4

49

0.1

43,794

100.0

Kumamoto

52,73099.9

45,321

85.8

65

0.1

52,795

100.0

Oita

36,68799.9

31,580

86.0

42

0.1

36,729100.0

Miyazaki

36,90999.932,074

86.8

35

0.1

36,944100.0

Kagoshima

52,721

99.9

46,155

87.5

56

0.1

52,777

100.0

Okinawa

49,15899.9

42,259

85.8

73

0.2

49,231100.0

3,809,228

99.7

3,252,254

85.1

11,1100.3

3,820,338

100.0

Total
Source:Notes:

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Number of enterprises = Number of companies + Business establishments of sole proprietors.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4.	 The classification of conditions in 3. includes the numbers of enterprises regarded as SMEs and micro enterprises in laws and regulations
concerning SMEs other than the Small and Medium-sized Enterprise Basic Act.
5.	 The percentages of the total for micro enterprises indicate their proportion of the total number of enterprises.
6.	 Industries are classified according to the October 2013 revised system of industry classification.
7.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
8.	 The figures are those as of July 2014.

569

(2) Number of regular employees
SMEs
Of which micro enterprises
No. of regular
employees

No. of regular
employees% of total

No. of regular
employees

Total% of total

No. of regular
employees% of total

Hokkaido

986,91081.7

236,699

19.6

221,27618.3

1,208,186

100.0

Aomori

244,072

89.3

60,85822.3

29,298

10.7

273,370

100.0

Iwate

237,83185.9

60,267

21.8

39,08614.1

276,917100.0

Miyagi

416,479

82.0

98,492

19.4

91,24418.0

507,723

100.0

Akita

194,177

90.5

52,323

24.4

20,3329.5

214,509

100.0

Yamagata

227,040

85.3

60,35022.7

39,205

14.7

266,245

100.0

Fukushima

379,288

83.8

98,68621.8

73,24716.2

452,535

100.0

Ibaraki

491,04684.7

141,134

24.4

88,523

15.3

579,569

100.0

Tochigi

356,846

83.3

100,961

23.6

71,491

16.7

428,337

100.0

Gunma

398,398

77.8

106,323

20.8

113,68222.2

512,080

100.0

Saitama

1,086,987

78.8

279,43820.3

292,372

21.2

1,379,359

100.0

Chiba

781,45974.0

200,799

19.0

274,33726.0

1,055,796

100.0

Tokyo

4,817,898

39.0

684,3115.5

7,524,907

61.0

12,342,805

100.0

Kanagawa

1,404,473

70.2

311,030

15.5

597,10829.8

2,001,581

100.0

Niigata

487,35382.4

129,58421.9

104,06217.6

591,415

100.0

Toyama247,854

79.5

61,48719.7

63,96520.5

311,819

100.0

Ishikawa

265,946

85.5

66,58821.4

45,21614.5

311,162

100.0

Fukui

182,289

86.9

50,511

24.1

27,52013.1

209,809

100.0

Yamanashi

161,15388.1

48,99826.8

21,75811.9

182,911

100.0

Nagano415,655

82.9

113,992

22.7

85,78817.1

501,443

100.0

Gifu

449,673

82.6

117,652

21.6

94,947

17.4

544,620

100.0

Shizuoka

798,008

79.6

201,17920.1

205,090

20.4

1,003,098

100.0

Aichi

1,842,707

66.1

366,180

13.1

944,13333.9

2,786,840

100.0

Mie

327,36286.9

86,261

22.9

49,252

13.1

376,614

100.0

Shiga

226,504

81.6

55,31919.950,941

18.4

277,445

100.0

Kyoto

522,455

71.2

122,97316.8

210,84328.8

733,298

100.0

Osaka

2,301,988

62.7

464,87612.7

1,367,457

37.3

3,669,445

100.0

Hyogo

985,66679.3

232,37918.7

257,60620.7

1,243,272

100.0

Nara

180,094

91.6

48,79024.8

16,465

8.4

196,559

100.0

Wakayama

171,875

89.2

51,31326.6

20,724

10.8

192,599

100.0

Tottori

104,335

94.6

26,663

24.2

5,989

5.4

110,324

100.0

Shimane131,01390.7

36,98825.6

13,4759.3

144,488

100.0

Okayama

380,130

80.7

88,57018.8

90,97619.3

471,106

100.0

Hiroshima

626,190

74.5

138,21416.5

214,00725.5

840,197

100.0

Yamaguchi

249,65380.1

64,614

20.7

62,05019.9

311,703

100.0

Tokushima

125,73684.8

37,51825.3

22,56215.2

148,298

100.0

Kagawa207,448

79.5

49,94619.1

53,37420.5

260,822

100.0

Ehime

265,849

84.1

71,40422.6

50,09215.9

315,941

100.0

Kochi

126,135

85.6

36,08824.5

21,15814.4

147,293

100.0

Fukuoka

1,031,005

75.3

219,993

16.1

338,34024.7

1,369,345

100.0

Saga

147,849

87.7

39,27623.3

20,72912.3

168,578

100.0

Nagasaki

237,61989.9

65,11924.6

26,55710.1

264,176

100.0

Kumamoto

304,595

89.4

81,00523.8

36,24710.6

340,842

100.0

Oita

213,163

82.5

56,45921.945,11617.5

258,279

100.0

Miyazaki

192,633

92.5

52,792

25.3

15,685

7.5

208,318

100.0

Kagoshima

274,51087.1

78,38324.9

40,78512.9

315,295

100.0

Okinawa
Total
Source:Notes:

570% of total

Large enterprises

259,327

84.5

67,832

22.1

47,57015.5

306,897100.0

26,466,676

65.2

5,920,617

14.6

14,146,587

34.8

40,613,263

100.0

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 The figures shown indicate the total number of regular employees of companies and sole proprietors.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4. The percentage of regular employees in micro enterprises is indicated as the ratio to the total number of regular employees.
5.	 Industries are classified according to the October 2013 revised system of industry classification.
6.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
7.	 The figures are those as of July 2014.
8.	 The number of regular employees includes regular employees overseas.

Supplementary statistical data

(3) Number of workers
SMEs
Of which micro enterprises
Total
no. of workers% of total

Total
no. of workers

Large enterprises

Total% of total

Total
no. of workers% of total

Total
no. of workers% of total

Hokkaido

1,265,958

84.8

442,91229.7

226,966

15.2

1,492,924

100.0

Aomori

318,762

91.4

118,692

34.0

29,993

8.6

348,755

100.0

Iwate

305,956

88.5

112,193

32.4

39,934

11.5

345,890

100.0

Miyagi

532,83485.1

185,735

29.7

93,37514.9

626,209

100.0

Akita

254,609

92.4

99,74536.2

20,8887.6

275,497

100.0

Yamagata

299,260

90.2

117,848

35.5

32,6769.8

331,936

100.0

Fukushima

481,870

86.2

187,353

33.5

76,82913.8

558,699

100.0

Ibaraki

643,25087.8

263,09035.9

89,201

12.2

732,451

100.0

Tochigi

472,300

86.8

192,72135.4

71,98813.2

544,288

100.0

Gunma

522,22881.8

204,50732.1

115,85618.2

638,084

100.0

Saitama

1,405,272

80.9

527,33730.4

331,96119.1

1,737,233

100.0

Chiba

1,025,489

78.3

384,72129.4

284,05121.7

1,309,540

100.0

Tokyo

5,758,435

43.0

1,291,889

9.7

7,628,071

57.0

13,386,506

100.0

Kanagawa

1,787,764

75.3

593,870

25.0

586,83324.7

2,374,597

100.0

Niigata

632,25284.2

240,71432.0

118,86715.8

751,119

100.0

Toyama313,87883.1

111,447

29.5

63,75716.9

377,635

100.0

Ishikawa

343,676

88.6

127,13832.8

44,41711.4

388,093

100.0

Fukui

237,607

89.6

94,68835.7

27,636

10.4

265,243

100.0

Yamanashi

219,479

90.8

96,89140.1

22,1679.2

241,646

100.0

Nagano556,25186.3

226,33835.1

88,02913.7

644,280100.0

580,04386.0

224,81733.3

94,514

14.0

674,557

100.0

Shizuoka

Gifu

1,016,324

83.5

378,92631.1

201,36416.5

1,217,688

100.0

Aichi

2,265,083

71.3

672,037

21.2

912,38328.7

3,177,466

100.0

Mie

428,82588.7

166,076

34.3

54,863

11.3

483,688

100.0

Shiga

297,59685.2

108,74831.1

51,722

14.8

349,318

100.0

Kyoto

684,206

76.3

247,76127.6

213,001

23.7

897,207

100.0

Osaka

2,876,197

67.4

876,170

20.5

1,391,018

32.6

4,267,215

100.0

Hyogo

1,270,454

84.0

447,374

29.6

242,206

16.0

1,512,660

100.0

Nara

244,225

94.4

99,67938.5

14,487

5.6

258,712

100.0

Wakayama

235,859

91.9

103,461

40.3

20,8908.1

256,749

100.0

Tottori

134,974

95.7

50,336

35.7

6,113

4.3

141,087

100.0

Shimane174,127

92.7

69,66337.1

13,760

7.3

187,887

100.0

Okayama

484,797

83.9

166,57128.8

93,17316.1

577,970

100.0

Hiroshima

786,462

78.3

258,83525.8

218,29321.7

1,004,755

100.0

Yamaguchi

323,48983.8

120,41931.2

62,45916.2

385,948100.0

Tokushima

175,15488.6

77,77039.3

22,507

11.4

197,661

100.0

Kagawa268,159

83.0

96,76029.9

54,94417.0

323,103

100.0

Ehime

350,12787.1

138,161

34.4

51,86012.9

401,987

100.0

Kochi

173,284

89.1

73,80037.9

21,273

10.9

194,557

100.0

Fukuoka

1,305,475

79.0

419,767

25.4

346,49021.0

1,651,965

100.0

Saga

193,854

90.8

74,63434.9

19,755

9.2

213,609

100.0

Nagasaki

313,811

92.8

124,62436.9

24,354

7.2

338,165

100.0

Kumamoto

401,899

91.5

155,78335.5

37,282

8.5

439,181

100.0

Oita

278,51685.8

107,51333.1

46,24014.2

324,756

100.0

Miyazaki

257,285

93.5

103,63837.7

17,9556.5

275,240

100.0

Kagoshima

373,41788.2

155,73736.8

50,13911.8

423,556

100.0

Okinawa
Total
Source:Notes:

339,03887.3

129,677

33.4

49,112

12.7

388,150

100.0

33,609,810

70.1

11,268,566

23.5

14,325,652

29.9

47,935,462

100.0

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 The figures shown indicate the total number of regular employees of companies and sole proprietors.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4. The percentage of workers in micro enterprises is indicated as the ratio to the total number of workers.
5.	 Industries are classified according to the October 2013 revised system of industry classification.
6.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
7.	 The figures are those as of July 2014.

571

Table 3 Number of workers by industry and size (private, non-primary industry, 2014)(1) Business establishments
Small and medium business establishments
Size
Item

Industry

Mining and quarrying of stone andgravelNo. ofworkers% of total

No. ofworkers% of total

18,38092.4

10,992

55.3

Construction

3,635,083

95.9

2,378,095

62.7

Manufacturing

6,702,804

73.0

2,199,376

23.9

139,38870.8

20,070

10.2

Information and communications

1,012,199

62.1

131,253

Transport and postal activities

2,815,618

86.7

Wholesale and retail trade

9,168,926

Wholesale trade
Retail trade

Large businessestablishments
No. ofworkers

No. ofworkers% of total

19,894100.0

156,500

4.1

3,791,583

100.0

2,485,321

27.0

9,188,125

100.0

57,46029.2

196,848

100.0

8.0

618,48037.9

1,630,679

100.0

650,751

20.0

432,666

13.3

3,248,284

100.0

76.2

2,320,758

19.3

2,862,419

23.8

12,031,345

100.0

3,116,667

77.7

607,350

15.1

892,82722.3

4,009,494

100.0

6,052,259

75.4

1,713,408

21.4

1,969,592

24.6

8,021,851

100.0

Finance and insurance

1,236,218

81.7

459,82930.4

276,68618.3

1,512,904

100.0Real estate and goods rental andleasing

1,380,293

92.5

913,87261.3

111,432

7.5

1,491,725

100.0

Scientific research, professional andtechnical services

1,248,243

69.9

404,505

22.6

538,46530.1

1,786,708

100.0

Accommodations, eating and drinking
services

4,753,672

86.6

1,323,760

24.1

735,899

13.4

5,489,571

100.0

Living-related and personal services
and amusement services

2,235,192

89.1

1,063,798

42.4

273,303

10.9

2,508,495

100.0

Education, learning support

1,142,805

63.4

225,506

12.5

659,98236.6

1,802,787

100.0

Medical, health care and welfare

4,795,577

66.6

481,3616.7

2,407,529

33.4

7,203,106

100.0

270,398

53.3

60,88412.0

236,46646.7

506,864

100.0

Services (not elsewhere classified)

2,605,339

55.9

557,387

11.9

2,058,992

44.1

4,664,331

100.0

Non-primary industry total

43,160,135

75.6

13,202,197

23.1

13,913,114

24.4

57,073,249

100.0

Compound services

Source:Notes:

1,514% of total

Total

7.6

Electricity, gas, heat supply and water572

Of which micro businessestablishments

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Agriculture, forestry and fisheries are not included.
2.	Business establishments are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (seeintroductory notes).
3.	 The percentages of the total for micro business establishments indicate their proportion of the total number of business establishments.
4.	 Industries are classified according to the October 2013 revised system of industry classification.
5.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
6.	 The figures are those as of July 2014.

Supplementary statistical data

(2) Enterprises (number of regular employees of companies and sole proprietors)
SMEs
Size
Item

Industry

Mining and quarrying of stone andgravelOf whichmicro enterprises
No. ofregularemployees% of total

No. ofregularemployees% of total

14,560

77.5

6,597

35.1

Construction

2,467,738

85.7

1,400,733

Manufacturing

5,681,828

62.0

1,343,064

Electricity, gas, heat supply and water

31,975

16.2

Information and communications

880,620

Transport and postal activities

Large enterprises
No. ofregularemployees% of total

Total
No. ofregularemployees% of total

4,231

22.5

18,791

100.0

48.7

410,48714.3

2,878,225

100.0

14.6

3,487,977

38.0

9,169,805

100.0

3,371

1.7

164,84083.8

196,815

100.0

60.6

63,958

4.4

573,62839.4

1,454,248

100.0

2,084,844

72.3

276,857

9.6

800,06427.7

2,884,908

100.0

Wholesale and retail trade

5,643,075

61.2

850,130

9.2

3,583,16438.8

9,226,239

100.0

Wholesale trade

2,090,910

70.5

264,850

8.9

876,43729.5

2,967,347

100.0

Retail trade

3,552,165

56.8

585,280

9.4

2,706,727

43.2

6,258,892

100.0

Finance and insurance

170,361

14.4

64,4105.5

1,010,992

85.6

1,181,353

100.0Real estate and goods rental andleasing684,658

75.6

276,58230.5

220,98524.4

905,643

100.0

Scientific research, professional andtechnical services

751,93366.8

215,48519.1

373,43133.2

1,125,364

100.0

Accommodations, eating and drinking
services

2,738,473

68.7

618,333

15.5

1,247,530

31.3

3,986,003

100.0

Living-related and personal services
and amusement services

1,345,409

77.8

330,44919.1

382,99422.2

1,728,403

100.0

Education, learning support

413,400

80.6

65,30712.7

99,41019.4

512,810100.0

1,356,495

88.2

265,54117.3

182,005

11.8

1,538,500

100.0

3,975

1.0

3,616

0.9

406,903

99.0

410,878100.0

Services (not elsewhere classified)

2,197,332

64.7

136,184

4.0

1,197,946

35.3

3,395,278

100.0

Non-primary industry total

26,466,676

65.2

5,920,617

14.6

14,146,587

34.8

40,613,263

100.0

Medical, health care and welfare
Compound services

Source:Notes:

Recompiled from MIC, 2014 Economic Census for Business Frame.
1 The figures shown indicate the total number of regular employees of companies and sole proprietors.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4.	 The percentage of regular employees in micro enterprises is indicated as the ratio to the total number of regular employees.
5.	 Industries are classified according to the October 2013 revised system of industry classification.
6.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
7.	 The figures are those as of July 2014.
8.	 The number of regular employees includes regular employees overseas.

573

(3) Companies only (number of regular employees of companies)
SMEs
Size
Item

Industry

Mining and quarrying of stone andgravelNo. ofregularemployees% of total

No. ofregularemployees% of total

14,264

77.1

6,359

34.4

Construction

2,309,996

84.9

1,244,948

Manufacturing

5,488,007

61.1

1,156,699

Electricity, gas, heat supply and water

31,96916.2

Information and communications

878,686

Transport and postal activities

Large enterprises
No. ofregularemployees% of total

Total
No. ofregularemployees% of total

4,231

22.9

18,495

100.0

45.8

410,48715.1

2,720,483

100.0

12.9

3,487,977

38.9

8,975,984

100.0

3,365

1.7

164,84083.8

196,809

100.0

60.5

62,268

4.3

573,62839.5

1,452,314

100.0

2,076,081

72.2

268,901

9.3

800,06427.8

2,876,145

100.0

Wholesale and retail trade

4,930,367

58.0

539,652

6.3

3,569,681

42.0

8,500,048

100.0

Wholesale trade

2,027,182

69.8

218,3117.5

876,43730.2

2,903,619

100.0

Retail trade2,903,185

51.9

321,3415.7

2,693,244

48.1

5,596,429

100.0

Finance and insurance

166,474

14.1

60,5235.1

1,010,992

85.9

1,177,466

100.0Real estate and goods rental andleasing

647,81874.6

240,91327.7

220,98525.4

868,803

100.0

Scientific research, professional andtechnical services

566,29660.4

97,28510.4

370,59439.6

936,890

100.0

Accommodations, eating and drinking
services

2,050,743

62.2

187,8235.7

1,244,504

37.8

3,295,247

100.0

Living-related and personal services
and amusement services

1,111,864

74.4

142,4269.5

382,10725.6

1,493,971

100.0

Education, learning support

313,568

76.0

16,247

3.9

98,81624.0

412,384

100.0

Medical, health care and welfare

757,21381.8

31,2993.4

167,98918.2

925,202

100.0

428

0.1

105

0.0

406,903

99.9

407,331100.0

Services (not elsewhere classified)

2,144,737

64.2

95,9952.9

1,197,294

35.8

3,342,031

100.0

Non-primary industry total

23,488,511

62.5

4,154,808

11.1

14,111,092

37.5

37,599,603

100.0

Compound services

Source:Notes:

574

Of whichmicro enterprises

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Business establishments of sole proprietors are not included.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4.	 The percentage of regular employees in micro enterprises is indicated as the ratio to the total number of regular employees.
5.	 Industries are classified according to the October 2013 revised system of industry classification.
6.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
7.	 The figures are those as of July 2014.
8.	 The number of regular employees includes regular employees overseas.

Supplementary statistical data

(4) Enterprises (total number of workers of companies and sole proprietors)
SMEs
Size
Item

Industry

Mining and quarrying of stone andgravelOf whichmicro enterprises
Total
no. ofworkers% of total

Total
no. ofworkers% of total

18,168

85.2

9,423

44.2

Construction

3,390,493

89.2

2,237,415

Manufacturing6,486,389

66.4

1,998,167

Electricity, gas, heat supply and water

34,59017.3

Information and communications

979,521Transport and postal activities

Large enterprises
Total
no. ofworkers% of total

Total
Total
no. ofworkers% of total

3,150

14.8

21,318

100.0

58.8

412,52210.8

3,803,015

100.0

20.5

3,279,571

33.6

9,765,960

100.0

4,608

2.3

165,87482.7

200,464

100.0

62.8

113,266

7.3

579,40237.2

1,558,923

100.0

2,284,186

73.5

380,19912.2

824,350

26.5

3,108,536

100.0

Wholesale and retail trade

7,303,086

66.5

2,008,511

18.3

3,675,997

33.5

10,979,083

100.0

Wholesale trade

2,557,628

74.5

541,92815.8

876,68325.5

3,434,311

100.0

Retail trade

4,745,458

62.9

1,466,583

19.4

2,799,314

37.1

7,544,772

100.0

222,123

17.9

112,1459.0

1,021,775

82.1

1,243,898

100.0Real estate and goods rental andleasing

1,209,578

84.0

772,02953.6

230,379

16.0

1,439,957

100.0

Scientific research, professional andtechnical services

1,043,067

73.5

440,70231.0

376,86726.5

1,419,934

100.0

Accommodations, eating and drinking
services

3,801,986

73.4

1,394,749

26.9

1,378,825

26.6

5,180,811

100.0

Living-related and personal services
and amusement services

1,923,886

82.2

800,89334.2

415,27017.8

2,339,156

100.0

Finance and insurance

Education, learning support

603,498

84.1

205,17028.6

113,926

15.9

717,424100.0

1,687,240

89.9

471,47425.1

190,51710.1

1,877,757

100.0

9,450

2.3

9,067

2.2

407,01997.7

416,469

100.0

Services (not elsewhere classified)

2,612,549

67.6

310,7488.0

1,250,208

32.4

3,862,757

100.0

Non-primary industry total

33,609,810

70.1

11,268,566

23.5

14,325,652

29.9

47,935,462

100.0

Medical, health care and welfare
Compound services

Source:Notes:

Recompiled from MIC, 2014 Economic Census for Business Frame.
1. The figures shown indicate the combined sum of total number of workers of companies and sole proprietors.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4.	 The percentage of workers in micro enterprises is indicated as the ratio to the total number of workers.
5.	 Industries are classified according to the October 2013 revised system of industry classification.
6.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
7.	 The figures are those as of July 2014.

575

(5) Companies only (total of number of workers of companies)
SMEs
Size
Item

Industry

Mining and quarrying of stone andgravelTotal
no. ofworkers% of total

Total
no. ofworkers% of total

17,661

84.9

8,977

43.1

Construction

3,014,569

88.0

1,863,619

Manufacturing6,076,443

64.9

1,596,120

Electricity, gas, heat supply and water

34,573

17.2

Information and communications

974,414

Transport and postal activities

Large enterprises
Total
no. ofworkers% of total

Total
Total
no. ofworkers% of total

3,150

15.1

20,811

100.0

54.4

412,52212.0

3,427,091

100.0

17.1

3,279,571

35.1

9,356,014

100.0

4,591

2.3

165,87482.8

200,447

100.0

62.7

108,444

7.0

579,40237.3

1,553,816

100.0

2,252,173

73.2

349,037

11.3

824,35026.8

3,076,523

100.0

Wholesale and retail trade

5,908,798

61.7

1,063,072

11.1

3,661,819

38.3

9,570,617

100.0

Wholesale trade

2,421,852

73.4

426,024

12.9

876,683

26.6

3,298,535

100.0

Retail trade

3,486,946

55.6

637,048

10.2

2,785,136

44.4

6,272,082

100.0

Finance and insurance

210,41417.1

100,4368.2

1,021,775

82.9

1,232,189

100.0Real estate and goods rental andleasing

980,035

81.0

543,86744.9

230,379

19.0

1,210,414

100.0

Scientific research, professional andtechnical services

734,43966.3

207,53418.7

374,05333.7

1,108,492

100.0

Accommodations, eating and drinking
services

2,433,701

63.9

324,979

8.5

1,375,540

36.1

3,809,241

100.0

Living-related and personal services
and amusement services

1,302,071

75.9

231,36413.5

414,377

24.1

1,716,448

100.0

Education, learning support

380,453

77.1

40,522

8.2

113,28922.9

493,742100.0

Medical, health care and welfare

861,258

83.0

60,7595.9176,11217.0

1,037,370

100.0

558

0.1

216

0.1

407,01999.9

407,577100.0

Services (not elsewhere classified)

2,489,796

66.6

202,449

5.4

1,249,553

33.4

3,739,349

100.0

Non-primary industry total

27,671,356

65.9

6,705,986

16.0

14,288,785

34.1

41,960,141

100.0

Compound services

Source:Notes:

576

Of whichmicro enterprises

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Business establishments of sole proprietors are not included.
2.	 Corporate bodies other than companies and agriculture, forestry and fisheries are not included.
3.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
4.	 The percentage of workers in micro enterprises is indicated as the ratio to the total number of workers.
5.	 Industries are classified according to the October 2013 revised system of industry classification.
6.	Direct comparisons should not be made between the present findings and results obtained from the Establishment and Enterprise
Census published in the supplementary statistical data for past White Papers on SMEs as the Economic Census for Business Frame(1) captures a greater range of business establishments and enterprises due to its use of commercial and corporate registers and otheradministrative records, and (2) it surveys enterprises and establishments en bloc by having head offices report information on theirbranches and other operations.
7.	 The figures are those as of July 2014.

Supplementary statistical data

Table 4 Trends in entry and exit rates (non-primary industries)(1) Enterprises (sole proprietorships + corporate enterprises)
Year

Surveyinterval(months)

No. ofenterprises atstart of period

No. ofentriesEntry
surveyperiod(months)

Annual average
AnnualAnnualIncrease in no.
Entry rate Exit rateincrease in no. average no. average no.
of enterprises(%)(%)
of enterprises of entries
of exits

75 - 7837

4,682,092

681,775

29.5

355,485

115,292

277,332

162,040

5.9

78 - 8136.5

5,037,577

739,99630

318,925

104,852

295,998

191,146

5.9

3.5
3.8

81 - 8660

5,356,502

1,039,351

54

72,096

14,419230,967

216,548

4.3

4.0

86 - 9160

5,428,598

853,991

54-126,240-25,248

189,776

215,024

3.5

4.0

91 - 9663

5,302,358

967,779

81-147,968-28,184

143,375

171,559

2.7

3.2

96 - 99

33

5,154,390

507,53133-253,477-92,173

184,557

288,147

3.6

5.6

99 - 0127

4,900,913

638,289

27-160,984-71,548

283,684

334,755

5.8

6.8

As of 2001
(1993 classification)

4,739,929

01 - 0432

4,739,635

447,14832-360,347-135,130

167,681289,731

3.5

6.1

04 - 0628

4,379,288

518,67128-138,962-59,555

222,288273,282

5.1

6.2

As of 2006
(2002 classification)

4,240,326

09 - 1231

4,252,897

154,99831-359,541-139,177

59,999260,177

1.4

6.1

12 - 1429

3,891,356

436,037

29-43,122

17,844

180,429

236,671

4.6

6.1(2) Corporate enterprises (independent establishments and head offices, not including branches)
Year

Surveyinterval(months)

No. ofcorporate
enterprises atstart of period

No. ofentriesEntry
surveyperiod(months)

Annual average
Increase in no.
AnnualAnnualincrease in no.
Entry rate Exit rateof corporate
average no. average no.
of corporate(%)(%)
enterprisesof entries
of exits
enterprises

75 - 7837

921,768

113,03929.5

118,905

38,56445,982

7,418

5.0

0.8

78 - 8136.5

1,040,673

139,67830

138,146

45,41855,871

10,4535.4

1.0

81 - 8660

1,178,819

234,22354

143,689

28,73852,05023,3124.4

2.0

86 - 9160

1,322,508

266,71754

230,506

46,101

59,27013,1694.5

1.0

91 - 96

63

1,553,014

310,76181

112,167

21,36546,03924,6743.0

1.6

96 - 99

33

1,665,181

174,72833-6,801-2,47363,537

87,7733.8

5.3

99 - 0127

1,658,380

226,70127-50,570-22,476

100,756

105,414

6.1

6.4

As of 2001
(1993 classification)

1,607,810

01 - 0432

1,607,648

155,16132-87,661-32,873

58,18588,7393.6

5.5

04 - 0628

1,519,987

197,81928-14,768-6,32984,78083,9725.6

5.5

As of 2006
(2002 classification)

1,505,219

09 - 1231

1,787,027

55,01031-100,375-38,855

21,294

100,359

1.2

5.6

12 - 1429

1,686,652

228,08429

44,136

18,263

94,38096,3375.6

5.7(3) Sole proprietorships (independent establishments, head offices and branches)Year

No. of sole
Surveyproprietorships
interval
at start of(months)
periodNo. ofentriesEntry
surveyperiod(months)

Increase in
no. of sole
proprietorships

Annual average
AnnualAnnualincrease in
Entry rate Exit rate
average no. average no.
no. of sole(%)(%)
of entries
of exits
proprietorships

75 - 7837

3,760,324

568,73629.5

236,580

76,729231,350

154,622

6.2

78 - 8136.5

3,996,904

600,31830

180,779

59,434

240,127

180,693

6.0

4.1
4.5

81 - 86

60

4,177,683

805,12854-71,593-14,319

178,917

193,236

4.3

4.6

86 - 91

60

4,106,090

587,27454-356,746-71,349

130,505

201,855

3.2

4.9

91 - 9663

3,749,344

657,018

81-260,135-49,550

97,336

146,886

2.6

3.9

96 - 9933

3,489,209

332,80333-246,676-89,700

121,019

200,374

3.5

5.7

99 - 01

27

3,242,533

411,58827-110,414-49,073

182,928

229,341

5.6

7.1

As of 2001
(1993 classification)

3,132,11901 - 04

32

3,131,987

291,98732-272,686-102,257

109,495

200,991

3.5

6.4

04 - 0628

2,859,301

320,852

28-124,194-53,226

137,508

189,310

4.8

6.6

As of 2006
(2002 classification)

2,735,107

09 - 1231

2,465,870

99,98831-261,166-101,097

38,705

159,817

1.6

6.5

12 - 1429

2,204,704

207,95329-87,258-36,107

86,050140,333

3.9

6.4

577

(4) Business establishments

Year

No. ofSurveybusinessinterval establishments(months)
at start ofperiodEntry
surveyperiod(months)

Annual average
Increase in no.
AnnualAnnualincrease in no.
Entry rate Exit rateof businessaverage no. average no.
of business(%)(%)
establishmentsof entries
of exits
establishments

66 - 6936

4,230,738

964,47442419,757

139,919

275,564

135,645

6.5

3.2

69 - 7238

4,650,495

863,91532

463,228

146,283

323,968

177,686

7.0

3.8

72 - 75

32.5

5,113,723

744,86528.5

275,577

101,752

313,627

211,8766.1

4.1

75 - 7837

5,389,300

818,73029.5

460,021

149,196

333,043

183,847

6.2

3.4

78 - 8136.5

5,849,321

896,32530

419,750

138,000

358,530

220,530

6.1

3.8

81 - 8660

6,269,071

1,324,318

54

225,270

45,054294,293249,239

4.7

4.0

86 - 8936

6,494,341

826,723

36

127,905

42,635275,574

232,939

4.2

3.6

89 - 91

24

6,622,246

406,977

18-80,505-40,253

271,318

311,571

4.1

4.7

91 - 9433.7

6,541,741

846,13933.7-9,761-3,476301,296

305,774

4.6

4.7

94 - 96

29.3

6,531,980

418,613

21-29,056-11,900

239,207

251,107

3.7

3.8

96 - 9933

6,502,924

740,38933-318,095-115,671

269,232

384,884

4.1

5.9

99 - 01

27

6,184,829

937,12227-65,768-29,230

416,499445,636

6.7

7.2

As of 2001
(1993 classification)

6,119,061

01 - 0432

6,118,721

691,02932-408,747-153,280

259,136

392,019

4.2

6.4

04 - 0628

5,709,974

846,36828-7,193-3,083362,729369,309

6.4

6.5

As of 2006
(2002 classification)

5,702,781

09 - 1231

5,853,886

286,16631-430,968-166,826

110,774

366,483

1.9

6.3

12 - 1429

5,422,918

857,20529

85,89435,542354,706

359,395

6.5

6.6

Sources:
Notes:

578

No. ofentries

MIC, Establishment and Enterprise Census (up to 2006); 2009 Economic Census for Business Frame; 2012 Economic Census for Business
Activity; 2014 Economic Census for Business Frame.
1.	 Here, entry rate refers to the ratio of “(1) the annual average number of business establishments (or enterprises) that were newly established”
during a certain period to “(2) the number of business establishments (or enterprises) that already existed at the start of the period,” and is
obtained as (1)/(2). Exit rate similarly refers to the ratio of “(1) the annual average number of business establishments (or enterprises) thatwent out of business” during a certain term to “(2) the number of business establishments (or enterprises) that already existed at the start ofthe period,” and is obtained as (1)/(2).
2.	 The numbers of entries and exits shown in Table 4 (1) and (2) were calculated by adding the numbers of independent establishments andhead offices that have been newly established (or gone out of business), among business establishments that belong to a company.
3.	 The numbers of sole proprietorships that entered (exited) the market shown in Table 4 (1) and (3) were calculated by adding the numbersof business establishments that belong to a sole proprietor.
4.	 The number of business establishments that entered (exited) the market shown in Table 4 (4) is based on published value (see Reference 1.).
5.	 Unlike the numbers of enterprises shown in “Supplementary statistical data Table 1 (2) Enterprises” above, this table does not include
business establishments that are branch offices of sole proprietorships, and is based on a different method of industrial classification.
Thus, the figures do not match the numbers of enterprises at the beginning of the period shown in (1) above.

Supplementary statistical data

References 1.	Survey results are quoted from: Volume 1 Result of Establishments for Japan Table 7 for the 1999 survey; Special Result concerning
Changes and Conversions in Establishments for Japan (2) State of Changes in 1999-2001 Table 8 for the 2001 Survey; Volume 1 Resultof Establishments for Japan Table 10 for the 2004 survey; Result of Establishment for Japan Table 46 for the 2006 Survey; Result ofEstablishment for Japan: Industry cross-cutting results Table 32 of the 2012; and Result of Establishment for Japan Table 32 for the 2014
Survey.
2.	 The number of entries in 1994-1996 is the number of business establishments established in and after 1995.
3.	This survey was conducted as the Establishment Census until 1991, Establishment Directory Maintenance in 1989, and theEstablishment Directory Maintenance Survey in 1994.
4.	 The classification of industries as of 2004 and as of 2006 is according to MIC, Japan Standard Industrial Classification (revised March 2002).
Similarly, the classification of industries as of 2009 and 2012 is according to the Japan Standard Industrial Classification (revised November2007), and the classification as of 2014 is according to the Japan Standard Industrial Classification (revised October 2013).
5.	 As the revision of the Japan Standard Industrial Classification in March 2002 resulted in the transfer of some industry groups between
primary and non-primary industries, the annual average entry and exit rates in 2001-04 were calculated based on the number ofenterprises and business establishments at the beginning of the period under the new system of classification (same for revision in2007).

579

Table 5 Trends in entry and exit rates by industry(based on number of business establishments, annual average)(Unit: %)Year 66 - 69 69 - 72 72 - 75 75 - 78 78 - 81 81 - 86 86 - 89 89 - 91 91 - 94 94 - 96 96 - 99 99 - 01 01 - 04 04 - 06 06 - 09 09 - 12 12 - 14
Non-primary Entry Rate
industry total Exit Rate

6.5

7.0

6.1

6.2

6.1

4.7

4.2

4.1

4.6

3.7

4.1

6.7

4.2

6.4

2.6

1.9

6.5

3.2

3.8

4.1

3.4

3.8

4.0

3.6

4.7

4.7

3.8

5.9

7.2

6.4

6.5

6.4

6.3

6.6

Entry Rate

6.0

5.6

4.3

3.4

3.7

3.1

3.1

2.8

3.1

1.5

1.9

3.9

2.2

3.4

1.2

0.7

3.4

Exit Rate

2.5

3.2

3.4

2.3

2.5

3.1

2.9

4.0

4.5

4.0

5.3

6.6

5.7

5.4

5.8

5.7

5.5

Entry Rate

6.5

8.1

8.0

6.8

6.4

5.1

4.8

3.2

5.0

3.3

4.9

6.6

3.9

5.6

2.1

1.3

6.2

Exit Rate

6.5

3.8

5.3

3.7

3.8

3.7

4.1

3.2

5.0

5.3

7.4

7.5

7.0

6.4

6.6

5.9

6.8

Entry Rate

5.0

4.9

4.3

4.8

4.4

3.4

3.1

2.8

3.9

3.6

4.3

6.1

3.9

5.7

2.3

2.2

6.4

Exit Rate

2.1

3.3

3.6

3.2

4.0

4.0

3.4

6.4

4.3

4.6

6.8

7.2

6.7

6.8

7.1

6.6

7.7

Entry Rate

6.3

6.7

6.1

6.1

6.4

5.3

4.9

4.7

5.0

3.8

4.2

7.3

4.4

6.4

2.3

1.7

6.5

Exit Rate

3.8

4.0

3.8

3.3

3.1

3.2

3.6

2.9

4.2

2.8

4.8

6.3

5.5

5.9

4.9

5.9

5.4

Manufacturing
Wholesale
trade
Retail trade
Services
Sources:
Notes:

580

MIC, Establishment and Enterprise Census and 2009 Economic Census for Business Frame; MIC, METI, 2012 Economic Census for
Business Activity, Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Entry and exit rates for business establishments include openings and closures of branches and plants, and openings and closures due
to moves.
2.	 Rates were calculated based on the Establishment and Enterprise Census up to 2006, and the Economic Census for Business Framefor the period 2006-09 and the Economic Census for Business Activity for the period 2009-12. This survey was conducted as theEstablishment Census until 1991, Establishment Directory Maintenance in 1989, and the Establishment Directory Maintenance Survey in
1994.
3.	 See Table 4 regarding the method of calculation of the entry and exit rates.
4.	Direct comparisons cannot be made between the figures for 2006-09 and past figures due to differing definitions of entering
establishments. Direct comparisons between the entry rates and exit rates for 2006-09 are also not possible due to the different ways
in which entering and exiting establishments are defined.
5.	 “Services” in 2001-04, 2004-06 and 2006-09, 2009-12 consists of “services (not otherwise classified).”6.	 The annual average entry and exit rates for 2001-04 and 2004-06 were calculated based on the Japan Standard Industrial Classification(revised March 2002). The annual average entry and exit rates for 2006-09 and 2009-12 were calculated based on the Japan Standard
Industrial Classification (revised November 2007), and the annual average entry and exit rates for 2012-2014 were calculated based on
the Japan Standard Industrial Classification (revised October 2013).

Supplementary statistical data

Table 6 Trends in entry and exit rates based on business establishments with
employees(Unit: %)
FY

81

82

83

84

85

86

87

88

89

90

91

92

93

Entry rate

7.2

6.4

6.1

5.9

5.8

6.0

6.8

7.4

6.7

6.3

5.8

5.1

4.6

Exit rate

3.7

5.8

4.3

4.2

4.2

4.1

3.7

3.4

3.2

3.0

3.3

3.3

3.4

Source:Notes:

94

95

96

97

98

99

00

01

02

03

04

05

06

4.8

4.6

4.7

4.2

3.9

4.4

4.9

4.4

4.1

4.0

4.1

4.4

4.8

3.4

3.6

2.5

2.8

3.1

4.0

4.0

4.4

4.6

4.8

4.5

4.4

4.3

07

08

09

10

11

12

13

14

5.0

4.2

4.7

4.5

4.5

4.6

4.8

4.9

4.4

4.5

4.7

4.1

3.9

3.8

4.0

3.7

MHLW, Annual Report on Employment Insurance Programs.
1.	 Entry rate = Number of business establishments newly covered by employment insurance in fiscal year concerned / Number of businessestablishments covered by employment insurance at end of previous fiscal year × 100.
2.	 Exit rate = Number of business establishments that cease to be covered by employment insurance in fiscal year concerned / Numberof business establishments covered by employment insurance at end of previous fiscal year × 100.
3.	 Business establishments covered by employment insurance are business establishments with established insurance status for labor
insurance related to employment insurance (Article 5 of the Employment Insurance Law).

Table 7 Trends in number of incorporation registrations and company entry andexit rates
Year

55

56

57

58

59

60

61

62

63

64

77,32351,391

54,21653,452

57,27062,14365,15563,402

71,48372,926Company entry rate (%)

19.6

12.5

12.4

12.2

12.0

12.4

12.1

11.0

11.5

11.1

Company exit rate (%)

15.2

6.1

12.7

3.0

6.6

5.1

4.9

3.9

5.4

3.4

No. of incorporation registrations

Sources:
Notes:

65

66

67

68

69

70

71

72

73

74

71,145

81,41888,21477,85788,521

93,77897,692112,903119,226

96,286

10.1

10.9

11.1

9.3

9.9

10.0

10.0

10.7

10.6

8.0

4.4

4.7

5.5

2.8

4.8

5.4

2.7

4.0

3.4

1.2

75

76

77

78

79

80

81

82

83

84

96,158102,950

100,845

93,799103,972

100,802

96,071

93,293

95,879104,061

7.5

7.7

7.2

6.3

6.8

6.3

5.9

5.5

5.5

5.8

3.2

3.0

1.6

2.9

2.5

3.7

2.5

2.9

2.5

1.7

85

86

87

88

89

90

91

92

93

94

105,941

105,133

117,475

140,520

165,718

176,058

172,105

107,459

97,60392,522

5.7

5.5

6.0

7.0

8.0

8.1

7.6

4.5

3.9

3.6

4.1

3.0

3.5

3.5

3.1

3.4

1.7

1.0

1.6

1.9

95

96

97

98

99

00

01

02

03

04

92,885

103,723

92,61082,502

88,036

98,35090,68787,544

95,381

101,100

3.6

3.9

3.5

3.1

3.3

3.6

3.3

3.2

3.4

3.7

2.1

2.3

4.5

2.0

2.2

2.4

2.5

2.7

4.1

3.1

05

06

07

08

09

10

10 (*1)

103,545

115,178

101,981

92,09786,016

3.7

4.1

3.6

3.2

3.0

3.4

3.1

3.1

3.4

2.7

3.2

3.1

4.2

3.8

87,91611

12

13

89,66491,94296,659

3.5

3.6

3.8

3.7

3.5

3.5

MOJ, Annual Report of Statistics on Civil Affairs, Litigation and Civil Liberties; National Tax Agency, National Tax Agency Annual Statistics
Report.
1.	 Company entry rates = Number of incorporation registrations / Number of companies in previous year × 100.
2.	Company exit rate = Company entry rate - Rate of increase. (=(number of companies in previous year + number of incorporation
registrations - number of companies in current year) / number of companies in previous year × 100).
3.	The number of incorporation registrations is from Annual Registration Statistics from 1955 to 1960, Annual Report of Registration,
Litigation and Civil Liberties from 1961 to 1971, and Annual Report of Statistics on Civil Affairs, Litigation and Civil Liberties from 1972
onward.
4.	 The number of incorporation registrations is for each calendar year.
5.	 The numbers of companies in 1963 and 1964 are estimates based on the National Tax Agency’s Results of the Corporation Sample
Survey. The number of companies from 1967 includes cooperative associations.
6.	 The number of companies in the years before 2006 is the number of companies which completed the business year between February
1 of that year and January 31 of the following year. The number of companies from 2007 to 2009 is the number of companies as of June
30 of the following year. The number of companies in 2010 is the number of corporate fiscal years for which income tax returns werefiled, aggregated in units of companies. In order to achieve continuity with 2009 figures, the rate of business entries and exits calculatedwith the number of companies defined as per the definition used for 2009 as the denominator is also shown. (*1)

581

Table 8 Number of business establishments and workers and value of shipments
in manufacturing(1) Number of business establishments
YearNo.
of workers

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

4-9 213,308 198,411 190,640 206,808 186,111 186,698 161,085 144,216 150,551 130,041 143,094 121,626 117,259 126,964 108,813 99,883 112,463 94,320 87,496
10-19 76,789 74,823 72,639 73,743 70,132 67,724 71,678 67,719 65,823 64,046 57,383 60,515 62,441 60,189 56,194 54,439 51,608 52,897 51,962
20-99 82,099 80,991 79,645 78,181 74,710 72,562 69,321 65,351 64,003 63,326 62,368 62,256 63,862 61,553 57,501 56,694 56,361 56,022 55,525
100-299 11,823 11,721 11,703 11,422 11,066 11,049 10,807 10,348 10,376 10,505 10,630 10,775 11,113 10,872 10,061 10,093

9,631

9,917

9,869

300-999

3,062

3,046

3,014

2,972

2,876

2,859

2,854

2,748

2,715

2,710

2,776

2,891

3,026

2,943

2,754

2,818

2,633

2,643

2,720

1,000 or more

645

620

605

587

562

529

522

466

442

459

464

480

531

540

494

496

490

463

457

4-299 384,019 365,946 354,627 370,154 342,019 338,033 312,891 287,634 290,753 267,918 273,475 255,172 254,675 259,578 232,569 221,089 230,063 213,156 204,852
300 or more
Total

3,707

3,666

3,619

3,559

3,438

3,388

3,376

3,214

3,157

3,169

3,240

3,371

3,557

(2) Number of workers
Year

3,248

3,314

3,123

3,106

3,177

Upper row: 1,000 workers, lower row: % of total

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

4-9

1,272
12.3

1,199
11.9

1,155
11.6

1,231
12.5

1,119
11.9

1,111
12.1

957
10.8

860
10.3

879
10.7

777
9.6

852
10.4

731
8.9

712
8.4

746
8.9

650
8.4

603
7.9

664
8.9

571
7.7

534
7.2

10-19

1,061
10.3

1,036
10.3

1,007
10.1

1,021
10.4

971
10.4

938
10.2

976
11.0

921
11.1

894
10.9

870
10.7

792
9.7

824
10.0

849
10.0

819
9.8

765
9.9

742
9.7

708
9.5

721
9.7

709
9.6

20-99

3,192
30.9

3,152
31.2

3,107
31.3

3,044
30.9

2,921
31.1

2,846
31.0

2,722
30.7

2,579
31.0

2,533
30.8

2,508
30.9

2,479
30.4

2,480
30.1

2,541
29.8

2,457
29.4

2,303
29.8

2,276
29.7

2,271
30.4

2,255
30.4

2,243
30.3

100-299

1,897
18.4

1,879
18.6

1,881
18.9

1,834
18.6

1,776
18.9

1,776
19.3

1,739
19.6

1,664
20.0

1,675
20.4

1,696
20.9

1,712
21.0

1,743
21.2

1,800
21.1

1,767
21.1

1,639
21.2

1,640
21.4

1,554
20.8

1,607
21.6

1,609
21.7

300-999

1,539
14.9

1,528
15.1

1,511
15.2

1,484
15.1

1,427
15.2

1,417
15.4

1,405
15.8

1,337
16.1

1,328
16.1

1,321
16.3

1,353
16.6

1,425
17.3

1,488
17.5

1,445
17.3

1,350
17.5

1,378
18.0

1,290
17.3

1,304
17.6

1,340
18.1

1,000 or more

1,359
13.2

1,309
13.0

1,276
12.8

1,224
12.4

1,164
12.4

1,097
11.9

1,067
12.0

963
11.6

918
11.2

944
11.6

970
11.9

1,022
12.4

1,127
13.2

1,131
13.5

1,029
13.3

1,026
13.4

984
13.2

968
13.0

968
13.1

4-299

7,422
71.9

7,266
71.9

7,150
72.0

7,129
72.5

6,787
72.4

6,670
72.6

6,395
72.1

6,024
72.4

5,980
72.7

5,851
72.1

5,834
71.5

5,778
70.2

5,904
69.3

5,789
69.2

5,357
69.3

5,307
69.3

5,198
69.6

5,154
69.4

5,096
68.8

300 or more

2,898
28.1

2,837
28.1

2,787
28.0

2,708
27.5

2,591
27.6

2,513
27.4

2,471
27.9

2,300
27.6

2,247
27.3

2,264
27.9

2,323
28.5

2,448
29.8

2,615
30.7

2,576
30.8

2,379
30.7

2,404
31.4

2,274
30.4

2,272
30.6

2,307
31.2

10,321 10,103
100.0 100.0

9,937
100.0

9,837
100.0

9,378
100.0

9,184
100.0

8,866
100.0

8,324
100.0

8,226
100.0

8,116
100.0

8,157
100.0

8,225
100.0

8,519
100.0

8,365
100.0

7,736
100.0

7,664
100.0

7,472
100.0

7,425
100.0

7,403
100.0

No.
of workers

Total(3) Value of manufactured shipments
YearNo.
of workers

4-9

1995

1996

1997

1998

Upper row: ¥ billion, lower row: % of total
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

13,750 13,491 13,400 13,722 12,194 12,198 10,250
4.5
4.3
4.1
4.5
4.2
4.1
3.6

9,103
3.4

9,055
3.3

8,450
3.0

9,283
3.1

8,361
2.7

8,750
2.6

8,852
2.6

7,105
2.7

6,684
2.3

8,402
2.9

7,129
2.5

6,818
2.3

10-19

16,318 16,314 16,492 16,280 15,001 14,742 14,733 13,384 12,986 13,039 12,429 13,097 14,415 14,158 11,840 11,452 12,226 11,876 11,866
5.3
5.2
5.1
5.3
5.1
4.9
5.1
5.0
4.7
4.6
4.2
4.2
4.3
4.2
4.5
4.0
4.3
4.1
4.1

20-99

67,531 68,957 70,216 67,443 63,630 63,915 61,267 57,135 57,163 59,035 59,991 61,152 65,405 65,659 55,103 55,394 57,331 57,349 57,617
22.1
22.0
21.7
22.1
21.8
21.3
21.4
21.2
20.9
20.8
20.3
19.4
19.4
19.6
20.8
19.2
20.1
19.9
19.7

100-299

59,541 60,761 63,917 60,493 59,724 62,770 60,568 58,154 59,069 63,787 64,630 68,120 70,278 70,450 58,174 61,558 61,903 63,853 63,638
19.5
19.4
19.8
19.8
20.5
20.9
21.1
21.6
21.6
22.5
21.9
21.6
20.9
21.0
21.9
21.3
21.7
22.1
21.8

300-999

70,635 73,377 76,835 72,455 68,720 73,269 70,269 66,184 69,312 71,187 76,880 84,539 87,286 86,389 67,693 77,781 72,956 74,365 77,074
23.1
23.4
23.8
23.7
23.6
24.4
24.5
24.6
25.4
25.1
26.0
26.9
25.9
25.7
25.5
26.9
25.6
25.8
26.4

1,000 or more

78,256 80,169 82,212 75,447 72,180 73,585 69,580 65,402 65,824 68,020 72,133 79,567 90,623 90,070 65,344 76,239 72,151 74,154 75,078
25.6
25.6
25.4
24.7
24.8
24.5
24.3
24.3
24.1
24.0
24.4
25.3
26.9
26.8
24.6
26.4
25.3
25.7
25.7

4-299

157,139 159,523 164,025 157,938 150,550 153,624 146,818 137,776 138,274 144,311 146,333 150,729 158,848 159,120 132,222 135,113 139,862 140,208 139,940
51.3
51.0
50.8
51.6
51.7
51.1
51.2
51.1
50.6
50.9
49.5
47.9
47.2
47.4
49.8
46.7
49.1
48.6
47.9

300 or more

148,890 153,546 159,047 147,902 140,900 146,854 139,849 131,586 135,136 139,207 149,013 164,106 177,909 176,459 133,037 154,020 145,107 148,520 152,153
48.7
49.0
49.2
48.4
48.3
48.9
48.8
48.9
49.4
49.1
50.5
52.1
52.8
52.6
50.2
53.3
50.9
51.4
52.1

Total

306,030 313,068 323,072 305,840 291,450 300,478 286,667 269,362 273,409 283,530 295,346 314,835 336,757 335,579 265,259 289,108 284,969 288,728 292,092
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Sources:
Notes:

582

3,483

387,726 369,612 358,246 373,713 345,457 341,421 316,267 290,848 293,910 271,087 276,715 258,543 258,232 263,061 235,817 224,403 233,186 216,262 208,029

METI, Census of Manufactures; MIC, METI, 2012 Economic Census for Business Activity.
1.	 Based on statistics for business establishments. The “Total” may not correspond to the total value of the items as they have beenrounded off.
2.	 Figures were basically recalculated from the “Industry” section data for each year.
3.	Values for 2004 include the results (partial estimates) of the 2004 Supplemental Survey following the Niigata Chuetsu Earthquake.
However, figures in italics indicate figures that are solely from this survey, as those results of the Supplemental Survey are concealed.
As a result, the total of each breakdown is not consistent with manufacturing industry total.
4.	 Changes to survey items mean that the values of manufactured shipments since 2007 are not continuous with those in previous years.
5.	Revisions made to the figures published in the 2003-05 Census of Manufactures mean that they differ from those given in the
Supplementary Statistical Data published in White Papers on Small and Medium Enterprises in Japan up to 2010.
6.	 Number of business establishments and workers of each year are figures as of December 31. However, for 2011, figures are as ofFebruary 1, 2012.

Supplementary statistical data

Table 9 Capital investment and value added in manufacturing(1) Capital investment
Year

Upper row: ¥ billion, lower row: % of total

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

30-99

1,734
15.4

1,962
15.5

2,137
16.0

1,975
14.8

1,659
15.0

1,522
13.4

1,712
14.5

1,416
14.9

1,399
15.7

1,465
14.2

1,608
13.7

1,850
14.1

1,970
14.0

1,871
13.6

1,472
14.1

1,207
13.6

1,207
15.5

1,461
15.8

1,452
17.3

100-299

2,658
23.6

2,829
22.4

2,982
22.3

2,929
22.0

2,621
23.6

2,604
23.0

2,812
23.7

2,292
24.1

2,121
23.8

2,374
23.0

2,719
23.2

3,058
23.3

3,125
22.3

3,048
22.1

2,547
24.4

2,070
23.3

1,875
24.1

2,313
25.0

2,298
27.4

300-999

3,209
28.5

3,906
30.9

4,052
30.3

4,195
31.4

3,271
29.5

3,529
31.2

3,571
30.1

2,859
30.1

2,606
29.2

2,915
28.2

3,343
28.5

4,140
31.6

4,184
29.8

3,925
28.5

3,121
29.9

2,901
32.7

2,186
28.1

2,754
29.8

2,288
27.3

1,000 or more

3,643
32.4

3,936
31.2

4,210
31.5

4,244
31.8

3,539
31.9

3,670
32.4

3,751
31.7

2,942
30.9

2,792
31.3

3,586
34.7

4,058
34.6

4,048
30.9

4,741
33.8

4,937
35.8

3,289
31.5

2,704
30.4

2,522
32.4

2,719
29.4

2,345
28.0

30-299

4,392
39.1

4,791
37.9

5,118
38.3

4,904
36.8

4,280
38.6

4,127
36.4

4,524
38.2

3,708
39.0

3,520
39.5

3,839
37.1

4,327
36.9

4,908
37.5

5,094
36.3

4,919
35.7

4,019
38.5

3,277
36.9

3,082
39.6

3,775
40.8

3,750
44.7

300 or more

6,852
60.9

7,842
62.1

8,262
61.7

8,439
63.2

6,809
61.4

7,199
63.6

7,322
61.8

5,800
61.0

5,398
60.5

6,501
62.9

7,401
63.1

8,188
62.5

8,926
63.7

8,862
64.3

6,410
61.5

5,605
63.1

4,708
60.4

5,473
59.2

4,634
55.3

11,244 12,632 13,381 13,343 11,089 11,326 11,845
100.0 100.0 100.0 100.0 100.0 100.0 100.0

9,508
100.0

8,918 10,341 11,728 13,096 14,020 13,781 10,428
100.0 100.0 100.0 100.0 100.0 100.0 100.0

8,882
100.0

7,790
100.0

9,248
100.0

8,384
100.0

No.
of workers

Total(2) Investment per worker
YearNo.
of workers

1995

30-99

1996

(Unit: ¥1,000)
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

791

906

1,000

940

820

771

907

788

792

838

925

1,061

1,104

1,079

893

741

719

891

891

100-299 1,401

1,506

1,585

1,597

1,476

1,466

1,617

1,377

1,266

1,400

1,588

1,754

1,736

1,725

1,554

1,263

1,207

1,440

1,428

300-999 2,085

2,557

2,681

2,828

2,292

2,490

2,542

2,138

1,962

2,207

2,471

2,905

2,811

2,716

2,312

2,105

1,694

2,113

1,708

1,000 or more 2,680

3,006

3,300

3,466

3,041

3,347

3,516

3,056

3,041

3,799

4,185

3,959

4,208

4,366

3,198

2,636

2,563

2,809

2,423

30-299 1,074

1,184

1,274

1,247

1,127

1,100

1,247

1,071

1,023

1,115

1,254

1,408

1,421

1,405

1,222

1,003

953

1,163

1,158

300 or more 2,364

2,764

2,964

3,116

2,628

2,864

2,963

2,522

2,403

2,871

3,187

3,346

3,413

3,440

2,695

2,332

2,070

2,409

2,008

Total
average

1,836

1,966

2,009

1,736

1,808

1,943

1,650

1,568

1,812

2,032

2,207

2,261

2,267

1,840

1,566

1,414

1,676

1,512

1,609

(3) Value addedYear

Upper row: ¥ billion, lower row: % of total

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

4-9

7,322
6.2

7,163
6.0

7,071
5.9

7,280
6.4

6,487
6.0

6,531
5.9

5,379
5.2

4,771
4.9

4,778
4.8

4,427
4.4

4,842
4.7

4,305
4.0

4,322
4.0

4,284
4.2

3,412
4.2

3,212
3.5

4,113
4.5

3,363
3.8

3,123
3.5

10-19

7,453
6.4

7,458
6.3

7,482
6.2

7,452
6.6

6,869
6.4

6,760
6.1

7,114
6.9

6,514
6.7

6,317
6.4

6,283
6.2

5,917
5.7

6,169
5.7

6,488
6.0

6,134
6.1

5,204
6.5

5,011
5.5

5,533
6.0

5,132
5.8

4,993
5.5

20-99

27,402 28,045 28,215 27,023 25,773 26,014 24,849 22,945 22,800 23,378 23,349 23,247 23,575 22,725 19,386 19,805 21,129 20,158 20,164
23.4
23.5
23.5
23.9
23.9
23.6
24.1
23.5
23.1
23.1
22.5
21.6
21.7
22.4
24.1
21.8
23.1
22.8
22.4

100-299

22,935 23,227 23,977 22,482 22,502 23,168 22,266 21,483 22,209 23,512 23,648 23,842 23,365 21,973 18,478 20,308 20,799 20,007 20,402
19.6
19.5
20.0
19.9
20.9
21.0
21.6
22.0
22.5
22.7
22.2
21.5
21.7
23.0
22.4
22.7
22.6
22.6
23.2

300-999

25,564 26,055 26,263 24,888 23,638 24,707 22,801 21,352 21,733 22,987 23,754 25,603 24,718 23,327 18,610 22,989 21,144 20,252 20,731
21.8
21.8
21.9
22.0
21.9
22.4
22.1
21.9
22.1
22.7
22.8
23.8
22.7
23.0
23.2
25.4
23.1
22.9
23.0

1,000 or more

26,527 27,355 26,865 24,067 22,590 23,063 20,896 20,394 20,715 20,656 22,456 24,433 26,188 22,861 15,229 19,342 18,837 19,482 20,737
22.6
22.9
22.4
21.3
20.9
20.9
20.2
20.9
21.0
20.4
21.6
22.7
24.1
22.6
19.0
21.3
20.6
22.0
23.0

4-299

65,113 65,894 66,745 64,238 61,631 62,472 59,608 55,713 56,104 57,600 57,756 57,562 57,750 55,116 46,480 48,336 51,574 48,661 48,681
55.6
55.2
55.7
56.8
57.1
56.7
57.7
57.2
56.9
56.9
55.6
53.5
53.1
54.4
57.9
53.3
56.3
55.0
54.0

10-29957,791 58,731 59,673 56,958 55,144 55,942 54,229 50,942 51,326 53,173 52,914 53,257 53,428 50,832 43,068 45,124 47,461 45,298 45,558
49.3
49.2
49.8
50.3
51.1
50.7
52.5
52.3
52.1
52.5
50.9
49.5
49.2
50.2
53.6
49.8
51.8
51.2
50.5

300 or more

52,091 53,410 53,128 48,955 46,229 47,770 43,697 41,746 42,448 43,643 46,211 50,036 50,906 46,189 33,839 42,332 39,981 39,734 41,508
44.4
44.8
44.3
43.2
42.9
43.3
42.3
42.8
43.1
43.1
44.4
46.5
46.9
45.6
42.1
46.7
43.7
45.0
46.0

Total

117,204 119,304 119,873 113,193 107,860 110,243 103,305 97,459 98,552 101,247 103,967 107,598 108,656 101,305 80,319 90,667 91,555 88,395 90,149
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0No.
of workers

Sources:
Notes:

METI, Census of Manufactures; MIC, METI, 2012 Economic Census for Business Activity.
1.	 Based on statistics for business establishments. The “Total” may not correspond to the total value of the items as they have beenrounded off.
2.	 Figures were basically recalculated from the “Industry” section data for each year.
3.	 Capital investment equals the value of acquisitions of tangible fixed assets plus the annual change in construction in progress.
4.	 Where business establishments of the head office are separate from plants, investment in the same is not included.
5.	 In Table (3), figures for business establishments with 4-9 workers up to 2000 and business establishments with 29 or fewer workers since2001 indicate gross value added.
6.	 Values for 2004 include the results (including partial estimates) of the 2004 Supplemental Survey following the Niigata Chuetsu Earthquake.
Figures are only income amounts as variations in construction suspense accounts are not included in the survey. In addition, figures initalics indicate figures that are solely from this survey, as those results of the Supplemental Survey are concealed. As a result, the totalof each breakdown is not consistent with manufacturing industry total.
7.	 Due to changes to survey items, the figures for value added since 2007 shown in (3) are not continuous with those for previous years.
8.	Revisions made to the figures published in the 2003-05 Census of Manufactures mean that they differ from those given in the
Supplementary Statistical Data published in White Papers on Small and Medium Enterprises in Japan up to 2010.
9.	 Number of workers of each year are figures as of December 31. However, for 2011, figures are as of February 1, 2012.

583

Table 10

Number of business establishments and workers and value ofsales in wholesale trade(1) Number of business establishments and workers
No. ofworkers

Lower row: % of total

No. of business establishments (1,000)

No. of workers (1,000)

1991

1994

1997

1999

2002

2004

2007

2011

2014

1-2

101.8
(21.4)

90.4(21.1)

83.1(21.2)

95.5(22.4)

84.7(22.3)

86.4(23.0)

77.2(23.1)

73.0(27.3)

69.2 177.5 158.2 144.1 155.4 143.5 145.2 128.8 116.0 110.5(26.2)
(3.7)
(3.5)
(3.5)
(3.5)
(3.6)
(3.8)
(3.7)
(4.2)
(4.0)

3-4

123.3 103.0(25.9) (24.0)

94.1(24.0)

98.2(23.1)

88.7(23.4)

89.7(23.9)

78.4(23.4)

62.0(23.2)

60.1 424.8 356.4 325.4 339.8 306.8 309.7 270.8 212.0 206.8(22.8)
(8.9)
(7.8)
(7.8)
(7.6)
(7.7)
(8.1)
(7.7)
(7.6)
(7.5)

5-9

132.1 120.1 109.0 118.1 105.4 102.9(27.8) (28.0) (27.8) (27.7) (27.8) (27.4)

90.8(27.1)

68.0(25.5)

68.4 861.1 786.0 714.4 774.1 690.5 674.0 595.0 445.0 449.6(25.9) (18.0) (17.2) (17.2) (17.2) (17.3) (17.7) (16.9) (16.0) (16.3)

10-19

70.5
(14.8)

67.8(15.8)

61.8(15.8)

67.2(15.8)

59.7(15.7)

57.3(15.3)

52.1(15.6)

38.0(14.2)

39.1 937.9 901.8 823.2 895.4 795.3 764.2 695.4 509.0 521.7(14.8) (19.7) (19.7) (19.8) (19.9) (19.9) (20.1) (19.7) (18.4) (18.9)

20-49

36.4
(7.6)

36.0
(8.4)

32.7
(8.4)

35.4
(8.3)

30.9
(8.1)

29.6
(7.9)

27.6
(8.2)

20.0
(7.5)

20.5 1,066.1 1,055.4 960.6 1,038.4 904.9 866.8 809.9 594.0 598.9(7.8) (22.3) (23.0) (23.1) (23.1) (22.6) (22.8) (23.0) (21.4) (21.7)

50-99

8.4
(1.8)

8.4
(2.0)

7.6
(1.9)

8.1
(1.9)

7.1
(1.9)

6.5
(1.7)

6.1
(1.8)

4.0
(1.5)

4.4 567.6 565.2 514.5 546.4 477.9 433.2 408.9 294.0 297.3(1.7) (11.9) (12.3) (12.4) (12.2) (11.9) (11.4) (11.6) (10.6) (10.8)

1-99

1991

1994

1997

1999

2002

2004

2007

2011

2014

472.5 425.7 388.4 422.5 376.4 372.4 332.1 265.0 261.7 4,034.8 3,823.1 3,482.3 3,749.4 3,319.0 3,193.1 2,908.8 2,169.0 2,184.7(99.3) (99.2) (99.2) (99.2) (99.2) (99.2) (99.2) (99.3) (99.2) (84.5) (83.4) (83.6) (83.4) (82.9) (83.9) (82.5) (78.2) (79.2)

100 or
more

3.5
(0.7)

3.6
(0.8)

3.2
(0.8)

3.3
(0.8)

3.1
(0.8)

2.8
(0.8)

2.7
(0.8)

2.0
(0.7)

2.2 737.9 758.3 682.4 746.8 683.0 610.5 617.5 604.0 574.0(0.9) (15.5) (16.6) (16.4) (16.6) (17.1) (16.1) (17.5) (21.8) (20.8)

Total

476.0

429.3

391.6

425.9

379.5

375.3

334.8

267.0

263.9 4,772.7 4,581.4 4,164.7 4,496.2 4,002.0 3,803.7 3,526.3 2,773.1 2,758.8(2) Total sales during the year and total sales during the year per worker
No. ofworkers

Lower row: % of total

Total sales during the year (¥ billion)

Total sales during the year per worker (¥10,000)

1991

1994

1997

1999

2002

2004

2007

2011

2014

1991

1994

1997

1999

2002

2004

2007

2011

2014

1-2

8,162
(1.4)

6,595
(1.3)

6,524
(1.4)

7,122
(1.4)

6,703
(1.6)

6,761
(1.7)

6,466
(1.6)

8,689
(2.6)

8,681
(2.4)

4,626

4,180

4,541

4,589

4,685

4,664

5,031

7,491

7,858

3-4

23,788 19,413 18,761 18,269 16,468 16,347 15,643 14,247 14,074
(4.2)
(3.8)
(3.9)
(3.7)
(4.0)
(4.0)
(3.8)
(4.2)
(4.0)

5,610

5,453

5,774

5,380

5,379

5,284

5,784

6,720

6,807

5-9

64,403 54,115 53,712 51,949 46,523 45,869 45,721 38,718 39,323(11.2) (10.5) (11.2) (10.5) (11.3) (11.3) (11.1) (11.4) (11.0)

7,487

6,890

7,526

6,714

6,746

6,809

7,693

8,701

8,746

10-19

82,024 72,162 71,782 71,069 61,319 61,045 62,742 50,151 52,364(14.3) (14.0) (15.0) (14.3) (14.8) (15.1) (15.2) (14.7) (14.7)

8,753

8,008

8,727

7,940

7,721

7,993

9,032

9,853 10,037

20-49

108,734 98,992 96,020 97,431 83,828 85,057 83,458 65,639 64,253 10,212(19.0) (19.2) (20.0) (19.7) (20.3) (21.0) (20.2) (19.3) (18.0)

9,385 10,006

9,387

9,275

9,821 10,321 11,050 10,728

50-99

68,696 64,689 61,076 62,778 51,321 52,348 52,100 42,625 42,807 12,122 11,452 11,878 11,499 10,746 12,093 12,751 14,498 14,399(12.0) (12.6) (12.7) (12.7) (12.4) (12.9) (12.6) (12.5) (12.0)

1-99355,807 315,966 307,875 308,618 266,162 267,426 266,130 220,069 221,502(62.1) (61.4) (64.2) (62.3) (64.4) (66.0) (64.4) (64.6) (62.1)

8,831

8,272

8,851

8,235

8,031

8,381

9,161 10,146 10,139

100 or 217,358 198,351 171,939 186,835 147,192 138,071 147,402 120,369 135,150 29,468 26,181 25,212 25,022 21,567 22,627 23,896 19,929 23,544
more(37.9) (38.6) (35.8) (37.7) (35.6) (34.0) (35.6) (35.4) (37.9)

584

Total

573,165 514,317 479,813 495,453 413,355 405,497 413,532 340,438 356,652 12,024 11,236 11,533 11,024 10,342 10,668 11,741 12,276 12,928

Sources:
Notes:

METI, Census of Commerce; MIC, METI, 2012 Economic Census for Business Activity; MIC, 2014 Economic Census for Business Frame.
1.	 The figures for 1991 were tabulated according to the January 1984 revised system of industry classification, the figures for 1994-1999
according to the May 1993 revised system, the figures for 2002-2007 according to the March 2002 revised system, the figures for 2012according to the November 2007 revised system, and the figures for 2014 according to the October 2013 revised system.
2.	 The 1999 survey was conducted at the same time as the MIC’s Establishment and Enterprise Census (a simplified questionnaire wasused for both surveys), which determines existing business establishments. The figures are not therefore continuous with the figures forprevious years.
3.	 “Number of business establishments” is expressed as “number of stores” in the Census of Commerce up to 1999. However, the two are
the same in content.
4.	 Workers for calculating annual sales per worker exclude those employed in agency and intermediary business.
5.	 Number of business establishments and workers of 2011 are figures as of February 1, 2012.

Supplementary statistical data

Table 11

Number of business establishments and workers and value ofsales in retail trade(1) Number of business establishments and workers
No. ofworkers

Lower row: % of total

No. of business establishments (1,000)

No. of workers (1,000)

1991

1994

1997

1999

2002

2004

2007

2011

2014

1999

2002

2004

2007

2011

2014

1-2

847.2
53.2

764.8
51

709.0
49.9

685.0
48.7

603.4
46.4

568.8
45.9

503.8
44.3

351.0
44.8

316.7 1,381.3 1,240.0 1,146.0 1,035.1
40.8
19.9
16.8
15.6
12.9

966.3
12.1

906.8
11.7

795.1
10.5

557.8
10.1

498.5
8.6

3-4

416.9
26.2

370.9
24.7

350.3
24.7

317.2
22.5

297.6
22.9

284.1
22.9

252.7
22.2

171.9
22.0

168.6 1,404.5 1,256.1 1,186.6 1,076.0 1,011.4
21.8
20.2
17
16.1
13.4
12.7

962.4
12.4

859.1
11.3

583.4
10.5

574.5
9.9

5-9

214.0
13.4

222.6
14.8

212.4
15

226.8
16.1

218.7
16.8

207.7
16.8

201.8
17.7

133.3
17.0

146.0 1,336.9 1,405.2 1,342.5 1,448.8 1,404.5 1,334.9 1,302.2
18.8
19.3
19
18.3
18
17.6
17.2
17.2

859.9
15.5

947.3
16.3

10-19

71.9
4.5

89.6
6

93.5
6.6

111.9
8

114.8
8.8

112.4
9.1

114.4
10.1

75.8
9.7

88.0
11.4

948.2 1,187.2 1,248.3 1,503.8 1,543.0 1,516.5 1,543.1 1,029.3 1,193.6
13.7
16.1
17
18.7
19.4
19.5
20.4
18.6
20.5

20-49

33.1
2.1

42.0
2.8

43.3
3.1

51.9
3.7

50.7
3.9

50.2
4.1

49.6
4.4

37.3
4.8

42.3
5.5

956.4 1,200.9 1,232.2 1,470.3 1,439.8 1,421.6 1,403.7 1,068.5 1,204.0
13.8
16.3
16.8
18.3
18.1
18.3
18.5
19.3
20.7

1,583.1 1,489.9 1,408.5 1,392.8 1,285.1 1,223.1 1,122.3
99.5
99.3
99.2
99
98.9
98.8
98.6

769.2
98.3

761.6 6,027.3 6,289.4 6,155.7 6,534.0 6,364.9 6,142.2 5,903.3 4,098.8 4,418.0
98.2
86.9
85.2
83.7
81.4
79.8
79.1
77.9
74.0
76.0

15.5
1.4

13.6
1.7

13.6
1.8

1,591.2 1,499.9 1,419.7 1,406.9 1,300.1 1,238.0 1,137.9

782.9

775.2 6,936.5 7,384.2 7,350.7 8,028.6 7,972.8 7,762.3 7,579.4 5,535.8 5,810.9

1-49
50 or
more
Total

8.1
0.5

10.1
0.7

11.2
0.8

14.1
1

14.9
1.1

14.9
1.2

1991

1994

1997

909.2 1,094.7 1,195.1 1,494.6 1,607.9 1,620.1 1,676.1 1,437.0 1,393.0
13.1
14.8
16.3
18.6
20.2
20.9
22.1
26.0
24.0

(2) Total sales during the year and total sales during the year per worker
No. ofworkers

Lower row: % of total

Total sales during the year (¥ billion)
1999

2002

2004

2007

2011

2014

1991

1994

1997

1999

2002

2004

2007

2011

2014

1-2

15,224 13,332 12,485 10,830
10.8
9.3
8.5
7.5

8,816
6.5

8,411
6.3

7,251
5.4

5,537
5.0

5,577
4.6

1,102

1,075

1,089

1,046

912

928

912

993

1,119

3-4

23,006 20,054 19,573 15,464 13,457 12,646 11,891
16.4
14
13.2
10.8
10
9.5
8.8

8,632
7.8

9,296
7.6

1,638

1,597

1,650

1,437

1,331

1,314

1,384

1,480

1,618

5-9

28,878 28,999 28,558 26,305 24,398 23,395 24,012 17,716 20,863
20.5
20.2
19.3
18.3
18.1
17.6
17.8
16.0
17.1

2,160

2,064

2,127

1,816

1,737

1,753

1,844

2,060

2,202

10-19

21,409 23,826 26,051 27,050 26,510 26,253 27,488 21,466 25,524
15.2
16.6
17.6
18.8
19.6
19.7
20.4
19.4
20.9

2,258

2,007

2,087

1,799

1,718

1,731

1,781

2,085

2,138

20-49

21,151 23,919 25,198 25,774 24,223 24,445 24,854 21,366 24,559
15
16.7
17.1
17.9
17.9
18.3
18.5
19.3
20.1

2,212

1,992

2,045

1,753

1,682

1,720

1,771

2,000

2,040

1-49

109,668 110,131 111,865 105,423 97,404 95,151 95,495 74,717 85,819
78
76.8
75.7
73.3
72.1
71.4
70.9
67.6
70.2

1,820

1,751

1,817

1,613

1,530

1,549

1,618

1,823

1,942

50 or
more

30,971 33,194 35,878 38,410 37,706 38,128 39,210 35,773 36,358
22
23.2
24.3
26.7
27.9
28.6
29.1
32.4
29.8

3,406

3,032

3,002

2,570

2,345

2,353

2,339

2,489

2,610

Total

140,638 143,325 147,743 143,833 135,109 133,279 134,705 110,490 122,177

2,028

1,941

2,010

1,792

1,695

1,717

1,777

1,996

2,103

Sources:
Notes:

1991

1994

1997

Total sales during the year per worker (¥10,000)

METI, Census of Commerce; MIC, METI, 2012 Economic Census for Business Activity; MIC, 2014 Economic Census for Business Frame.
1.	 The figures for 1991 were tabulated according to the January 1984 revised system of industry classification, the figures for 1994-1999
according to the May 1993 revised system, the figures for 2002-2007 according to the March 2002 revised system, the figures for 2012according to the November 2007 revised system, and the figures for 2014 according to the October 2013 revised system.
2.	 The 1999 survey was conducted at the same time as the MIC’s Establishment and Enterprise Census (a simplified questionnaire wasused for both surveys), which determines existing business establishments. The figures are not therefore continuous with the figures forprevious years.
3.	 “Number of business establishments” is expressed as “number of stores” in the Census of Commerce up to 1999. However, the two are
the same in content.
4.	 Number of business establishments and workers of 2011 are figures as of February 1, 2012.

585

Table 12

State of corporate bankruptcies(1) No. of corporate bankruptcies and debts
Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Overall

16,255

13,67912,99813,245

14,091

15,646

15,48013,321

12,734

12,124

10,855

9,731

8,812

Enterprises withcapital stock ofunder ¥100 million

15,877

13,392

12,75513,011

13,826

15,257

15,13013,074

12,543

11,958

10,731

9,611

8,729

Overall

115,818

78,177

67,03555,00657,279 122,920

69,301

71,60835,92938,34627,82318,741

21,123Enterprises withcapital stock ofunder ¥100 million

57,65153,65647,20937,59837,264

38,223

26,77827,91522,076

18,544

14,49815,292Category
No. ofbankruptcies

Debts(Unit: no. of bankruptcies, ¥100 million)

42,732(2) No. of bankruptcies and debts by industry
Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

No. of bankruptcies

5,113

4,002

3,783

3,855

4,018

4,467

4,087

3,523

3,391

3,002

2,421

1,965

1,686

Debts

15,591

11,037

8,439

7,282

8,124

12,765

9,135

5,277

4,816

4,030

8,072

2,357

1,935

No. of bankruptcies

2,787

2,195

1,971

1,856

2,022

2,341

2,619

2,095

1,901

1,790

1,690

1,403

1,290

Debts

13,060

6,643

6,393

6,317

6,239

9,847

11,705

5,476

6,608

11,374

4,166

3,208

2,973

No. of bankruptcies

4,573

3,811

3,512

3,664

3,893

4,068

3,885

3,258

3,130

3,221

2,969

2,639

2,556

Debts

14,745

10,619

7,909

7,242

7,726

9,878

9,743

6,948

6,228

4,664

4,810

3,309

4,012

574

518

485

465

463

575

596

441

420

367

315

340

273

24,892

15,352

17,05813,642

13,293

20,793

17,670

5,866

2,359

2,214

1,820

3,427

914

75

61

95

70

71

107

92

70

54

58

69

49

39

8,096

1,982

3,065

1,571

2,243

54,885

9,563

13,198

2,805

4,424

2,213

743

1,788

Industry
Construction
Manufacturing
Commerce

No. of bankruptcies

Real estate

Debts

Financial andinsurance
Services

No. of bankruptcies
Debts
No. of bankruptcies

2,380

2,245

2,329

2,499

2,713

2,911

2,966

2,798

2,812

2,608

2,420

2,441

2,136

Debts

31,91929,40821,00915,09416,083

10,7058,370

14,752

6,504

7,884

4,314

3,743

4,502

753

847

823

836

911

1,177

1,235

1,136

1,026

1,078

971

894

832

7,515

3,136

3,162

3,858

3,572

4,047

3,115

20,091

6,608

3,755

2,428

1,954

5,000

No. of bankruptcies

16,255

13,67912,99813,245

14,091

15,646

15,48013,321

12,734

12,124

10,855

9,731

8,812

Debts

115,818

78,177

67,03555,00657,279 122,920

69,301

71,60835,92938,34627,82318,741

21,124

No. of bankruptcies

Other

Debts

Total

(Unit: no. of bankruptcies, ¥100 million)(3) Breakdown of number of bankruptcies by cause
Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Slump in sales

62.9

65.8

65.2

63.4

64.9

65.2

69.4

74.8

73.5

70.7

68.8

68.9

67.6

Careless management

7.3

7.6

7.8

8.2

6.6

6.3

5.3

3.9

4.1

4.7

4.7

5.0

4.3

Chain reaction bankruptcy

8.2

7.3

6.9

7.1

7.1

7.7

6.5

5.8

5.6

5.9

5.6

5.7

6.3

Past difficulties

12.5

10.0

10.9

11.5

10.9

10.3

9.6

7.8

8.5

10.9

12.6

12.1

12.9

Other

9.1

9.2

9.2

9.8

10.5

10.5

9.2

7.8

8.3

7.8

8.2

8.3

9.0

Cause

Source:Notes:

586(Unit: %)Tokyo Shoko Research, Ltd., Bankruptcy White Paper.
1.	 Only enterprises with debts of at least ¥10 million are included.
2.	 (2) is tabulated using the revised industry code from fiscal 2004 onward. Data up to 2003 are not corrected retrospectively.
3.	 The figures in (3) do not necessarily sum to 100 due to rounding to one decimal place.

Supplementary statistical data

Table 13

Outstanding lending to SMEs by type of financial institution(Unit: ¥ trillion)
2010

Year
Month

2011

2012

3

6

9

12

3

6

9

12

3

6

9

12

Domestically-licensed banks’banking accounts total

177.6

173.2

174.4

173.7

174.8

169.6

171.2

171.4

172.5

168.5

170.3

170.1

Domestically-licensed banks’trust accounts, etc.

0.7

0.6

0.7

0.6

0.6

0.6

0.5

0.4

0.4

0.4

0.4

0.5

Credit unions

42.1

41.4

41.7

42.0

41.5

41.0

41.4

41.6

41.3

40.7

41.1

41.0

Credit cooperatives

9.4

9.3

9.4

9.4

9.4

9.4

9.4

9.5

9.5

9.4

9.5

9.5

Private-sector financial institutions total

229.8

224.6

226.2

225.8

226.3

220.6

222.5

222.9

223.6

219.0

221.3

221.1

Private-sector financial institutions total(excluding trust accounts, etc.)

229.1

224.0

225.5

225.1

225.7

220.0

222.0

222.4

223.3

218.6

220.9

220.6

Shoko Chukin Bank

9.4

9.3

9.4

9.5

9.5

9.5

9.5

9.7

9.6

9.6

9.5

9.5

Japan Finance Corporation(Small and Medium Enterprise Unit)

6.2

6.2

6.2

6.3

6.4

6.4

6.4

6.5

6.4

6.4

6.4

6.5

Japan Finance Corporation(Micro Business and Individual Unit)

6.5

6.6

6.6

6.7

6.5

6.6

6.5

6.6

6.4

6.5

6.4

6.5

Financial institution

Government-affiliated financial institutions total

22.1

22.1

22.2

22.5

22.5

22.5

22.5

22.7

22.5

22.5

22.3

22.5

Total outstanding lending to SMEs

251.9

246.7

248.4

248.3

248.8

243.4

244.9

245.6

246.1

241.5

243.7

243.6

Total outstanding lending to SMEs
(excluding trust accounts, etc.)

251.2

246.0

247.7

247.6

248.2

242.5

244.4

245.2

245.8

241.1

243.2

243.1

2013

Year
Month

2014

2015

3

6

9

12

3

6

9

12

3

6

9

12

Domestically-licensed banks’banking accounts total

172.0

168.0

171.1

173.2

174.9

170.8

174.5

176.8

178.9

176.1

179.7

182.4

Domestically-licensed banks’trust accounts, etc.

0.5

0.5

0.6

0.6

0.6

0.7

0.8

0.7

0.8

0.9

1.0

1.1

Credit unions

40.9

40.4

40.9

41.3

41.2

40.8

41.6

42.1

41.9

41.5

42.3

42.8

Credit cooperatives

9.6

9.5

9.6

9.7

9.8

9.7

9.9

10.0

10.0

10.0

10.1

10.2

Private-sector financial institutions total

222.9

218.3

222.1

224.8

226.5

222.1

226.7

229.5

231.7

228.5

233.1

236.5

Private-sector financial institutions total(excluding trust accounts, etc.)

222.4

217.9

221.5

224.2

225.8

221.4

225.9

228.8

230.9

227.6

232.1

235.4

Shoko Chukin Bank

9.5

9.5

9.4

9.5

9.4

9.5

9.4

9.6

9.5

9.5

9.5

9.6

Japan Finance Corporation(Small and Medium Enterprise Unit)

6.5

6.4

6.4

6.4

6.3

6.3

6.3

6.2

6.2

6.1

6.1

6.0

Japan Finance Corporation(Micro Business and Individual Unit)

6.4

6.4

6.4

6.5

6.4

6.3

6.3

6.4

6.3

6.2

6.2

6.2

Financial institution

Government-affiliated financial institutions total

22.4

22.4

22.2

22.4

22.2

22.1

22.0

22.2

21.9

21.8

21.7

21.9

Total outstanding lending to SMEs

245.3

240.7

244.3

247.2

248.6

244.2

248.6

251.7

253.5

250.3

254.8

258.4

Total outstanding lending to SMEs
(excluding trust accounts, etc.)

244.8

240.3

243.7

246.6

248.0

243.5

247.9

251.0

252.7

249.4

253.8

257.3

Source:Notes:

Compiled by the SME Agency from sources including BOJ, Financial and Economic Statistics Monthly.
1.	 Outstanding lending to SMEs through domestically-licensed banking accounts, trust accounts, etc. indicates lending to enterprises(corporate enterprises and sole proprietorships) with capital stock of ¥300 million or less (¥100 million or less in wholesale trade,¥50 million or less in retail trade, eating and drinking places, and services) or 300 or fewer regular employees (100 or fewer in wholesaletrade and services, 50 or fewer in retail trade and eating and drinking places).
2.	 From June 1999 onward, domestically-licensed banks’ trust accounts, etc. includes overseas branch accounts (to domestic borrowers).
3.	 Outstanding lending to SMEs by credit unions is total outstanding lending excluding lending to individuals, local governments, overseas
yen loans and domestic loans transferred overseas.
4.	 Outstanding lending to SMEs by credit cooperatives is total outstanding lending including lending to individuals and local governments,etc.
5.	Until September 2008, outstanding lending of the Japan Finance Corporation (Small and Medium Enterprise Unit) was the total
outstanding lending by former Japan Finance Corporation for Small and Medium Enterprise. The outstanding lending does not include
equipment loan lending and outstanding lending to small and medium business investment consultation companies.
6.	Until September 2008, outstanding lending of the Japan Finance Corporation (Micro Business and Individual Unit) was the total
outstanding lending by former National Life Finance Corporation.
7.	 Sources are as of the end of March 2015. Figures may be retroactively revised.

587

Table 14

Sales and operating costs of SMEs (surveyed industries)(Unit: ¥ million)
Total

Financial results for FY 2013

5 or fewer

6-20

21-50

51 or more

Sole
proprietorship

No. of enterprises in parent population

3,185,491

1,503,501

963,135

368,309

109,964

62,094

1,681,989

No. of workers

27,362,718

22,819,551

3,925,110

5,114,846

4,070,292

9,709,303

4,543,168

Sales

492,822,162 469,225,650

78,180,275 108,225,244

90,545,244 192,274,887

23,596,512

Cost of sales

364,855,885 354,316,321… 182,328,707… 47,970,871

53,304,999

79,286,821

69,799,762 151,924,738

34,573,705

43,863,522

35,551,298

68,340,181

10,539,564…

3,465,229

7,903,367

8,467,022

Cost of goods purchased

28,135,253…

Labor costs…

32,214,459

2,426,194

5,285,564

6,461,494

18,041,208…

Outsourcing costs…

49,424,427

7,746,309

13,919,072

10,838,513

16,920,533…

Depreciation costs…

4,585,296

455,240

688,475

978,772

2,462,810…

…

Material costs

37,792,559

4,638,322

7,626,821

7,502,663

18,024,753…

Gross margin

127,966,277 114,909,330

24,875,276

28,938,423

20,745,482

40,350,149

13,056,948

Selling and general administrative
expenses

111,747,878 102,614,233

23,010,510

26,600,450

18,712,606

34,290,666

9,133,645

Other costs

Personnel costs

48,928,717

46,644,844

9,788,203

12,431,190

8,880,385

15,545,067

2,283,872

Rent

6,749,635

6,034,649

1,878,562

1,340,082

877,700

1,938,305

714,986

Utilities expense…

2,244,119561,296

615,037

374,530

693,256…

Freight and packing costs…

3,926,198

296,792

645,461

708,604

2,275,340…

Sales commission…

2,250,528

299,259

463,445

348,661

1,139,163…

Advertising expenses…

1,897,627

245,683

439,200

287,063925,681…

…

1,486,231

489,716

466,611

246,757

283,148…

5,953,793

5,098,799

1,334,9781,300,921

844,266

1,618,633

854,994

Entertainment expenses
Depreciation costs
Employee training costs…

162,217

20,07238,506

39,46764,172…

Taxes and public charges

3,372,964

2,866,727

963,809795,869

477,390629,659

506,237

Other costs

34,775,850

30,002,294

7,132,141

8,064,128

5,627,783

9,178,241

4,773,556

Operating profit

16,218,400…

12,295,097

1,864,766

2,337,972

2,032,877

6,059,483

2,497,939

340,094605,530

685,602866,713

3,923,303…

Non-operating revenue…

6,463,286

1,295,141

1,730,630

1,354,133

2,083,382…

Non-operating expenses…

3,965,347

955,047

1,125,101

668,531

1,216,668…

…

2,611,347

694,146798,598444,722673,882…

Non-operating profit and loss

Interest and discount expense…

1,354,000

260,901

326,503

223,809542,787…

14,793,036

2,204,860

2,943,502

2,718,478

6,926,196

Extraordinary profit

18,716,339…

6,104,398

3,668,864

606,755

756,775

1,072,004

3,923,303…

Extraordinary loss…

4,181,712

744,135

879,236

860,121

1,698,220…

Pretax net profit (pretax net loss)…

16,715,722

5,129,589

2,671,021

2,615,132

6,299,980…

After-tax net profit (after-tax net loss)…

10,821,129

3,355,043

1,807,698

1,686,796

3,971,592…

Other costs
Ordinary profit (ordinary loss)

Source:Notes:

588

Corporate enterprises (no. of workers)

Total

SME Agency, Basic Survey of Small and Medium Enterprises.
1.	 Survey results are estimates based on the 2014 Basic Survey of Small and Medium Enterprises (End-of-fiscal-year Results for Fiscal
2013) (Preliminary Report) conducted in August 2014.
2.	 The number of enterprises in the parent population is the estimated figure as of August 2014 based on the 2012 Economic Census
for Business Activity taking into consideration entries, exits, and changes in size according to industry (medium group) and number ofworkers.
3.	These results are the results of estimates of a survey of conditions among SMEs (including sole proprietorships) belonging to thefollowing divisions of industry according to the Japan Standard Industrial Classification: construction, manufacturing, information andcommunications, transport and postal activities (excluding certain industries), wholesale trade, retail trade, real estate and goods rental
and leasing, scientific research, professional and technical services (excluding certain industries), accommodations, eating and drinking
services, living-related and personal services and amusement services, services (not elsewhere classified) (excluding certain industries).
4.	 “Other costs” under totals and sole proprietorships’ selling and general administrative expenses includes utilities, freight and packing,sales charges, advertising costs, entertainment costs, and employee training costs.
5.	 The ordinary profit of sole proprietorships is income before deduction of employees’ (family employees’) pay.
6.	 Items that were not surveyed in the case of sole proprietorships are treated as unknown (indicated by “...” in the table).

Supplementary statistical data

Table 15

State of SME capital (balance sheet)(Unit: ¥ million)
Financial results for FY 2013

Total
6-20

21-50

No. of enterprises in parent population

1,503,501

963,135

368,309

109,964

62,094

No. of workers

22,819,551

3,925,110

5,114,846

4,070,292

9,709,303

No. of joint stock company
No. of enterprises that have set a restriction on transfer of shares

Total

5 or fewer

51 or more

773,213396,319

230,884

88,59857,411

602,377

291,797

184,32575,022

51,233406,179,021

93,830,700

87,878,609

79,337,740 145,131,973

220,829,869

42,036,877

49,331,869

45,985,413

83,475,710

Cash and deposits

85,749,111

20,744,487

19,821,554

17,088,752

28,094,318
28,208,368

AssetsLiquid assets
Bills receivable and account receivable

62,517,924

8,039,693

12,485,765

13,784,099

Securities

4,750,920

926,863

648,725

1,236,697

1,938,634

Inventory assets

34,646,156

6,161,441

8,107,071

7,199,914

13,177,730

Other liquid assets
Fixed assets

33,165,758

6,164,393

8,268,754

6,675,952

12,056,659

184,181,842

51,533,809

38,266,674

33,107,602

61,273,757

132,933,911

33,709,999

29,443,153

24,919,405

44,861,354

Buildings, structures and accessory equipment for buildings

53,094,309

15,035,337

11,650,885

9,281,652

17,126,435

Machinery and equipment

14,223,524

1,902,711

2,703,340

2,409,667

7,207,805

Ships and vessels, motor vehicles and transport equipment,
industrial tools, appliances, and fixtures

9,624,468

2,082,160

2,031,320

2,018,307

3,492,680

Tangible fixed assets

Leased assets

1,957,442

419,828

286,043

372,483

879,088

Land

65,137,059

16,546,927

15,177,374

12,579,483

20,833,275
858,694

Construction in progress

1,347,636

237,196

94,282

157,464

Other tangible fixed assets

2,162,659

378,449593,203

363,488827,520

Accumulated depreciation-14,613,185-2,892,610-3,093,293-2,263,139-6,364,143

Intangible fixed assets

3,037,812

819,605

759,608

587,333

871,266

Investments and other assets

48,210,119

17,004,204

8,063,913

7,600,864

15,541,138

244,724

382,505

Deferred assets
Liabilities and net assets

1,167,309

260,014280,065

406,179,021

93,830,700

87,878,609

79,337,740 145,131,973

254,930,856

66,846,645

53,759,509

50,638,164

83,686,538

134,810,014

28,552,910

27,539,587

29,166,184

49,551,333

Bills for payment and accounts payable

48,247,861

6,103,426

9,026,738

11,315,580

21,802,116

Short-term borrowings (financial institutions)

29,846,285

5,970,728

6,749,479

6,332,775

10,793,303

Short-term borrowings (other than financial institutions)

13,068,310

7,064,289

2,722,983

1,187,809

2,093,229

470,802

66,385

109,606

103,288

191,523

43,176,756

9,348,082

8,930,780

10,226,732

14,671,162
34,135,205

Liabilities
Current liabilities

Lease debts
Other current liabilities

120,120,842

38,293,735

26,219,922

21,471,980

Corporate bonds

2,552,884

360,019482,290

501,733

1,208,842

Long-term borrowings (financial institutions)

77,890,771

21,283,397

19,909,938

15,210,131

21,487,306
2,939,332

Fixed liabilities

Long-term borrowings (other than financial institutions)

18,420,255

9,736,385

3,556,625

2,187,913

Lease debts

1,535,978135,821

159,016

303,171937,970

Other fixed liabilities

19,720,954

6,778,113

2,112,054

3,269,032

7,561,755

151,248,165

26,984,055

34,119,100

28,699,576

61,445,435

Shareholders’ equity

139,182,083

21,578,162

32,321,544

27,197,772

58,084,604

Capital funds

18,163,619

7,403,667

5,026,222

2,727,438

3,006,292

Capital surplus

7,517,338

992,159

943,908

1,936,092

3,645,179

115,764,216

13,699,291

26,956,594

22,847,579

52,260,752

Net assets

Retained earnings
Own shares-2,263,091-516,955-605,181-313,337-827,618

Other net assets

12,066,082

5,405,892

1,797,556

1,501,803

3,360,831

Source:Notes:SME Agency, Basic Survey of Small and Medium Enterprises.
1.	 Survey results are estimates based on the 2014 Basic Survey of Small and Medium Enterprises (End-of-fiscal-year Results for Fiscal
2013) (Preliminary Report) conducted in August 2014.
2.	 The number of enterprises in the parent population is the estimated figure as of August 2014 based on the 2012 Economic Census
for Business Activity taking into consideration entries, exits, and changes in size according to industry (medium group) and number ofworkers.
3.	These results are the results of estimates of a survey of conditions among SMEs (including sole proprietorships) belonging to thefollowing divisions of industry according to the Japan Standard Industrial Classification: construction, manufacturing, information andcommunications, transport and postal activities (excluding certain industries), wholesale trade, retail trade, real estate and goods rental
and leasing, scientific research, professional and technical services (excluding certain industries), accommodations, eating and drinking
services, living-related and personal services and amusement services, services (not elsewhere classified) (excluding certain industries).

589

Table 16

Financial status, profit status and key financial indices of corporate
enterprises (median values)(1) All industries (non primary industry)Size
FY

Key financial indicesFinances and profits

Item
Sales

SMEs

Large enterprises

2011

2012

2013

2014

2011

2012

2013

2014

44,15045,50045,30047,8002,510,800

2,568,450

2,673,850

2,732,900
2,336,500

Total assets

57,90057,90058,90060,8502,159,600

2,245,700

2,314,400

Value added

10,800

11,10011,30011,900501,250

510,800

526,650

532,900(Personnel costs)

8,100

8,000

8,200

8,400

343,750

355,500

354,350

359,600(Interest expenses)

100

100

100

100

2,900

2,600

2,200

2,000

No. of employees (including officers)

19

19

19

20

576

585

574

574

Quick ratio

106.3

109.5

110.5

111.9

90.5

92.3

93.7

93.7
44.9

Equity ratio

33.1

33.7

34.7

36.2

41.6

43.5

44.1

Ratio of operating profit to total capital

1.7

1.8

1.9

2.1

3.4

3.5

3.9

3.9

Ratio of ordinary profit to sales

1.8

2.1

2.3

2.5

3.1

3.4

3.8

3.9

Total capital turnover

1.0

1.0

1.1

1.1

1.2

1.2

1.2

1.2

Interest rate on borrowing

1.3

1.2

1.1

1.0

1.4

1.3

1.2

1.1
21.9

Value-added ratio

26.3

26.3

26.1

26.2

22.1

21.8

22.0

Labor productivity

523

526

533

542

824

840

872

888

Capital-labor ratio

458

448

435

443

755

752

751

730

Ratio of fixed assets to long-term capital

58.6

58.1

56.7

55.2

58.7

57.7

57.5

57.2

Debt redemption period (years)

11.5

10.9

10.2

9.2

3.7

3.5

3.3

3.2

2011

2012

2013

2014

2011

2012

2013

2014

Sales

125,100

122,700

122,200

129,900

3,676,250

3,718,600

3,761,700

3,850,900
4,034,400(2) ManufacturingSize
FY

Key financial indicesFinances and profits

Item

SMEs

Large enterprises

Total assets

125,500

122,000

123,000

129,600

3,765,800

3,872,850

3,933,250

Value added

27,50025,60025,60027,700717,900

698,950

724,650

753,800(Personnel costs)

22,20021,20020,90022,300527,400

519,550

526,850

526,400(Interest expenses)

200

200

200

200

5,600

5,100

4,700

3,800

No. of employees (including officers)

50

48

48

49

788

794

783

778

Quick ratio

107.8

110.0

109.0

111.3

91.2

92.5

95.4

96.5
51.8

Equity ratio

34.0

34.5

35.7

36.9

48.0

49.4

50.6

Ratio of operating profit to total capital

2.2

2.0

2.1

2.3

3.0

3.1

3.7

3.6

Ratio of ordinary profit to sales

2.1

2.1

2.3

2.5

3.7

4.1

4.9

5.2

Total capital turnover

1.1

1.1

1.1

1.1

0.9

0.9

0.9

0.9

Interest rate on borrowing

1.3

1.2

1.1

1.0

1.3

1.2

1.1

1.0
21.4

Value-added ratio

24.9

24.5

24.6

24.8

21.1

21.1

21.5

Labor productivity

544

543

544

556

898

897

944

970

Capital-labor ratio

594

591

583

581

1,075

1,088

1,072

1,066

Ratio of fixed assets to long-term capital

57.0

56.8

56.9

54.5

62.9

62.5

61.5

61.9

Debt redemption period (years)

8.9

9.2

9.0

8.0

3.3

3.4

3.2

3.0

2011

2012

2013

2014

2011

2012

2013

2014

Sales

50,871

55,40050,45056,5003,003,000

3,044,500

3,199,000

3,304,100
1,867,400(3) Wholesale and retail trade
Size
FY

Key financial indicesFinances and profits

Item

590

SMEs

Large enterprises

Total assets

37,50036,70034,95039,5501,718,700

1,772,600

1,854,900

Value added

7,200

7,000

7,200

7,400

339,400

343,000

334,100

342,200(Personnel costs)

5,700

5,700

5,700

5,821

209,300

214,600

219,600

220,900(Interest expenses)

100

100

39

43

3,000

2,600

2,500

2,100

No. of employees (including officers)

14

14

14

15

385

389

384

392

Quick ratio

95.4

100.9

101.1

101.9

80.0

80.9

81.6

80.8
35.2

Equity ratio

22.7

24.6

25.4

26.7

32.8

34.6

34.0

Ratio of operating profit to total capital

1.3

1.4

1.4

1.4

3.4

3.2

3.5

3.2

Ratio of ordinary profit to sales

0.8

0.9

0.9

1.0

2.1

2.0

2.2

2.0

Total capital turnover

1.7

1.7

1.7

1.7

1.9

1.8

1.9

1.8

Interest rate on borrowing

1.2

1.2

1.0

0.9

1.4

1.2

1.1

1.0
13.0

Value-added ratio

13.3

13.2

13.2

12.7

13.5

13.1

12.9

Labor productivity

482

496

479

484

759

755

784

774

Capital-labor ratio

254

238

206

231

604

627

665

624

Ratio of fixed assets to long-term capital

46.3

42.9

41.8

42.9

56.8

55.3

55.2

56.0

Debt redemption period (years)

20.5

21.0

18.6

18.2

5.3

5.6

5.2

5.5

Supplementary statistical data

(4) Services
Size
FY

Key financial indicesFinances and profits

Item

SMEs

Large enterprises

2011

2012

2013

2014

2011

2012

2013

2014

Sales

25,30026,40027,15027,700842,900

961,000

902,800

935,400

Total assets

35,90036,30036,95039,100751,700

856,450

847,200

905,500

Value added

8,400

9,000

9,100

9,271

307,650

338,250

332,700

344,450(Personnel costs)

229,350

6,500

6,900

7,121

7,100

211,650

223,800

220,500(Interest expenses)

0

0

0

0

800

600

500

500

No. of employees (including officers)

16

17

18

17

387

400

401

405

Quick ratio

120.5

125.7

130.0

133.2

108.3

112.7

114.0

111.3

Equity ratio

37.6

39.1

39.2

40.5

44.2

47.5

47.4

46.7

Ratio of operating profit to total capital

1.6

1.7

1.7

1.8

4.2

5.2

5.2

5.2

Ratio of ordinary profit to sales

2.5

2.8

2.9

2.9

4.0

4.8

4.8

5.3

Total capital turnover

0.9

0.9

0.9

0.9

1.2

1.2

1.2

1.2

Interest rate on borrowing

1.2

1.0

0.9

0.8

1.5

1.5

1.3

1.2
41.5

Value-added ratio

38.1

37.9

37.5

38.1

41.3

41.6

42.2

Labor productivity

485

491

495

48.1

742

799

785

811

Capital-labor ratio

134

149

140

138

209

192

191

210

Ratio of fixed assets to long-term capital

55.6

55.8

53.1

50.8

49.5

48.4

46.3

48.4

Debt redemption period (years)

10.8

10.0

9.8

9.0

2.3

1.7

1.5

1.6

2011

2012

2013

2014

2011

2012

2013

2014

Sales

28,10027,20328,85032,4004,579,800

4,760,600

5,089,450

5,158,400
4,211,000(5) Construction
Size
FY

Key financial indicesFinances and profits

Item

SMEs

Large enterprises

Total assets

23,25023,15023,00923,1503,802,700

4,218,000

4,523,850

Value added

5,400

5,500

6,089

6,400

761,000

753,600

845,550

893,800(Personnel costs)

4,900

4,700

5,000

5,300

601,400

597,350

633,300

635,900
3,000(Interest expenses)

63

31

17

9

3,000

3,750

3,500

No. of employees (including officers)

13

13

13

13

846

793

820

831

Quick ratio

111.2

115.4

117.0

117.4

110.5

110.5

108.6

111.2
41.9

Equity ratio

31.1

32.1

31.9

33.7

41.2

40.3

40.1

Ratio of operating profit to total capital

1.2

1.7

2.2

3.0

2.6

2.6

3.8

4.1

Ratio of ordinary profit to sales

0.9

1.3

1.7

2.4

2.4

2.6

3.3

3.8

Total capital turnover

1.3

1.4

1.4

1.5

1.2

1.2

1.2

1.3

Interest rate on borrowing

1.5

1.3

1.2

1.1

1.6

1.5

1.4

1.3

Value-added ratio

19.3

19.5

20.1

20.4

17.2

16.2

17.1

17.1

Labor productivity

441

464

475

507

961

950

1,044

1,107

Capital-labor ratio

280

267

267

258

739

739

744

668

Ratio of fixed assets to long-term capital

42.4

41.0

38.6

38.1

48.4

49.9

50.2

47.8

Debt redemption period (years)

18.9

13.2

9.6

7.1

4.2

4.1

2.3

2.1

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 SMEs are defined as enterprises with capital of ¥300 million or less, or 300 or fewer regular employees (100 or fewer in wholesaletrade and services, 50 or fewer in retail trade, eating and drinking places) or capital stock of ¥300 million or less (¥100 million or lessin wholesale trade, and ¥50 million or less in retail trade and services). However for 2012, SMEs are defined as enterprises with capitalof ¥300 million or less, or 900 or fewer regular employees in rubber goods manufacturing of the manufacturing industry and capital of¥300 million or less, or 300 or fewer regular employees in software, information processing and service providing of the services industry
and capital of ¥50 million or less, or 200 or fewer regular employees in inn and hotel. Large enterprises are all enterprises other thanthose defined as SMEs. Both SMEs and large enterprises are limited to corporation.
2.	 Value added = Net operating profit + Personnel costs (officers’ pay, officers’ bonuses, employees’ pay, employee bonuses, employee
benefits) + Interest expenses, etc. + Rent of movable property and real estate + Taxes and public impositions
		 Quick ratio = Quick assets / Current liabilities × 100
		 Quick assets = Cash and deposits + Trade receivables
		 Equity ratio = Equity / Total capital × 100
		 Ratio of operating profit to total capital = Operating profit / Total capital (average of beginning and end of period) × 100
		 Ratio of ordinary profit to sales = Ordinary profit / Sales × 100
		 Total capital turnover = Sales / Total capital (average of beginning and end of period)
		 Interest rate on borrowing = Interest expenses, etc. / (Short-term and long-term borrowing + bonds + notes receivable discounted)(average of beginning and end of period) × 100
		 Value-added ratio = Value added / Sales × 100
		 Labor productivity = Value added / Number of employees
		 Capital-labor ratio = Tangible fixed assets (excluding construction in progress, average of beginning and end of period) / Number of
employees
		 Ratio of fixed assets to long-term capital = Fixed assets / (Fixed liabilities + equity) × 100
		 Debt redemption period (years) = (Short-term and long-term borrowing + bonds) (beginning and end of period average) / (Ordinary profit
× 50% + depreciation costs + extraordinary depreciation costs - officers’ bonus - interim dividends - dividends)
3.	 Figures for sales, total assets, value added (personnel costs, interest expenses, discount charges), labor productivity and capital-laborratio are in units of ¥10,000.
		 Unit for number of employees (including officers): individual employees
		 Debt redemption period: in years
		 Other financial operating ratios are in percentage.
4.	 Figures are sample medians.
5.	 The fixed long-term conformity rate for enterprises whose denominator is negative is treated as infinite.
6.	 The debt redemption period (years) for enterprises whose denominator is negative is treated as 10,000 years.
Source:Notes:

591

Table 17

Financial status, profit status and key financial indices of micro enterprises(median values)(1) All industries
Size

Key financial indicesFinances andprofits

Item

FY

Micro enterprises
2010

2011

2012

2013

2014

7,200
10,900
1,816
1,485
0
5
111.7
26.0
0.1
0.6
0.8
0.8
27.7
369.6
283.3
63.0
23.7

7,008
10,750
1,800
1,400
0
4
111.2
27.2
0.4
1.0
0.8
0.6
28.4
379.1
288.5
62.1
21.5

7,500
11,300
2,000
1,437
0
4
111.6
27.3
0.7
1.3
0.8
0.4
28.6
400.0
290.7
62.2
20.3

7,600
11,600
2,000
1,400
0
4
113.7
28.6
0.9
1.5
0.9
0.4
28.5
400.0
278.2
60.2
18.5

7,900
11,600
2,000
1,400
0
4
118.9
30.8
1.2
2.0
0.9
0.2
28.6
400.0
258.3
58.5
15.3

2010

2011

2012

2013

2014

Sales

9,000

8,717

9,500

10,10010,497

Total assets

10,500

10,200

10,25010,613

10,600

Value added

2,400

2,500

2,700

2,700

2,800

(Personnel costs)

2,400

2,300

2,400

2,404

2,400

(Interest expenses)

0

0

0

0

0

No. of employees (including officers)

7

7

7

7

7

Quick ratio

117.8

120.3

122.6

122.6

128.7

Sales
Total assets
Value added(Personnel costs)(Interest expenses)
No. of employees (including officers)
Quick ratio
Equity ratio
Ratio of operating profit to total capital
Ratio of ordinary profit to sales
Total capital turnover
Interest rate on borrowing
Value-added ratio
Labor productivity
Capital-labor ratio
Ratio of fixed assets to long-term capital
Debt redemption period (years)(2) ManufacturingSize

Key financial indicesFinances and profits

Item

FY

Micro enterprises

Equity ratio

20.4

20.0

22.1

22.8

26.0

Ratio of operating profit to total capital

-0.4

0.0

0.4

0.6

1.3

Ratio of ordinary profit to sales

0.0

0.5

0.7

0.9

1.5

Total capital turnover

1.0

1.1

1.1

1.1

1.1

Interest rate on borrowing

0.8

0.7

0.6

0.7

0.6

Value-added ratio

27.8

28.6

28.6

28.4

29.5

Labor productivity

347.5

360.0

371.4

366.7

387.6

Capital-labor ratio

250.0

269.2

263.0

236.4

218.8

Ratio of fixed assets to long-term capital

54.3

53.8

55.3

54.5

49.5

Debt redemption period (years)

28.3

21.1

21.8

21.7

16.8

2010

2011

2012

2013

2014

Sales

6,095

6,186

6,300

5,416

6,000

Total assets

4,607

5,000

4,984

4,656

4,913

Value added

900

905

981

900

1,000

(Personnel costs)

900

900

909

748

800

(Interest expenses)

0

0

0

0

0

No. of employees (including officers)

3

3

3

3

3

Quick ratio

90.3

92.3

100.0

100.0

100.0

(3) Wholesale and retail tradeSize

Key financial indicesFinances and profits

Item

592

FY

Micro enterprises

Equity ratio

13.9

15.4

16.6

14.0

20.1

Ratio of operating profit to total capital

-0.7

0.0

0.0

0.0

0.0

Ratio of ordinary profit to sales

0.0

0.0

0.0

0.2

0.2

Total capital turnover

1.4

1.4

1.5

1.4

1.5

Interest rate on borrowing

0.0

0.0

0.0

0.0

0.0

Value-added ratio

13.7

14.3

13.9

14.7

13.6

Labor productivity

275.0

275.0

300.0

285.0

296.7

Capital-labor ratio

104.4

107.1

105.9

89.1

100.0

Ratio of fixed assets to long-term capital

50.0

47.0

40.2

42.1

40.2

Debt redemption period (years)

61.5

58.6

72.0

47.5

35.5

Supplementary statistical data

(4) Services
Size

Key financial indicesFinances and profits

Item

FY

Micro enterprises
2010

2011

2012

2013

2014

Sales

2,823

2,892

3,003

3,077

3,178

Total assets

4,858

4,671

5,767

5,302

5,806

Value added

984

1,000

1,000

961

1,025

(Personnel costs)

700

700

774

700

700

(Interest expenses)

0

0

0

0

0

No. of employees (including officers)

3

3

3

3

3

Quick ratio

100.0

101.2

100.0

107.5

113.5

Equity ratio

26.9

31.0

31.8

33.3

34.4

Ratio of operating profit to total capital

0.0

0.0

0.0

0.0

0.2

Ratio of ordinary profit to sales

0.6

1.2

1.5

1.3

1.3

Total capital turnover

0.7

0.8

0.7

0.7

0.8

Interest rate on borrowing

0.0

0.0

0.0

0.0

0.0

Value-added ratio

34.0

35.9

35.7

34.9

34.4

Labor productivity

324.9

333.3

350.0

355.6

322.2

Capital-labor ratio

71.4

66.7

80.5

57.1

57.1

Ratio of fixed assets to long-term capital

61.1

55.5

61.3

52.2

51.4

Debt redemption period (years)

35.5

26.7

22.3

33.5

24.2

2010

2011

2012

2013

2014

Sales

12,30011,90012,327

12,90014,500Total assets

9,400

9,000

9,200

9,700

10,100

Value added

2,700

2,500

2,600

2,900

3,132

(Personnel costs)

2,600

2,400

2,347

2,600

2,584

(Interest expenses)

0

1

0

0

0

No. of employees (including officers)

8

8

7

7

7

Quick ratio

125.1

115.6

121.8

124.5

125.0

(5) Construction
Size

Key financial indicesFinances and profits

Item

FY

Micro enterprises

Equity ratio

27.5

25.0

25.7

25.7

30.1

Ratio of operating profit to total capital

0.0

0.5

1.2

1.5

2.5

Ratio of ordinary profit to sales

0.3

0.4

0.8

1.1

1.9

Total capital turnover

1.4

1.3

1.4

1.5

1.6

Interest rate on borrowing

1.4

1.1

0.8

0.7

0.5

Value-added ratio

21.6

21.2

21.5

22.0

22.5

Labor productivity

360.0

359.8

385.1

400.0

426.3

Capital-labor ratio

180.6

190.0

186.5

183.7

175.0

Ratio of fixed assets to long-term capital

42.1

42.1

42.2

38.9

36.8

Debt redemption period (years)

30.4

31.0

20.7

16.1

10.1

Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.
1.	 Micro enterprises are defined as enterprises with 20 or fewer regular employees (5 or fewer in wholesale and retail trade, eating anddrinking places and services (excluding accommodations and entertainment and recreation services for 2012)). However, limited tocorporation.
2.	 Value added = Net operating profit + Personnel costs (officers’ pay, officers’ bonuses, employees’ pay, employee bonuses, employee
benefits) + Interest expenses, etc. + Rent of movable property and real estate + Taxes and public impositions
		 Quick ratio = Quick assets / Current liabilities × 100
		 Quick assets = Cash and deposits + Trade receivables
		 Equity ratio = Equity / Total capital × 100
		 Ratio of operating profit to total capital = Operating profit / Total capital (average of beginning and end of period) × 100
		 Ratio of ordinary profit to sales = Ordinary profit / Sales × 100
		 Total capital turnover = Sales / Total capital (average of beginning and end of period)
		 Interest rate on borrowing = Interest expenses, etc. / (Short-term and long-term borrowing + bonds + notes receivable discounted)(average of beginning and end of period) × 100
		 Value-added ratio = Value added / Sales × 100
		 Labor productivity = Value added / Number of employees
		 Capital-labor ratio = Tangible fixed assets (excluding construction in progress, average of beginning and end of period) / Number of
employees
		 Ratio of fixed assets to long-term capital = Fixed assets / (Fixed liabilities + equity) × 100
3.	 Figures for sales, total assets, value added (personnel costs, and interest expenses, etc.), labor productivity and capital-labor ratio arein units of ¥10,000.
		 Unit for number of employees (including officers): individual employees
Other financial operating ratios are in percentage.
4.	 Figures are population medians.
5.	 The fixed long-term conformity rate for enterprises whose denominator is negative is treated as infinite.
6.	 The debt redemption period (years) for enterprises whose denominator is negative is treated as 10,000 years.
Source:Notes:

593

Table 18

Business conditions DI by prefecture(1) All industries

Change from previous quarter (seasonally adjusted)
2013

Prefecture

Oct.Dec.

Jan.Mar.

Apr.Jun.

2015
Jul.Sep.

Oct.Dec.

Jan.Mar.

Apr.Jun.

2016
Jul.Sep.

Oct.Dec.

Jan.Mar.

Changefromprevious
quarter

All Japan

-17.8

-13.6

-12.4

-23.4

-18.5

-19.1

-17.8

-18.7

-15.5

-15.1

-18.1

-3.0

Hokkaido

-12.8

-11.2

-13.4

-18.1

-17.1

-16.8

-16.4

-18.2

-15.9

-17.7

-23.4

-5.7

South/Central Hokkaido

-11.8

-8.2

-14.8

-16.2

-15.4

-15.0

-14.9

-17.9

-16.9

-18.3

-25.6

-7.3

North Hokkaido/Okhotsk

-14.5

-12.7

-10.6

-14.3

-15.4

-17.6

-15.0

-11.4

-20.3

-19.0

-20.6

-1.6

Tokachi, Kushiro, Nemuro
Tohoku

-15.3

-19.8

-9.4

-29.7

-25.4

-22.2

-19.6

-27.4

-9.5

-14.0

-17.1

-3.1

-18.2

-14.1

-15.7

-25.6

-20.0

-22.7

-21.6

-21.4

-19.0

-20.7

-22.3

-1.6
-4.1

Aomori

-16.0

-17.0

-12.5

-25.0

-28.2

-24.1

-26.0

-19.1

-21.7

-24.1

-28.2

Iwate

-14.9

-12.9

-15.4

-20.6

-18.9

-17.7

-16.9

-17.4

-17.9

-23.8

-16.6

7.2

Miyagi

-22.2

-18.5

-19.5

-24.3

-20.2

-26.3

-23.6

-23.0

-16.8

-21.0

-17.1

3.9

Akita

-23.6

-14.6

-17.1

-32.0

-24.4

-25.3

-28.9

-26.6

-20.5

-26.4

-21.1

5.3

Yamagata

-17.5

-10.0

-12.2

-17.5

-16.0

-20.8

-14.5

-16.6

-19.4

-15.3

-23.9

-8.6

Fukushima
Kanto

-19.9

-13.2

-16.6

-27.1

-19.9

-22.5

-18.9

-20.7

-20.6

-16.8

-24.2

-7.4

-18.6

-14.2

-15.0

-21.1

-17.8

-17.9

-15.6

-18.3

-16.0

-14.7

-16.7

-2.0

Ibaraki

-20.6

-18.5

-15.0

-18.5

-18.1

-17.3

-17.3

-16.4

-10.0

-18.5

-17.4

1.1

Tochigi

-16.3

-16.6

-17.4

-19.9

-20.7

-17.6

-18.1

-15.0

-20.5

-14.1

-20.9

-6.8

Gunma

-18.3

-13.5

-14.1

-18.6

-13.6

-20.7

-15.2

-20.6

-15.1

-15.3

-16.6

-1.3

Saitama

-20.3

-11.7

-10.8

-15.8

-12.5

-14.4

-10.5

-12.9

-15.2

-10.5

-17.9

-7.4

Chiba

-22.6

-12.6

-17.4

-15.9

-20.4

-21.3

-15.1

-21.6

-13.9

-12.3

-12.2

0.1

Tokyo

-11.1

-8.7

-10.3

-18.1

-13.8

-11.9

-11.6

-11.9

-13.7

-10.8

-10.6

0.2

Kanagawa

-15.7

-16.9

-17.2

-20.5

-15.0

-14.7

-12.9

-10.3

-15.2

-11.6

-12.8

-1.2

Niigata

-19.9

-15.4

-17.0

-27.0

-21.3

-22.9

-23.7

-26.3

-19.4

-19.4

-25.0

-5.6
-0.7

Yamanashi

-23.0

-18.1

-23.4

-22.7

-23.2

-21.2

-13.1

-18.6

-14.1

-20.2

-20.9

Nagano

-20.2

-17.8

-17.7

-23.2

-21.0

-21.8

-19.4

-20.4

-22.9

-20.9

-17.9

3.0

Shizuoka

-16.9

-13.5

-14.2

-25.2

-17.1

-17.5

-16.6

-22.8

-13.4

-10.2

-15.3

-5.1
-5.5

-14.7

-11.3

-10.4

-23.2

-18.9

-19.5

-17.0

-17.8

-16.5

-14.1

-19.6

Toyama

-11.7

-9.1

-11.7

-14.2

-13.1

-15.3

-11.2

-10.4

-17.6

-16.4

-15.0

1.4

Ishikawa

-12.9

-5.5

-4.1

-28.1

-20.2

-18.7

-12.2

-9.1

-15.0

-9.8

-15.9

-6.1
-4.5

Chubu

Gifu

-19.2

-14.5

-8.3

-25.4

-22.1

-22.5

-18.1

-20.4

-20.2

-18.4

-22.9

Aichi

-12.4

-11.5

-10.4

-18.7

-16.2

-16.4

-14.5

-14.3

-12.0

-9.3

-14.8

-5.5

Mie

-18.4

-13.5

-15.7

-26.7

-25.2

-25.5

-26.9

-24.8

-20.7

-19.2

-27.4

-8.2

-18.6

-12.8

-7.9

-22.3

-15.5

-18.1

-17.1

-17.6

-15.2

-15.2

-16.5

-1.3

-18.3

-9.4

-9.2

-17.8

-12.6

-15.2

-18.0

-15.0

-13.4

-13.4

-17.5

-4.1

Kinki
Fukui
Shiga

-16.8

-10.8

-0.4

-10.3

-18.0

-19.4

-16.5

-15.8

-14.9

-16.8

-15.5

1.3

Kyoto

-22.7

-16.0

-7.3

-18.2

-15.6

-18.5

-22.0

-23.7

-13.7

-15.1

-20.5

-5.4

Osaka

-16.5

-11.8

-6.6

-23.6

-15.3

-17.5

-16.9

-17.4

-16.0

-15.6

-19.4

-3.8

Hyogo

-19.6

-10.4

-11.1

-21.7

-15.1

-15.3

-9.4

-9.7

-12.3

-9.5

-12.8

-3.3
-0.9

Nara

-21.5

-17.5

-13.2

-23.0

-14.7

-23.5

-24.4

-20.1

-15.1

-18.5

-19.4

Wakayama

-20.7

-17.2

-12.5

-27.9

-21.4

-19.3

-23.9

-16.4

-22.8

-20.8

-16.3

4.5

-20.5

-16.5

-16.1

-22.9

-21.6

-22.8

-20.4

-17.6

-16.3

-17.0

-19.3

-2.3
-2.1

Chugoku
Tottori

-16.5

-15.4

-15.0

-24.4

-16.0

-26.3

-26.1

-15.6

-13.6

-15.7

-17.8

Shimane

-13.1

-4.8

-5.4

-24.8

-18.2

-24.2

-18.0

-17.1

-9.7

-22.3

-14.2

8.1

Okayama

-30.4

-26.4

-23.7

-22.4

-24.0

-19.9

-18.1

-18.4

-18.2

-17.6

-21.1

-3.5

Hiroshima

-17.9

-17.2

-15.4

-22.5

-23.3

-19.9

-20.9

-17.6

-15.1

-9.2

-20.5

-11.3

Yamaguchi

-21.5

-17.7

-18.7

-24.4

-21.9

-24.7

-19.8

-20.0

-20.8

-20.6

-21.5

-0.9

-20.2

-16.7

-11.9

-26.7

-20.8

-21.7

-19.0

-18.1

-17.9

-19.5

-18.5

1.0

-9.6

-12.7

-8.0

-26.3

-17.3

-22.1

-11.5

-15.0

-13.3

-19.0

-15.5

3.5

Shikoku
Tokushima
Kagawa

-19.5

-16.4

-17.1

-28.5

-16.6

-21.3

-24.3

-22.3

-17.5

-15.8

-24.6

-8.8

Ehime

-26.0

-22.5

-16.8

-25.1

-24.6

-22.9

-25.8

-18.7

-24.1

-21.6

-21.9

-0.3

Kochi
Kyushu/Okinawa

594

Jul.Sep.

2014

-22.2

-12.1

-9.9

-24.0

-21.4

-18.4

-17.9

-12.1

-11.4

-21.1

-15.4

5.7

-17.6

-13.6

-9.2

-23.3

-19.8

-18.7

-19.5

-17.5

-12.1

-11.0

-14.8

-3.8
-1.4

Fukuoka

-20.5

-16.1

-10.8

-23.1

-21.5

-18.1

-19.1

-21.6

-16.7

-13.9

-15.3

Saga

-17.1

-13.1

-11.4

-31.0

-24.4

-27.7

-27.9

-19.6

-13.2

-19.5

-14.0

5.5

Nagasaki

-24.4

-18.0

-11.3

-25.7

-22.3

-22.9

-22.3

-19.8

-15.0

-11.1

-17.7

-6.6
-13.0

Kumamoto

-15.1

-13.9

-8.4

-16.4

-18.6

-19.7

-22.4

-14.7

-8.1

-3.5

-16.5

Oita

-23.9

-11.9

-15.2

-29.7

-27.7

-25.6

-26.3

-21.9

-21.3

-21.2

-25.0

-3.8

Miyazaki

-21.5

-15.3

-12.5

-24.7

-20.1

-16.2

-23.6

-13.3

-9.6

-9.8

-11.9

-2.1

Kagoshima

-14.3

-12.9

-13.1

-21.2

-21.5

-19.3

-22.6

-13.9

-10.2

-11.2

-20.5

-9.3

Okinawa

0.8

-5.9

0.9

-2.7

2.1

0.2

-1.0

-1.1

8.0

6.8

-1.8

-8.6

Supplementary statistical data

(2) Manufacturing

Change from previous quarter (seasonally adjusted)
2013

Prefecture

Jul.Sep.

2014

Oct.Dec.

Jan.Mar.

Apr.Jun.

2015
Jul.Sep.

Oct.Dec.

Jan.Mar.

Apr.Jun.

2016
Jul.Sep.

Oct.Dec.

Jan.Mar.

Changefromprevious
quarter

All Japan

-13.9

-6.6

-4.4

-18.6

-12.0

-14.1

-14.1

-15.6

-12.8

-12.9

-16.8

-3.9

Hokkaido

-9.5

-4.5

-7.7

-4.9

-13.1

-11.5

-8.1

-7.7

-10.9

-13.1

-23.5

-10.4
-14.9

South/Central Hokkaido

-6.2

1.9

-5.2

-3.2

-8.4

-8.5

-9.5

-6.0

-8.5

-9.7

-24.6

North Hokkaido/Okhotsk

-10.1

-7.9

-13.9

-11.0

-16.2

-14.1

5.8

-7.6

-21.2

-21.3

-18.0

3.3

Tokachi, Kushiro, Nemuro

-23.2

-28.0

-9.0

-6.5

-30.3

-21.9

-21.2

-17.6

-8.6

-15.6

-20.9

-5.3

TohokuAomori

-13.2

-8.6

-6.7

-26.3

-9.4

-16.8

-16.3

-17.2

-18.6

-18.9

-19.6

-0.7

-8.9

-14.1

-9.7

-32.6

-18.9

-33.9

-30.2

-16.6

-21.6

-2.9

-37.4

-34.5

Iwate

-0.8

-0.2

8.1

-15.7

4.6

-2.7

-9.0

-10.9

-6.5

-24.6

-15.2

9.4

Miyagi

-25.5

-18.3

-17.5

-32.3

-0.5

-12.9

-16.3

-25.9

-25.0

-25.1

-23.0

2.1

Akita

-20.7

-12.3

-15.7

-25.5

-21.3

-18.9

-15.1

-16.9

-16.4

-24.3

-11.2

13.1

Yamagata

-17.7

-3.9

9.7

-16.7

-22.1

-19.1

-12.5

-3.3

-16.5

-18.1

-23.6

-5.5

Fukushima

-13.6

-6.9

-14.0

-27.0

-8.5

-16.9

-17.9

-18.8

-34.2

-19.5

-14.7

4.8

-16.1

-7.3

-5.7

-16.1

-10.1

-9.8

-12.5

-16.7

-13.1

-12.4

-17.6

-5.2

Ibaraki

-17.4

-13.5

-5.5

-6.3

-7.4

-9.0

-14.8

-7.6

-2.7

-17.9

-12.4

5.5

Tochigi

-9.5

-6.8

-6.7

-13.9

-9.1

-0.5

-9.7

-19.4

-21.7

-9.6

-17.7

-8.1

Gunma

-20.8

-10.4

-5.0

-19.3

-5.3

-12.2

-11.8

-21.3

-9.9

-10.1

-16.5

-6.4

Saitama

-30.0

-2.2

-9.5

-15.0

-5.0

-18.0

-18.4

-12.9

-13.0

-1.9

-19.6

-17.7
13.2

Kanto

Chiba

-18.7

-1.6

-2.2

-6.2

-15.5

-17.4

-4.9

-23.8

-0.2

-15.3

-2.1

Tokyo

-10.3

-6.4

-2.9

-13.8

-6.5

-6.3

-16.4

-14.9

-16.5

-13.8

-22.9

-9.1

Kanagawa

-11.1

-10.2

-9.8

-11.1

-17.6

-1.1

-4.1

-4.9

-6.8

-18.0

-19.5

-1.5

Niigata

-11.9

-8.9

-0.8

-26.1

-8.3

-8.6

-14.5

-22.9

-14.9

-11.8

-18.5

-6.7

Yamanashi

-22.3

-1.2

-7.4

-17.3

-11.7

-11.8

-7.1

-11.4

-6.2

-15.8

-22.4

-6.6

Nagano

-17.2

-10.3

-10.8

-12.5

-17.2

-11.8

-5.2

-21.6

-34.2

-17.5

-18.6

-1.1

Shizuoka

-14.6

-5.6

-3.2

-24.4

-13.4

-13.2

-16.1

-23.8

-10.6

-6.6

-13.0

-6.4

-7.3

-3.4

-1.7

-20.0

-11.2

-14.5

-14.5

-15.7

-15.4

-14.4

-16.0

-1.6

-2.3

2.9

1.5

-7.4

-8.6

-12.4

-8.8

-11.3

-18.6

-24.9

-7.9

17.0

Chubu
Toyama

1.8

2.8

-2.3

-19.4

5.9

-0.8

-16.2

-4.5

-4.5

-9.3

-14.9

-5.6

-10.7

-6.3

9.0

-20.0

-9.4

-14.8

-10.1

-21.4

-16.4

-11.3

-20.7

-9.4

Aichi

-9.2

-8.3

-8.8

-18.1

-14.3

-15.3

-14.8

-10.8

-17.1

-11.4

-16.8

-5.4

Mie

-12.8

-1.2

-4.4

-29.6

-22.3

-23.7

-23.4

-21.8

-15.5

-18.7

-18.0

0.7

Kinki

-14.4

-4.7

1.5

-11.3

-4.9

-12.1

-13.9

-13.7

-8.8

-11.9

-12.9

-1.0

Ishikawa
Gifu

Fukui

-11.5

9.8

3.9

-0.9

0.9

-11.1

-9.7

-16.5

-6.5

-17.1

-14.1

3.0

Shiga

-27.7

-19.0

12.7

-0.9

-6.7

-9.9

-12.4

-20.9

-10.1

-21.8

-9.9

11.9
-11.8

Kyoto

-18.9

-5.0

0.7

-13.6

-12.8

-13.1

-26.6

-24.9

5.1

-10.6

-22.4

Osaka

-7.7

-2.6

4.8

-11.8

-4.7

-10.0

-10.0

-14.3

-9.8

-9.9

-17.7

-7.8

Hyogo

-22.5

-6.6

-1.9

-17.8

-0.9

-9.8

-6.4

1.1

-3.4

-5.5

-10.1

-4.6

Nara

-14.1

-10.5

-3.9

-9.0

-5.4

-22.6

-20.9

-10.5

-22.8

-16.8

-5.4

11.4

Wakayama

-9.3

-3.5

-6.2

-10.0

-9.2

-12.7

-20.3

-6.7

-12.1

-15.3

-8.9

-6.4

-15.5

-7.2

-9.0

-13.4

-16.1

-15.7

-10.3

-7.3

-11.3

-11.0

-15.3

-4.3

Chugoku
Tottori

-15.1

-3.8

-10.9

-11.1

-12.8

-13.7

-20.8

-8.1

-2.2

-5.2

-6.8

-1.6

Shimane

-10.8

7.1

1.8

-17.1

-8.1

-15.7

-2.4

9.4

-1.8

-12.7

-13.0

-0.3

Okayama

-22.7

-14.2

-15.8

-8.4

-17.2

-13.6

-10.5

-8.2

-12.9

-14.9

-17.6

-2.7

Hiroshima

-5.1

-1.6

1.0

-8.7

-17.2

-14.1

-13.7

-8.0

-15.6

-1.3

-11.4

-10.1
-2.6

Yamaguchi
Shikoku
Tokushima

-21.9

-18.9

-21.5

-23.8

-19.0

-20.8

-6.7

-16.8

-17.3

-19.9

-22.5

-16.0

-11.7

-3.6

-29.9

-21.8

-25.3

-20.8

-19.5

-19.1

-21.5

-19.2

2.3

-9.5

-7.3

0.3

-39.1

-19.4

-32.8

-20.8

-21.3

-20.3

-22.5

-15.6

6.9

Kagawa

-9.3

-4.4

-2.1

-17.6

-4.5

-23.2

-31.7

-21.3

-19.2

-15.0

-23.4

-8.4

Ehime

-22.9

-20.7

-22.2

-33.3

-33.5

-25.6

-22.6

-21.0

-21.1

-20.5

-25.5

-5.0
13.9

Kochi
Kyushu/Okinawa
Fukuoka

-17.7

-12.1

14.8

-31.2

-23.4

-12.2

-9.4

-12.1

-12.4

-28.1

-14.2

-15.4

-8.8

-7.1

-22.0

-19.0

-18.3

-15.7

-17.0

-9.1

-8.7

-15.4

-6.7

-21.8

-20.4

-11.1

-28.2

-23.4

-12.7

-10.7

-25.8

-16.0

-9.0

-15.4

-6.4
15.7

Saga

-10.8

0.3

-8.7

-22.1

-23.1

-34.2

-23.0

-10.6

-6.3

-22.4

-6.7

Nagasaki

-27.3

-12.8

-7.6

-19.6

-18.8

-29.1

-30.9

-12.5

-6.9

-13.9

-22.2

-8.3

Kumamoto

-10.7

-6.5

-6.7

-12.1

-14.7

-15.2

-12.5

-12.6

-8.4

-3.1

-16.0

-12.9
-20.1

Oita

-24.6

-9.9

-5.4

-38.6

-26.0

-28.3

-25.9

-20.0

-17.5

-13.4

-33.5

Miyazaki

-6.9

-8.2

2.0

-13.2

-18.7

-12.0

-23.7

-12.9

-4.5

-4.9

-10.5

-5.6

Kagoshima

-9.5

-3.7

-7.1

-15.3

-15.8

-13.6

-21.2

-18.7

-9.9

-12.9

-23.1

-10.2

Okinawa

-2.2

-10.5

-17.2

-15.1

-5.4

-10.1

8.9

-6.4

4.6

12.4

7.4

-5.0

595

(3) Non-manufacturing

Change from previous quarter (seasonally adjusted)
2013

Prefecture

Oct.Dec.

Jan.Mar.

Apr.Jun.

2015
Jul.Sep.

Oct.Dec.

Jan.Mar.

Apr.Jun.

2016
Jul.Sep.

Oct.Dec.

Jan.Mar.

Changefromprevious
quarter

All Japan

-18.9

-15.8

-15.2

-24.9

-20.4

-20.8

-19.3

-19.6

-16.4

-15.8

-18.8

-3.0

Hokkaido

-13.9

-13.2

-15.0

-21.5

-18.2

-18.3

-18.7

-21.1

-17.2

-18.9

-23.4

-4.5

South/Central Hokkaido

-13.6

-11.4

-17.7

-19.3

-17.3

-17.1

-16.6

-21.1

-19.3

-20.8

-25.9

-5.1

North Hokkaido/Okhotsk

-15.8

-15.1

-8.8

-15.6

-15.1

-19.6

-21.6

-13.1

-20.4

-18.6

-20.3

-1.7

Tokachi, Kushiro, Nemuro
Tohoku

-13.9

-17.2

-9.5

-34.3

-24.7

-21.5

-19.2

-31.1

-8.6

-12.4

-15.3

-2.9

-19.5

-15.8

-18.3

-26.0

-23.2

-24.5

-23.0

-23.3

-18.5

-21.1

-22.9

-1.8
-0.6

Aomori

-17.4

-18.2

-13.6

-22.5

-30.5

-21.6

-25.0

-19.7

-21.3

-28.0

-28.6

Iwate

-15.6

-17.2

-22.8

-26.6

-22.7

-22.7

-19.5

-22.8

-20.0

-23.1

-17.3

5.8

Miyagi

-20.7

-18.3

-19.8

-22.8

-26.4

-30.0

-25.3

-23.3

-13.2

-19.5

-14.9

4.6

Akita

-24.3

-15.4

-17.7

-34.5

-25.2

-27.4

-33.7

-29.5

-21.8

-26.9

-24.0

2.9

Yamagata

-15.5

-13.2

-18.2

-19.8

-12.0

-22.5

-13.8

-24.4

-19.0

-14.4

-20.9

-6.5
-10.9

Fukushima
Kanto
Ibaraki

-21.6

-15.5

-17.7

-26.7

-23.0

-24.5

-19.9

-21.0

-16.4

-16.5

-27.4

-19.1

-16.5

-18.1

-22.9

-20.3

-20.7

-16.7

-18.8

-17.0

-15.4

-16.4

-1.0

-22.2

-20.5

-19.1

-23.3

-23.0

-21.0

-18.4

-20.2

-13.1

-18.8

-19.5

-0.7
-5.9

Tochigi

-19.0

-20.5

-20.5

-23.1

-25.6

-24.3

-20.4

-14.1

-20.0

-16.0

-21.9

Gunma

-16.9

-14.5

-17.5

-18.8

-16.7

-23.9

-16.2

-20.9

-16.6

-17.2

-16.6

0.6

Saitama

-16.1

-14.9

-11.5

-17.3

-13.6

-13.2

-8.2

-13.9

-14.8

-13.1

-17.8

-4.7
-2.6

Chiba

-24.0

-14.8

-20.3

-17.5

-21.8

-22.1

-16.9

-21.0

-17.2

-11.7

-14.3

Tokyo

-12.0

-9.3

-12.3

-18.6

-16.5

-13.3

-10.5

-10.7

-13.2

-10.2

-7.7

2.5

Kanagawa

-16.9

-18.5

-18.6

-24.1

-13.9

-17.8

-14.5

-12.3

-16.8

-9.7

-11.1

-1.4
-4.0

Niigata

-23.8

-17.9

-22.5

-27.7

-27.0

-28.9

-27.1

-27.9

-21.5

-22.5

-26.5

Yamanashi

-24.2

-24.0

-29.3

-23.9

-28.3

-24.7

-15.2

-20.9

-17.7

-22.2

-20.2

2.0

Nagano

-21.1

-19.8

-19.7

-26.1

-22.0

-24.4

-23.3

-20.0

-20.0

-21.8

-17.7

4.1

-17.8

-16.7

-18.7

-25.7

-18.6

-19.5

-16.8

-22.5

-14.7

-11.8

-16.4

-4.6

-17.1

-14.2

-14.2

-23.7

-21.4

-21.3

-18.4

-17.6

-16.8

-14.3

-21.3

-7.0

Toyama

-15.6

-13.2

-16.7

-18.4

-14.8

-15.8

-11.7

-10.7

-17.2

-12.7

-17.8

-5.1

Ishikawa

-16.0

-7.4

-6.4

-29.7

-26.4

-23.3

-13.2

-9.5

-16.9

-9.5

-18.8

-9.3
-3.5

Shizuoka
Chubu

Gifu

-22.1

-17.8

-14.4

-26.3

-26.6

-25.3

-21.4

-19.7

-21.3

-20.8

-24.3

Aichi

-14.2

-12.7

-11.3

-18.3

-17.4

-16.9

-14.3

-15.3

-10.4

-8.3

-13.8

-5.5

Mie

-20.0

-17.3

-19.1

-26.4

-25.8

-25.9

-27.8

-25.6

-22.3

-19.5

-30.7

-11.2

Kinki
Fukui

-20.1

-15.9

-11.6

-26.3

-19.2

-20.3

-18.6

-18.9

-17.6

-16.2

-18.0

-1.8

-20.7

-16.0

-14.2

-23.0

-17.2

-16.7

-21.0

-14.6

-15.6

-12.1

-18.6

-6.5

Shiga

-12.8

-8.4

-6.5

-11.6

-21.8

-22.8

-19.6

-13.1

-15.8

-15.2

-18.4

-3.2

Kyoto

-23.8

-21.1

-11.2

-19.6

-16.3

-21.1

-21.0

-21.5

-20.8

-16.8

-19.9

-3.1

Osaka

-20.0

-15.7

-11.2

-28.4

-19.8

-20.6

-20.2

-18.5

-18.4

-17.8

-20.1

-2.3

Hyogo

-18.2

-11.3

-15.3

-22.9

-19.4

-17.1

-11.2

-13.7

-13.9

-11.5

-14.1

-2.6
-5.5

Nara

-26.2

-20.3

-17.5

-26.8

-20.2

-24.0

-25.9

-21.6

-15.3

-19.8

-25.3

Wakayama

-23.7

-21.1

-14.9

-34.7

-24.1

-21.1

-25.5

-20.8

-26.0

-22.5

-18.5

4.0

-22.2

-19.6

-18.0

-26.1

-23.5

-25.2

-23.3

-21.2

-17.9

-19.0

-20.5

-1.5

Tottori

-16.2

-19.6

-16.1

-30.4

-16.2

-30.7

-27.8

-18.5

-16.3

-19.0

-21.4

-2.4

Shimane

-14.9

-8.2

-7.4

-26.1

-22.0

-26.6

-22.1

-23.4

-12.8

-25.5

-15.1

10.4

ChugokuOkayama

-34.9

-31.5

-27.0

-27.5

-28.0

-22.4

-21.3

-21.7

-21.1

-18.8

-22.5

-3.7

Hiroshima

-22.0

-22.2

-21.5

-26.9

-25.2

-21.7

-23.7

-20.7

-14.7

-11.9

-23.3

-11.4

Yamaguchi
Shikoku

-22.0

-17.9

-18.4

-22.9

-23.2

-26.0

-23.8

-19.9

-22.0

-21.2

-21.1

0.1

-21.7

-18.5

-15.3

-25.0

-20.5

-20.5

-18.7

-17.5

-17.3

-18.9

-18.5

0.4

Tokushima

-9.9

-14.8

-11.6

-20.8

-16.7

-18.2

-8.2

-13.5

-10.9

-17.9

-14.3

3.6

Kagawa

-24.8

-20.7

-22.9

-31.2

-22.6

-20.4

-21.7

-21.3

-18.4

-15.9

-25.1

-9.2

Ehime

-27.2

-23.1

-13.1

-23.8

-21.6

-22.1

-25.1

-19.3

-25.1

-21.5

-20.7

0.8

Kochi

-26.6

-11.5

-16.1

-21.2

-23.9

-19.4

-18.9

-11.1

-13.7

-18.3

-14.8

3.5

Kyushu/Okinawa
Fukuoka

-18.0

-15.1

-10.1

-23.8

-19.8

-19.0

-20.9

-17.7

-12.5

-11.6

-14.9

-3.3

-19.5

-14.9

-12.3

-20.9

-20.5

-19.4

-23.2

-19.9

-16.3

-14.7

-16.2

-1.5

Saga

-18.4

-17.8

-12.5

-33.1

-24.2

-26.6

-29.5

-21.4

-14.7

-18.7

-17.2

1.5

Nagasaki

-23.1

-19.8

-12.9

-26.8

-22.6

-21.6

-20.7

-21.2

-16.8

-10.6

-17.3

-6.7
-13.3

Kumamoto

-15.9

-16.2

-10.6

-17.4

-19.5

-21.2

-27.8

-14.3

-7.9

-3.7

-17.0

Oita

-22.3

-12.9

-18.8

-27.4

-26.7

-25.3

-27.2

-22.0

-21.8

-23.6

-22.4

1.2

Miyazaki

-26.1

-16.7

-17.2

-28.6

-20.5

-16.9

-23.9

-14.5

-10.9

-10.2

-12.1

-1.9

Kagoshima

-15.9

-16.3

-14.8

-24.3

-23.6

-20.4

-22.7

-11.2

-11.0

-10.2

-19.6

-9.4

Okinawa

2.2

-5.2

6.8

0.4

5.1

2.4

-3.4

0.5

9.5

5.4

-3.2

-8.6

Source:596

Jul.Sep.

2014

SME Agency and SMRJ, Survey on SME Business Conditions.

Supplementary statistical data

Table 19

No. of enterprises, regular employees, total no. of workers, sales and value
added by industry, organization and no. of regular employees(1) Number of enterprises (2014)
Sole proprietorship(businesses)
5 or fewer

6-10

11-20

21-50

51-100101-300 301 or more

128

9

1

2

Construction

148,320

2,949

417

56

6

Manufacturing

138,050

5,120

1,368

233

13

41

11

3

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications

Total
140
151,7483

144,787

10

10

2,210

2,265

Transport and postal activities

17,798

271

75

24

2

18,170Wholesale trade46,185

1,377

324

79

7

47,972Retail trade

375,046

11,933

13,030

3,805

133

6,207

29

11

148,043

233

49

Finance and insurance
Real estate and goods rental and leasing

18

4403,9696,247

9

148,334

Scientific research, professional and technical services

95,213

5,525

1,294

271

24

13

Accommodations, eating and drinking services
Living-related and personal services andamusement services
Education, learning support

406,933

23,065

5,426

805

35

4

2

436,268

102,342

307,816

4,035

1,299

246

22

6

313,424

84,787

3,505

1,208

247

17

4

Medical, health care and welfare

132,558

30,443

6,938

1,204

183

59

89,76812

171,397

Compound services

3,402

5

Services (not elsewhere classified)

48,310

840

217

83

14

4

49,468

3,407

Total

1,961,016

89,38031,668

7,067

456

111

18 2,089,716

Company

5 or fewer

6-10

11-20

21-50

51-100(businesses)
101-300 301 or more
Total

673

286

187

129

27

11

5

1,318

Construction

200,237

52,83930,34815,194

3,208

1,436

543

303,805

Manufacturing

133,464

44,19636,571

31,73812,320

8,664

3,556

270,509

477

99

122

143

77

60

41

1,019

25,570

5,202

4,520

4,154

1,870

1,481

725

43,522Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

15,1609,198

10,753

11,139

4,632

3,243

1,092

55,217Wholesale trade116,348

25,672

17,41313,024

4,798

3,130

1,126

181,511
266,832

Retail trade

175,360

34,55827,21818,928

5,369

3,436

1,963

Finance and insurance

19,409

2,227

938

609

275

220

293

23,971

Real estate and goods rental and leasing

154,640

7,530

4,137

2,861

1,004

713

298

171,183

Scientific research, professional and technical services

65,648

9,555

5,616

3,645

1,171

751

349

86,735

Accommodations, eating and drinking services
Living-related and personal services andamusement services
Education, learning support

50,82921,99917,507

11,277

3,746

2,372

1,042

108,772

38,546

10,747

8,350

6,817

2,821

1,576

565

69,422

9,622

2,667

2,381

1,985

674

336

175

17,840

Medical, health care and welfare

13,869

7,785

8,139

6,353

1,951

865

225

39,187

Compound services
Services (not elsewhere classified)
Total
Total enterprises(Sole proprietorship and company)
Mining and quarrying of stone and gravel

76

4

3

1

1

1

86

48,083

13,332

9,994

9,251

4,127

3,313

1,593

89,693

1,068,011

247,896

184,197

137,248

48,07031,60813,592 1,730,622

5 or fewer

6-10

11-20

21-50

(businesses)
51-100101-300 301 or more

Total

801

295

188

131

27

11

5

1,458

Construction

348,557

55,78830,765

15,250

3,214

1,436

543

455,553

Manufacturing271,51449,31637,93931,971

12,333

8,667

3,556

415,296

487

99

122

143

77

60

41

1,029

27,780

5,243

4,531

4,157

1,870

1,481

725

45,787

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

32,9589,469

10,828

11,163

4,634

3,243

1,092

73,387Wholesale trade162,533

27,04917,737

13,103

4,805

3,130

1,126

229,483
670,801

Retail trade

550,406

46,491

40,24822,733

5,502

3,454

1,967

Finance and insurance

25,616

2,256

949

609

275

220

293

30,218

Real estate and goods rental and leasing

302,683

7,763

4,186

2,870

1,004

713

298

319,517

Scientific research, professional and technical services

160,861

15,080

6,910

3,916

1,195

764

351

189,077

Accommodations, eating and drinking services
Living-related and personal services andamusement services
Education, learning support

457,762

45,06422,93312,082

3,781

2,376

1,042

545,040

346,362

14,782

9,649

7,063

2,843

1,582

565

382,846

94,409

6,172

3,589

2,232

691

340

175

107,608

Medical, health care and welfare

2,134

924

237

210,584

1

1

3,493
139,161

146,427

38,22815,077

7,557

Compound services

3,478

9

3

1

Services (not elsewhere classified)

96,393

14,172

10,211

9,334

4,141

3,317

1,593

3,029,027

337,276

215,865

144,315

48,526

31,71913,610 3,820,338

Total

597

(2) Number of regular employees (2014)
Sole proprietorship(people)5 or fewer

6-10

11-20

21-50

51-100

146

75

17

58

Construction

129,297

20,951

5,537

1,593

364

Manufacturing

129,906

37,552

18,907

6,219

895

305

156

89

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications

101-300 301 or more

Total
296
157,742

342

193,821

6
1,384

6
1,934

Transport and postal activities

4,931

1,997

1,028

676

131

8,763

Wholesale trade46,539

9,942

4,539

2,278

430

63,728Retail trade

100,7428,362

263,939

92,446

191,853

Finance and insurance

3,532

205

150

Real estate and goods rental and leasing

34,223

1,680

675

3,029

2,092

662,463
3,887

262

36,840Scientific research, professional and technical services

118,200

40,32017,890

7,600

1,627

2,174

Accommodations, eating and drinking services

423,284

168,531

74,04821,7702,320

803

690,756

Living-related and personal services andamusement services

177,704

29,52318,004

6,931

1,383

887

234,432

Education, learning support

49,06026,094

16,762

6,832

1,084

594

Medical, health care and welfare

234,242

224,220

93,85634,49012,474

9,607

663

188,474

100,426
4,409

613,298

Compound services

3,511

36

Services (not elsewhere classified)

40,189

6,054

2,979

2,402

971

652

53,247

3,547

Total

1,660,093

659,931446,401

191,942

30,041

18,088

7,164 3,013,660

Company

5 or fewer

6-10

11-20

21-50

(people)51-100101-300 301 or more

1,413

2,264

2,682

4,021

1,930

1,595

Construction

407,422400,862436,664

459,595

220,049

231,625

Manufacturing278,010

339,782

538,907 1,006,707

739

772

1,854

4,556

5,474

9,518

39,08839,83866,823

133,721

132,686

247,245

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications

4,590

Total
18,495564,266 2,720,483

872,230 1,434,904 4,505,444 8,975,984
173,896

196,809792,913 1,452,314

Transport and postal activities

35,51872,124

161,259

357,666

326,184

532,846 1,390,548 2,876,145

Wholesale trade218,311

195,420

254,634

411,105

337,291

510,245

Retail trade

321,341

263,122403,121583,089

373,417575,173 3,077,166 5,596,429

976,613 2,903,619

Finance and insurance

30,591

16,49813,434

19,18919,35539,206 1,039,193 1,177,466

Real estate and goods rental and leasing

155,186

56,26460,33090,13470,194

117,872

318,823

868,803

Scientific research, professional and technical services

97,28572,07981,271

113,257

82,362

124,970

365,666

936,890

Accommodations, eating and drinking services

115,711

169,856

255,909352,590

261,270

388,699 1,751,212 3,295,247

Living-related and personal services andamusement services

76,53382,349122,625

217,625

197,937

250,575

546,327 1,493,971

Education, learning support

16,247

20,65035,384

63,33247,226

53,797

175,748412,384

Medical, health care and welfare

31,29960,759

121,795

199,618

134,313

133,677

243,741925,202226

406,903407,331

292,744558,780 1,846,409 3,342,031

Compound services
Services (not elsewhere classified)
Total

105

25

35

37

95,995

101,864

147,594

298,645

1,920,794 1,894,528 2,704,321 4,314,887 3,374,662 5,210,953 18,179,458 37,599,603(people)Total enterprises(Sole proprietorship and company)

6-10

11-20

21-50

51-100101-300 301 or more

1,559

2,339

2,699

4,079

1,930

1,595

Construction

536,719

421,813442,201

461,188

220,413

231,625

Manufacturing407,916

377,334

557,814 1,012,926

745

772

1,854

4,556

5,474

9,518

40,47240,143

66,979133,810

132,686

247,245

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications

4,590

Total
18,791

564,266 2,878,225

873,125 1,435,246 4,505,444 9,169,805
173,896

196,815

792,913 1,454,248

Transport and postal activities

40,44974,121

162,287

358,342

326,315532,846 1,390,548 2,884,908

Wholesale trade

264,850

205,362

259,173

413,383

337,721510,245

Retail trade585,280

355,568

594,974

683,831381,779

578,202 3,079,258 6,258,892

976,613 2,967,347

Finance and insurance

34,123

16,703

13,584

19,18919,35539,206 1,039,193 1,181,353

Real estate and goods rental and leasing

189,40957,94461,00590,39670,194

117,872

318,823

Scientific research, professional and technical services

215,485

112,399

99,161

120,857

83,989127,144366,329 1,125,364

905,643

Accommodations, eating and drinking services

538,995

338,387

329,957

374,360

263,590

389,502 1,751,212 3,986,003

Living-related and personal services andamusement services

254,237

111,872

140,629

224,556

199,320

251,462546,327 1,728,403

Education, learning support

65,307

46,744

52,14670,164

48,31054,391

175,748

Medical, health care and welfare

265,541

284,979

215,651

234,108

146,787

143,284

248,150 1,538,500

293,715

559,432 1,846,409 3,395,278

Compound services
Services (not elsewhere classified)
Total

598

5 or fewer

3,616

61

35

37

136,184

107,918

150,573

301,047226

406,903

512,810
410,878

3,580,887 2,554,459 3,150,722 4,506,829 3,404,703 5,229,041 18,186,622 40,613,263

Supplementary statistical data

(3) Total number of workers (2014)
Sole proprietorship(people)5 or fewer

6-10

11-20

21-50

51-100

336

91

19

61

Construction

341,930

25,607

6,259

1,758

370

Manufacturing335,62145,27921,147

6,602

953

358

176

101

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications

101-300 301 or more

Total
507
375,924

344

409,946

17
4,472

17
5,107

Transport and postal activities

27,604

2,423

1,135

712

139

32,013Wholesale trade

115,904

11,941

5,110

2,384

437

135,776

106,6888,799

Retail trade829,535

111,895

210,394

Finance and insurance

11,305236

168

Real estate and goods rental and leasing

226,453

2,024

763

Scientific research, professional and technical services
Accommodations, eating and drinking services
Living-related and personal services andamusement services

3,230

2,149 1,272,690
11,709303

229,543

233,168

46,52019,377

7,911

1,652

2,149

1,060,933

201,659

82,201

23,394

2,568

815

1,371,570

557,704

35,224

19,882

7,445

1,560

893

622,708

Education, learning support

164,648

31,13318,700

7,421

1,143

637

Medical, health care and welfare

410,715

262,218

103,379

36,59813,072

9,937

665

311,442

223,6824,468

840,3878,851

41

108,299

7,297

3,512

2,634

1,011

655

123,408

Total

4,437,495

783,946492,222204,01231,704

18,6607,282 5,975,321

Company

5 or fewer

6-10

11-20

21-50

Compound services
Services (not elsewhere classified)

8,892(people)51-100101-300 301 or more

2,748

2,968

3,261

4,497

2,075

1,744

Construction

812,061

527,504

524,054

516,003236,720

241,843

Manufacturing632,524 1,106,120

Mining and quarrying of stone and gravel

527,763435,833

Electricity, gas, heat supply and water

1,428

962

2,201

5,116

5,866

9,827

Information and communications

80,54350,727

77,593147,032

140,751

256,577

3,518

Total
20,811

568,906 3,427,091

922,142 1,475,167 4,256,465 9,356,014
175,047

200,447

800,593 1,553,816

Transport and postal activities

67,776

93,280187,981394,463

345,944553,585 1,433,494 3,076,523

Wholesale trade

426,024

251,945

302,364

457,047

359,580

528,443

Retail trade

637,048

339,337

469,129

644,037

400,787

610,609 3,171,135 6,272,082

973,132 3,298,535

Finance and insurance

63,334

21,274

15,82821,164

20,66440,850 1,049,075 1,232,189

Real estate and goods rental and leasing

437,205

72,95971,785

101,373

76,051

123,692

327,349 1,210,414

Scientific research, professional and technical services

207,534

93,413

96,108

126,71788,476132,286

363,958 1,108,492

Accommodations, eating and drinking services

236,777

220,650

302,485

401,561

295,241

435,175 1,917,352 3,809,241

Living-related and personal services andamusement services

149,094

105,930

145,441

246,438

218,505

272,492

578,548 1,716,448

Education, learning support

40,52228,15842,87873,86254,93863,332

190,052

Medical, health care and welfare

60,75977,685

140,789

220,938

143,794

141,396

252,009 1,037,370

323,677

614,823 1,917,542 3,739,349

Compound services
Services (not elsewhere classified)
Total

216

33

44

39

202,449

140,937

186,941

352,980

3,953,281 2,463,595

226

407,019493,742
407,577

3,201,406 4,819,387 3,635,211 5,502,067 18,385,194 41,960,141(people)Total enterprises(Sole proprietorship and company)

5 or fewer

6-10

11-20

21-50

51-100101-300 301 or more

3,084

3,059

3,280

4,558

2,075

1,744

Construction

1,153,991

553,111

530,313517,761

237,090

241,843

Manufacturing653,671 1,112,722

Mining and quarrying of stone and gravel

863,384

481,112

Electricity, gas, heat supply and water

1,445

962

2,201

5,116

5,866

9,827

Information and communications

85,01551,08577,769147,133

140,751

256,577

3,518

Total
21,318568,906 3,803,015

923,095 1,475,511 4,256,465 9,765,960
175,047

200,464

800,593 1,558,923

Transport and postal activities

95,38095,703

189,116

395,175

346,083

553,585 1,433,494 3,108,536

Wholesale trade541,928

263,886

307,474

459,431360,017

528,443

1,466,583

451,232

679,523

750,725

409,586

613,839 3,173,284 7,544,772

Retail trade973,132 3,434,311

Finance and insurance

74,63921,51015,99621,164

20,66440,850 1,049,075 1,243,898

Real estate and goods rental and leasing

663,658

74,98372,548

101,676

76,051

123,692

327,349 1,439,957

Scientific research, professional and technical services

440,702139,933

115,485

134,628

90,128134,435

364,623 1,419,934

1,297,710

422,309384,686

424,955

297,809435,990 1,917,352 5,180,811

Living-related and personal services andamusement services

706,798

141,154

165,323

253,883

220,065

273,385

578,548 2,339,156

Education, learning support

205,170

59,291

61,57881,28356,081

63,969190,052

Medical, health care and welfare

471,474

339,903

244,168

257,536

156,866

151,333

256,477 1,877,757

324,688615,478 1,917,542 3,862,757

Accommodations, eating and drinking services

Compound services
Services (not elsewhere classified)
Total

9,067

74

44

39

310,748

148,234

190,453355,614226

407,019

717,424
416,469

8,390,776 3,247,541 3,693,628 5,023,399 3,666,915 5,520,727 18,392,476 47,935,462

599

(4) Sales (2013)(¥100 million)
Sole proprietorship

5 or fewer

6-10

11-20

21-50

51-100101-300 301 or more

Total

24

10

2

13

0

0

0

49

Construction

20,407

1,778

432

128

9

0

0

22,754

Manufacturing

12,512

2,099

973

316

82

25

0

16,008

0

0

0

0

0

0

0

0

138

10

3

3

0

0

0

154

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications

856

123

43

26

11

0

0

1,059

Wholesale trade

12,358

1,470

610

195

181

0

0

14,814Retail trade47,301

9,296

17,462

6,306

314

71

1

80,752

584

27

33

0

0

0

0

644

9,758

92

21

6

0

0

0

9,877

Transport and postal activities

Finance and insurance
Real estate and goods rental and leasing
Scientific research, professional and technical services

13,119

3,331

1,403

728

222

258

56

19,118

Accommodations, eating and drinking services

26,694

4,923

1,845

453

56

30

0

34,000

Living-related and personal services andamusement services

13,157

1,086

873

219

23

352

0

15,710

Education, learning support

2,222

430

284

150

11

16

0

3,112

Medical, health care and welfare

23,04018,646

7,071

2,696

964

705

283

53,405

182

1

0

0

0

0

0

183

4,898

322

80

50

15

9

0

5,374

Total

187,248

43,64331,137

11,290

1,890

1,465

341

277,013Company

5 or fewer

6-10

11-20

21-50

Compound services
Services (not elsewhere classified)(¥100 million)
51-100101-300 301 or more

Total

3,454

512

6,625

881

682

2,056

7,035

21,245Construction

112,071

84,66896,831

113,987

61,857

79,691

305,388854,494375,598 2,501,049 3,452,561

Mining and quarrying of stone and gravel
Manufacturing

67,59053,47685,557

186,404

182,887

Electricity, gas, heat supply and water

2,074

284

821

2,490

5,526

10,489235,274

256,958

Information and communications

10,439

5,198

8,633

21,356

20,15647,866355,982

469,631

328,052

527,927

Transport and postal activities

11,174

10,871

20,47043,06941,69872,593Wholesale trade163,658

111,733

154,386

257,689

275,039

430,956 1,373,414 2,766,875

Retail trade87,85854,74265,511

88,40965,622

129,310

741,724 1,233,176

Finance and insurance

22,390

2,984

3,313

9,315

6,765

36,227

716,429

797,423

Real estate and goods rental and leasing

58,591

15,931

14,67025,72222,087

37,662

155,893

330,555

Scientific research, professional and technical services

23,722

10,561

13,005

20,35816,89240,082

118,987

243,608

Accommodations, eating and drinking services

10,5609,508

11,417

16,31913,13821,15988,326

170,427

Living-related and personal services andamusement services

15,318

9,222

16,081

33,40933,612

52,218161,846

321,707

Education, learning support

1,526

928

1,437

3,495

2,561

2,749

11,60724,303

Medical, health care and welfare

2,284

2,095

3,772

6,139

4,302

4,584

11,98835,163

20

97

8

6

0

1

27,74027,87017,662

12,27016,09826,17921,40437,591

117,215

248,419

Total

610,391

385,080

518,634

855,229774,227 1,380,835 7,257,950 11,782,344

Total enterprises(Sole proprietorship and company)

5 or fewer

6-10

11-20

21-50

51-100Compound services
Services (not elsewhere classified)(¥100 million)
Total

3,477

521

6,627

894

682

2,056

7,035

21,294

Construction

132,479

86,446

97,263

114,115

61,866

79,691

305,388877,248375,623 2,501,049 3,468,569

Mining and quarrying of stone and gravel
Manufacturing

80,101

55,576

86,530186,720

182,970

Electricity, gas, heat supply and water

2,075

284

821

2,490

5,526

10,489235,274

256,959

Information and communications

10,577

5,208

8,636

21,36020,15647,866355,982

469,785

328,052

528,986

Transport and postal activities

12,03010,994

20,51343,09541,70972,593Wholesale trade

176,016

113,203

154,996

257,883

275,220

430,956 1,373,414 2,781,689

Retail trade135,160

64,03882,973

94,71565,936

129,381741,726 1,313,929

Finance and insurance

22,973

3,011

3,346

9,315

6,765

36,227

716,429

798,067

Real estate and goods rental and leasing

68,34816,022

14,691

25,72822,087

37,662

155,893

340,432

Scientific research, professional and technical services

36,841

13,892

14,40821,086

17,11540,340119,043

262,726

Accommodations, eating and drinking services

37,254

14,431

13,262

16,772

13,194

21,18988,326

204,427

Living-related and personal services andamusement services

28,475

10,308

16,95433,62933,63552,569161,846

337,417

Education, learning support

3,748

1,357

1,721

3,646

2,572

2,765

11,607

27,415

Medical, health care and welfare

25,324

20,741

10,843

8,835

5,266

5,289

12,27088,568Compound services
Services (not elsewhere classified)
Total

600

101-300 301 or more

202

97

8

6

0

1

27,74028,05322,56012,592

16,17826,22921,41937,599117,215

253,793

797,639428,722549,771866,519

776,116 1,382,300 7,258,290 12,059,357

Supplementary statistical data

(5) Value added (2011)(¥100 million)

Sole proprietorship
Mining and quarrying of stone and gravel

5 or fewer

6-10

11-20

21-50

51-100101-300 301 or more

Total

9

1

1

1

0

0

0

12

Construction

8,442

774

211

54

9

4

0

9,494

Manufacturing

7,811

6,119

1,030

483

150

25

3

0

Electricity, gas, heat supply and water

0

0

0

0

0

0

0

0

Information and communications

63

5

2

1

0

0

0

71

390

64

26

9

4

0

0

494

Wholesale trade

Transport and postal activities

3,225

356

143

34

3

0

0

3,761

Retail trade

15,318

2,444

4,063

1,585

90

17

0

23,517

274

6

2

0

0

0

0

282

5,172

48

14

9

0

0

0

5,242

Finance and insurance
Real estate and goods rental and leasing
Scientific research, professional and technical services

7,115

2,201

967

476

158

126

67

11,109

Accommodations, eating and drinking services

10,207

1,988

803

214

22

5

0

13,240

Living-related and personal services and amusement services

6,439

550

396

118

9

20

0

7,533

Education, learning support

1,003

230

163

107

23

2

0

1,528

Medical, health care and welfare

11,881

9,941

3,874

1,545

639

572

161

28,613

106

1

0

0

0

0

0

108

2,318

186

57

56

5

0

0

2,622

78,083

19,827

11,205

4,360

987

749

227

115,437

Compound services
Services (not elsewhere classified)
Total(¥100 million)
Company
Mining and quarrying of stone and gravel

5 or fewer

6-10

11-20

21-50

51-100101-300 301 or more

Total

140

147

129

247

110

322

282

1,376

Construction

25,636

18,31819,192

19,1909,666

12,377

41,827

146,207

Manufacturing

19,687

16,78125,871

47,483

44,91879,503

320,873555,114

530

80

158

352

376

903

25,54527,943

2,922

2,055

3,252

6,651

7,107

14,48390,010126,481

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

2,733

3,120

6,435

13,725

12,161

18,87081,924

138,969

Wholesale trade22,936

13,492

17,061

27,40421,94337,124

77,208217,169

Retail trade

20,21011,194

13,33817,216

11,28020,767100,268

194,273

Finance and insurance

4,514

961

1,044

1,577

1,486

4,349

132,966

146,898

Real estate and goods rental and leasing

20,863

4,082

4,340

6,784

5,062

8,455

26,37975,965

Scientific research, professional and technical services

9,536

6,713

4,353

6,291

9,486

9,786

37,497

83,662

Accommodations, eating and drinking services

4,614

3,756

4,873

6,727

4,705

6,909

28,05059,635

Living-related and personal services and amusement services

4,280

2,680

3,815

7,548

6,380

8,779

21,20854,690

664

488

728

1,557

1,224

1,245

4,964

10,869

1,009

1,120

1,960

3,192

2,054

1,945

5,821

17,101

14

3

0

1

1

9

6,685

6,713

7,367

5,165

6,275

11,118

8,343

15,26843,167

96,703

147,654

90,156112,823

177,063

146,302

241,094 1,044,674 1,959,767

6-10

11-20

21-50

51-100101-300 301 or more

Education, learning support
Medical, health care and welfare
Compound services
Services (not elsewhere classified)
Total(¥100 million)
Total enterprises (Sole proprietorship and company) 5 or fewer
Mining and quarrying of stone and gravel

Total

149

148

130

248

110

322

282

1,388

Construction

34,07819,093

19,403

19,244

9,674

12,381

41,827

155,700

Manufacturing

25,806

17,811

26,35447,63344,94379,506

320,873

562,925

530

80

158

352

376

903

25,54527,943

2,986

2,060

3,254

6,652

7,107

14,48390,010126,553

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

3,123

3,185

6,461

13,734

12,16518,87081,924

139,462

Wholesale trade26,161

13,84817,20427,43821,94637,124

77,208220,929

Retail trade35,528

13,63817,40118,801

11,37020,784

100,268

217,790

Finance and insurance

4,788

968

1,046

1,577

1,486

4,349

132,966

147,180

Real estate and goods rental and leasing

26,035

4,130

4,354

6,793

5,062

8,455

26,37981,207

Scientific research, professional and technical services

16,650

8,914

5,320

6,768

9,644

9,912

37,564

94,771

Accommodations, eating and drinking services

14,821

5,743

5,677

6,941

4,728

6,914

28,05072,874

Living-related and personal services and amusement services

10,719

3,230

4,211

7,666

6,389

8,799

21,20862,222

Education, learning support

1,667

719

891

1,664

1,247

1,246

4,964

12,397

Medical, health care and welfare

12,89011,061

5,834

4,737

2,693

2,517

5,981

45,714

120

4

0

1

1

9

6,685

6,821

9,686

5,351

6,332

11,174

8,347

15,26843,16799,325

225,737

109,983

124,028

181,423

147,289

Compound services
Services (not elsewhere classified)
Total
Source:Notes:

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Number of enterprises = Number of companies + Business establishments of sole proprietors.
2.	 Industries are classified according to the October 2013 revised system of industry classification.

241,843 1,044,901 2,075,204

601

Table 20

No. of sole proprietor, unpaid family worker, officers with payment, regular
employees and temporary employees by industry and size (2014)(people)No. of No. of
No. ofRegularTemporary Total no. of
unpaid officers regular
Sole
with
proprietor family
employees employees Part-timer employees workers
and staffs
worker payment
SMEs
2,056,431 567,979 3,103,327 26,466,676 16,103,535 10,237,171 1,541,367 33,609,810
142
45
2,802
14,56012,736
1,779
664
18,168Mining and quarrying of stone and gravel
148,810 37,787
576,438 2,467,738 2,058,538
407,919
161,001 3,390,493
Construction
142,915 51,267
533,953 5,681,828 4,115,788 1,491,722
150,744 6,486,389
Manufacturing
10
1
2,306
31,97527,7444,229
300
34,590Electricity, gas, heat supply and water
2,250
437
77,440880,620
749,030
129,052
21,312
979,521
Information and communications
17,983
4,095
111,034 2,084,844 1,573,435
507,316
70,323 2,284,186
Transport and postal activities
47,245 17,101
344,924 2,090,910 1,543,773
532,460
72,125 2,557,628
Wholesale trade
398,002 154,521
444,032 3,552,165 1,504,703 2,038,787
205,413 4,745,458
Retail trade
6,197
1,347
41,384
170,361
130,568
37,4295,198
222,123
Finance and insurance
145,707 42,249
305,372
684,658443,751
238,248
34,251 1,209,578
Real estate and goods rental and leasing
101,376 13,767
145,375
751,933
607,459
142,335
32,755 1,043,067
Scientific research, professional and technical services
425,386 134,174
161,666 2,738,473
770,392 1,965,325
345,043 3,801,986
Accommodations, eating and drinking services
308,772 58,888
110,595 1,345,409
684,754
658,449
102,428 1,923,886
Living-related and personal services and amusement services
90,252 11,197
28,260413,400
144,982
268,253
60,554603,498
Education, learning support
169,373 25,773
58,650 1,356,495
675,945679,981
77,518 1,687,240
Medical, health care and welfare
3,259
682
109
3,975
1,231
2,744
1,425
9,450
Compound services
48,752 14,648
158,987 2,197,332 1,058,706 1,131,143
200,313 2,612,549
Services (not elsewhere classified)
1,941,840 550,266 2,124,844 5,920,617 4,036,960 1,882,878
731,778 11,268,566
Of which micro enterprises
140
44
2,251
6,597
5,593
989
406
9,423
Mining and quarrying of stone and gravel
148,753 37,776
512,682 1,400,733 1,146,718
253,943
137,543 2,237,415
Construction
142,652 51,227
378,423 1,343,064
933,273409,503
83,089 1,998,167
Manufacturing
10
1
1,127
3,371
2,840
531
99
4,608
Electricity, gas, heat supply and water
2,228
435
39,627
63,95849,423
14,516
7,037
113,266
Information and communications
17,954
4,082
61,026
276,857
228,380
48,425
20,332
380,199
Transport and postal activities
45,465 16,764
188,319
264,850
190,547
74,226
26,607541,928
Wholesale trade369,909 147,230
269,873585,280
366,935
218,265
94,371 1,466,583
Retail trade
6,197
1,347
37,13764,41045,35919,015
3,090
112,145
Finance and insurance
145,593 42,222
285,844276,582
200,46276,081
21,827772,029
Real estate and goods rental and leasing
94,353 13,473
98,341
215,485
167,163
48,292
19,080440,702
Scientific research, professional and technical services
397,655 129,479
81,791
618,333
220,318
398,010
167,496 1,394,749
Accommodations, eating and drinking services
304,055 58,246
63,176
330,449
203,005
127,394
45,017800,893
Living-related and personal services and amusement services
84,958 10,484
13,07265,307
20,12045,181
31,355205,170
Education, learning support
131,038 22,328
18,637
265,541
152,285
113,251
33,935
471,474
Medical, health care and welfare
3,254
682
94
3,616
1,131
2,485
1,421
9,067
Compound services
47,626 14,446
73,424
136,184
103,408
32,771
39,073
310,748
Services (not elsewhere classified)349
44
72,350 14,146,587 8,437,630 5,358,018
457,261 14,325,652
Large enterprises
0
0
168
4,231
2,612
369
1
3,150
Mining and quarrying of stone and gravel
0
0
3,705
410,487366,60339,444
2,770
412,522
Construction
00
18,178 3,487,977 2,791,805
435,423
34,165 3,279,571
Manufacturing
00577
164,840
158,487
6,249
561
165,874
Electricity, gas, heat supply and water
0
0
4,392
573,628
518,435
53,2583,317
579,402
Information and communications
0
0
2,412
800,064
554,982
239,843
27,113824,350
Transport and postal activities
00
10,747876,437
681,660
166,836
17,440876,683
Wholesale trade205
42
10,454 2,706,727
925,109 1,761,027
102,477 2,799,314
Retail trade00
3,443 1,010,992
793,550
210,543
14,239 1,021,775
Finance and insurance
0
0
2,032
220,985
149,918
70,1288,301
230,379
Real estate and goods rental and leasing
14
1
4,332
373,431
278,932
81,746
11,842376,867
Scientific research, professional and technical services
46
12,926 1,247,530
218,395 1,025,960
131,497 1,378,825
Accommodations, eating and drinking services
6
0
3,190
382,994
148,289
232,092
31,693415,270
Living-related and personal services and amusement services
40629
99,41036,16963,141
13,983113,926
Education, learning support
710
678
182,005
98,357
83,646
7,765
190,517
Medical, health care and welfare
0024
406,903
200,730
206,17392
407,019
Compound services
304,463 1,197,946
513,597
682,140
50,005 1,250,208
Services (not elsewhere classified)
2,056,780 568,023 3,175,677 40,613,263 24,541,165 15,595,189 1,998,628 47,935,462
Total
142
45
2,970
18,791
15,3482,148
665
21,318Mining and quarrying of stone and gravel
148,810 37,787
580,143 2,878,225 2,425,141
447,363
163,771 3,803,015
Construction
142,915 51,267
552,131 9,169,805 6,907,593 1,927,145
184,909 9,765,960
Manufacturing
10
1
2,883
196,815
186,231
10,478861
200,464
Electricity, gas, heat supply and water
2,250
437
81,832 1,454,248 1,267,465
182,310
24,629 1,558,923
Information and communications
17,983
4,095
113,446 2,884,908 2,128,417
747,159
97,436 3,108,536
Transport and postal activities
47,245 17,101
355,671 2,967,347 2,225,433
699,296
89,565 3,434,311
Wholesale trade398,207 154,563
454,486 6,258,892 2,429,812 3,799,814
307,890 7,544,772
Retail trade
6,197
1,347
44,827 1,181,353
924,118
247,972
19,437 1,243,898
Finance and insurance
145,707 42,249
307,404
905,643593,669
308,376
42,552 1,439,957
Real estate and goods rental and leasing
101,390 13,768
149,707 1,125,364
886,391
224,081
44,597 1,419,934
Scientific research, professional and technical services
425,432 134,175
164,592 3,986,003
988,787 2,991,285
476,540 5,180,811
Accommodations, eating and drinking services
308,778 58,888
113,785 1,728,403
833,043
890,541
134,121 2,339,156
Living-related and personal services and amusement services
90,256 11,197
28,889512,810
181,151
331,394
74,537
717,424
Education, learning support
169,444 25,773
59,328 1,538,500
774,302763,627
85,283 1,877,757
Medical, health care and welfare
3,259
682
133
410,878
201,961
208,917
1,517
416,469
Compound services
48,755 14,648
163,450 3,395,278 1,572,303 1,813,283
250,318 3,862,757
Services (not elsewhere classified)
Source:Recompiled from MIC, 2014 Economic Census for Business Frame.
Notes:
1.	 Enterprises are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (see introductory notes).
2.	 Industries are classified according to the October 2013 revised system of industry classification.

602

Supplementary statistical data

Table 21

No. of enterprises, regular employees, total no. of workers, sales and value
added by industry, size and organization(1) Number of enterprises (2014)
Sole proprietorship(businesses)
SMEs

Of which micro enterprises

Large enterprises

Total

140

138

0

140

Construction

151,748

151,6860

151,748

Manufacturing

144,787

144,5380

144,787

10

10

0

10

Information and communications

2,265

2,243

0

2,265

Transport and postal activities

18,17018,1440

18,170Wholesale trade47,972

46,185047,972Retail trade403,814375,046155

403,969

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water

6,247

6,247

0

6,247

Real estate and goods rental and leasing

148,334

148,2130148,334

Scientific research, professional and technical services

102,327

95,213

15

102,342

Accommodations, eating and drinking services

436,230

407,75938

436,268

Living-related and personal services and amusement services

313,418

308,8746

313,424

Finance and insurance

Education, learning support

89,76484,787

4

89,768

Medical, health care and welfare

171,326

132,55871

171,397

Compound services

3,407

3,402

0

3,407

Services (not elsewhere classified)

49,464

48,3104

49,4682,089,423

1,973,353

293

2,089,716

Total
Company

SMEs

Of which micro enterprises

Large enterprises

Total

1,314

1,146

4

1,318

Construction

303,521283,424284

303,805

Manufacturing

268,552

214,2311,957

270,509

990

698

29

1,019

42,98927,750533

43,522Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

54,96635,111

251

55,217Wholesale trade

179,936

116,348

1,575

181,511Retail trade

264,380

175,360

2,452

266,832

Finance and insurance

23,712

22,574259

23,971

Real estate and goods rental and leasing

170,887

163,355

296

171,183

Scientific research, professional and technical services

86,12865,648607

86,735

Accommodations, eating and drinking services

108,051

57,230721

108,772

Living-related and personal services and amusement services

68,88644,376536

69,422

Education, learning support

17,7159,622

125

17,840

Medical, health care and welfare

39,00013,869187

39,187

85

76

1

86

88,69348,0831,000

89,693

1,719,805

1,278,901

10,817

1,730,622

Compound services
Services (not elsewhere classified)
Total
Total enterprises (Sole proprietorship and company)

SMEs

Of which micro enterprises

Large enterprises

Total

1,454

1,284

4

1,458

Construction

455,269

435,110284

455,553

Manufacturing415,296

Mining and quarrying of stone and gravel

413,339358,769

1,957

Electricity, gas, heat supply and water

1,000

708

29

1,029

Information and communications

45,25429,993533

45,787

Transport and postal activities

73,13653,255

25173,387Wholesale trade

227,908

162,533

1,575

229,483

Retail trade668,194

550,406

2,607

670,801

Finance and insurance

29,95928,821

259

30,218

Real estate and goods rental and leasing

319,221311,568296

319,517

Scientific research, professional and technical services

188,455

160,861622

189,077

Accommodations, eating and drinking services

544,281464,989759

545,040

Living-related and personal services and amusement services

382,304

353,250542

382,846

Education, learning support

107,479

94,409129

107,608

Medical, health care and welfare

210,326

146,427258

210,584

3,492

3,478

1

3,493

138,157

96,393

1,004

139,1613,809,228

3,252,254

11,1103,820,338

Compound services
Services (not elsewhere classified)
Total

603

(2) Number of regular employees (2014)
Sole proprietorship(people)SMEs

Large enterprises

Total

296

238

0

296

Construction

157,742

155,7850157,742

Manufacturing

193,821

186,365

0

193,821

6

6

0

6

1,934

1,690

0

1,934

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

8,763

7,956

0

8,763

Wholesale trade63,72846,539063,728Retail trade662,463

648,980

263,939

13,483Finance and insurance

3,887

3,887

0

3,887

Real estate and goods rental and leasing

36,84035,669036,840Scientific research, professional and technical services

185,637

118,200

2,837

188,474

Accommodations, eating and drinking services

687,730

430,5103,026

690,756

Living-related and personal services andamusement services

233,545

188,023887

234,432

Education, learning support

99,83249,060594

100,426

Medical, health care and welfare

613,298599,282

234,242

14,016Compound services

3,547

3,511

0

3,547

Services (not elsewhere classified)

52,59540,189652

53,2472,978,165

1,765,809

35,495

3,013,660

Total
Company

SMEs

Of which micro enterprises

Large enterprises

Total

14,264

6,359

4,231

18,495Construction

2,309,996

1,244,948

410,487

2,720,483

Manufacturing

8,975,984

Mining and quarrying of stone and gravel

5,488,007

1,156,699

3,487,977

Electricity, gas, heat supply and water

31,9693,365

164,840

196,809

Information and communications

878,686

62,268573,628

1,452,314

Transport and postal activities

2,076,081

268,901

800,064

2,876,145

Wholesale trade

2,027,182

218,311

876,437

2,903,619

Retail trade2,903,185

321,341

2,693,244

5,596,429

Finance and insurance

166,474

60,523

1,010,992

1,177,466

Real estate and goods rental and leasing

647,818

240,913220,985

868,803

Scientific research, professional and technical services

566,296

97,285

370,594

936,890

Accommodations, eating and drinking services

2,050,743

187,823

1,244,504

3,295,247

Living-related and personal services andamusement services

1,111,864

142,426

382,107

1,493,971

Education, learning support

313,568

16,247

98,816412,384

Medical, health care and welfare

757,213

31,299167,989925,202428

105

406,903407,3312,144,737

95,995

1,197,294

3,342,031

23,488,511

4,154,808

14,111,092

37,599,603

Compound services
Services (not elsewhere classified)
Total
Total enterprises(Sole proprietorship and company)

SMEs

Of which micro enterprises

Large enterprises

Total

14,560

6,597

4,231

18,791

Construction

2,467,738

1,400,733

410,4872,878,225

Manufacturing

9,169,805

Mining and quarrying of stone and gravel

5,681,828

1,343,064

3,487,977

Electricity, gas, heat supply and water

31,975

3,371

164,840

196,815

Information and communications

880,620

63,958573,628

1,454,248

Transport and postal activities

2,084,844

276,857

800,064

2,884,908

Wholesale trade

2,090,910

264,850

876,437

2,967,347

Retail trade

3,552,165

585,280

2,706,727

6,258,892

Finance and insurance

170,361

64,4101,010,992

1,181,353

Real estate and goods rental and leasing

684,658

276,582

220,985

905,643

Scientific research, professional and technical services

751,933

215,485

373,431

1,125,364

Accommodations, eating and drinking services

2,738,473

618,333

1,247,530

3,986,003

Living-related and personal services andamusement services

1,345,409

330,449

382,994

1,728,403

Education, learning support
Medical, health care and welfare
Compound services
Services (not elsewhere classified)604

Of which micro enterprises

Total

413,400

65,307

99,410512,810

1,356,495

265,541

182,005

1,538,500

3,975

3,616

406,903410,878

2,197,332

136,184

1,197,946

3,395,278

26,466,676

5,920,617

14,146,587

40,613,263

Supplementary statistical data

(3) Total number of workers (2014)
Sole proprietorship(people)SMEs

Of which micro enterprises

Large enterprises

Total

507

446

0

507

Construction

375,924

373,7960375,924

Manufacturing409,946

402,047

0409,946

17

17

0

17

5,107

4,822

0

5,107

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

32,01331,162032,013Wholesale trade135,776

115,904

0

135,776
1,272,690

1,258,512

829,535

14,178Finance and insurance

11,70911,7090

11,709Real estate and goods rental and leasing

229,543

228,1620229,543

308,628

233,168

2,814

311,442

1,368,285

1,069,770

3,285

1,371,570

Retail trade

Scientific research, professional and technical services
Accommodations, eating and drinking services
Living-related and personal services andamusement services

621,815

569,529893

622,708

Education, learning support

223,045

164,648637

223,682

Medical, health care and welfare

825,982

410,715

14,405840,387

8,892

8,851

0

8,892

122,753

108,299

655

123,408

5,938,454

4,562,580

36,867

5,975,321

Compound services
Services (not elsewhere classified)
Total
Company

SMEs

Of which micro enterprises

Large enterprises

Total

17,661

8,977

3,150

20,811

Construction

3,014,569

1,863,619

412,5223,427,091

Manufacturing

9,356,014

Mining and quarrying of stone and gravel

6,076,443

1,596,120

3,279,571

Electricity, gas, heat supply and water

34,573

4,591

165,874

200,447

Information and communications

974,414

108,444579,402

1,553,816

Transport and postal activities

2,252,173

349,037

824,350

3,076,523

Wholesale trade

2,421,852

426,024876,683

3,298,535

Retail trade

3,486,946

637,048

2,785,136

6,272,082

Finance and insurance

210,414

100,436

1,021,775

1,232,189

Real estate and goods rental and leasing

980,035

543,867

230,379

1,210,414

Scientific research, professional and technical services

734,439

207,534

374,053

1,108,492

Accommodations, eating and drinking services

2,433,701

324,979

1,375,540

3,809,241

Living-related and personal services andamusement services

1,302,071

231,364

414,377

1,716,448

Education, learning support

380,453

40,522

113,289493,742

Medical, health care and welfare

861,258

60,759176,1121,037,370

558

216

407,019

407,5772,489,796

202,449

1,249,553

3,739,349

27,671,356

6,705,986

14,288,785

41,960,141

Compound services
Services (not elsewhere classified)
Total
Total enterprises(Sole proprietorship and company)

SMEs

Of which micro enterprises

Large enterprises

Total

18,168

9,423

3,150

21,318Construction

3,390,493

2,237,415

412,5223,803,015

Manufacturing

9,765,960

Mining and quarrying of stone and gravel

6,486,389

1,998,167

3,279,571

Electricity, gas, heat supply and water

34,5904,608

165,874

200,464

Information and communications

979,521113,266

579,402

1,558,923

Transport and postal activities

2,284,186

380,199824,350

3,108,536

Wholesale trade

2,557,628

541,928

876,683

3,434,311

Retail trade

4,745,458

1,466,583

2,799,314

7,544,772

222,123

112,145

1,021,775

1,243,898

Real estate and goods rental and leasing

1,209,578

772,029

230,379

1,439,957

Scientific research, professional and technical services

1,043,067

440,702376,867

1,419,934

Accommodations, eating and drinking services

3,801,986

1,394,749

1,378,825

5,180,811

Living-related and personal services andamusement services

1,923,886

800,893415,270

2,339,156

Finance and insurance

Education, learning support
Medical, health care and welfare
Compound services
Services (not elsewhere classified)Total

603,498

205,170

113,926

717,424

1,687,240

471,474

190,517

1,877,757

9,450

9,067

407,019

416,469

2,612,549

310,748

1,250,208

3,862,757

33,609,810

11,268,566

14,325,652

47,935,462

605

(4) Sales (2014)(¥100 million)
Sole proprietorship

SMEs

Large enterprises

Total

49

35

0

49

Construction

22,754

22,6170

22,754

Manufacturing16,00815,5840

16,008

0

0

0

0

154

146

0

154

Mining and quarrying of stone and gravel

Electricity, gas, heat supply and water
Information and communications
Transport and postal activities

1,059

1,022

0

1,059

Wholesale trade

14,814

12,3580

14,814Retail trade

80,36647,301386

80,752

644

644

0

644

9,877

9,832

0

9,877

Finance and insurance
Real estate and goods rental and leasing
Scientific research, professional and technical services

18,804

13,119314

19,118

Accommodations, eating and drinking services

33,91426,99586

34,000

Living-related and personal services andamusement services

15,35814,050352

15,710

Education, learning support

3,096

2,222

16

3,112

Medical, health care and welfare

52,41723,040988

53,405

183

182

0

183

5,365

4,898

9

5,374

274,862

194,046

2,151

277,013

Compound services
Services (not elsewhere classified)
Total
Company

SMEs

Of which micro enterprises

Large enterprises

Total

Mining and quarrying of stone and gravel

14,294

10,5906,951

21,245Construction

593,310

293,570

261,185

854,494

Manufacturing

3,452,561

1,234,925

206,6232,217,637

Electricity, gas, heat supply and water

22,8893,179

234,069

256,958

Information and communications

145,597

13,794

324,034

469,631

263,232

42,515

264,695

527,927

1,304,257

163,658

1,462,618

2,766,875

Retail trade533,837

87,858699,339

1,233,176

Finance and insurance

85,363

28,686712,060

797,423

Real estate and goods rental and leasing

178,070

82,610152,486

330,555

Transport and postal activities
Wholesale trade

Scientific research, professional and technical services

97,85623,722

145,752

243,608

Accommodations, eating and drinking services

100,747

15,056

69,680170,427

Living-related and personal services andamusement services

199,742

31,148

121,965

321,707

Education, learning support

15,276

1,526

9,027

24,303

Medical, health care and welfare

25,579

2,284

9,584

35,163131

20

27,74027,870143,932

17,662

104,487

248,419

4,959,036

1,024,503

6,823,308

11,782,344

Compound services
Services (not elsewhere classified)
Total
Total enterprises(Sole proprietorship and company)

SMEs

Of which micro enterprises

Large enterprises

Total

Mining and quarrying of stone and gravel

14,343

10,626

6,951

21,294

Construction

616,064

316,188261,185

877,248

Manufacturing

3,468,569

1,250,933

222,2072,217,637

Electricity, gas, heat supply and water

22,8903,180

234,069

256,959

Information and communications

145,751

13,940324,034

469,785

264,291

43,537

264,695

528,986

1,319,071

176,016

1,462,618

2,781,689

Retail trade614,203

135,160

699,726

1,313,929

Finance and insurance

86,00729,330712,060

798,067

Real estate and goods rental and leasing

187,946

92,442

152,486

340,432

Transport and postal activities
Wholesale trade

Scientific research, professional and technical services

116,660

36,841

146,066

262,726

Accommodations, eating and drinking services

134,661

42,051

69,766

204,427

Living-related and personal services andamusement services

215,101

45,199122,316

337,417

Education, learning support

18,372

3,748

9,043

27,415

Medical, health care and welfare

77,99625,324

10,572

88,568Compound services
Services (not elsewhere classified)606

Of which micro enterprises

Total

313

202

27,74028,053

149,297

22,560104,496

253,793

5,233,899

1,218,549

6,825,458

12,059,357

Supplementary statistical data

(5) Value added (2011)(¥100 million)

Sole proprietorship
Mining and quarrying of stone and gravel
Construction
Manufacturing
Electricity, gas, heat supply and water
Information and communications
Transport and postal activities
Wholesale trade
Retail trade
Finance and insurance
Real estate and goods rental and leasing
Scientific research, professional and technical services
Accommodations, eating and drinking services
Living-related and personal services and amusement services
Education, learning support
Medical, health care and welfare
Compound services
Services (not elsewhere classified)
Total
Company
Mining and quarrying of stone and gravel
Construction
Manufacturing
Electricity, gas, heat supply and water
Information and communications
Transport and postal activities
Wholesale trade
Retail trade
Finance and insurance
Real estate and goods rental and leasing
Scientific research, professional and technical services
Accommodations, eating and drinking services
Living-related and personal services and amusement services
Education, learning support
Medical, health care and welfare
Compound services
Services (not elsewhere classified)
Total
Total enterprises (Sole proprietorship and company)
Mining and quarrying of stone and gravel
Construction
Manufacturing
Electricity, gas, heat supply and water
Information and communications
Transport and postal activities
Wholesale trade
Retail trade
Finance and insurance
Real estate and goods rental and leasing
Scientific research, professional and technical services
Accommodations, eating and drinking services
Living-related and personal services and amusement services
Education, learning support
Medical, health care and welfare
Compound services
Services (not elsewhere classified)
Total
Source:Notes:SMEs

Of which micro enterprises Large enterprises
12
11
0
9,494
9,427
0
7,811
7,633
0
0
0
0
71
66
0
494
480
0
3,761
3,225
0
23,41015,318
107
282
282
0
5,242
5,211
0
10,917
7,115
193
13,213
10,319
27
7,512
6,758
20
1,527
1,003
2
27,881
11,881
732
108
106
0
2,622
2,318
0
114,356
81,156
1,081

SMEs
1,122
112,241
276,649
2,838
49,86675,667
136,666
99,697
15,33851,65940,71536,66439,0906,867
11,96528
60,537
1,017,608
SMEs
1,135
121,735
284,459
2,838
49,93876,160140,426
123,107
15,61956,901
51,632
49,87746,602
8,393
39,846
136
63,1601,131,964

Total
12
9,494
7,811
0
71
494
3,761
23,517282
5,242
11,10913,2407,533
1,528
28,613
108
2,622
115,437

Of which micro enterprises Large enterprises
415
253
63,14633,96662,338278,466
767
25,105
4,114
76,615
12,28863,302
22,93680,503
20,21094,576
6,520
131,561
27,69924,306
9,536
42,947
6,324
22,971
6,946
15,600
664
4,002
1,009
5,136
14
6,685
7,367
36,166
252,293
942,159

Total

Of which micro enterprises Large enterprises
427
253
72,57433,966
69,971
278,466
767
25,105
4,181
76,615
12,76963,302
26,16180,50335,52894,684
6,802
131,561
32,91024,306
16,65043,13916,64322,997
13,704
15,620
1,667
4,004
12,890
5,868
120
6,685
9,686
36,166
333,449
943,240

Total

1,376
146,207555,11427,943
126,481
138,969
217,169
194,273
146,898
75,96583,662
59,63554,69010,86917,101
6,713
96,703
1,959,767

1,388
155,700
562,925
27,943
126,553
139,462
220,929
217,790
147,180
81,207
94,771
72,87462,222
12,39745,714
6,821
99,3252,075,204

Recompiled from MIC, 2014 Economic Census for Business Frame.
1.	 Number of enterprises = Number of companies + Business establishments of sole proprietors.
2.	Business establishments are classified according to the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963) (seeintroductory notes).
3.	 Industries are classified according to the October 2013 revised system of industry classification.

607

Index of figuresIndex of figures
Part I   Chapter 1
Fig. 1-1-1

Real GDP growth rate .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 3

Fig. 1-1-2

Business conditions DI by industry and enterprise size .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 4

Fig. 1-1-3

Long-term trends in nominal GDP (growth rate, actual amount). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 5

Fig. 1-1-4

Changes in the actual amounts of nominal GDP and real GDP .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6

Fig. 1-1-5

Private consumption and consumption composite index.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 7

Fig. 1-1-6

Overall unemployment rate and the ratio of job offers to applicants .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8

Fig. 1-1-7

Real employee compensation, real wages, and number of employees .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 9

Fig. 1-1-8 (1) Consumer prices.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
Fig. 1-1-8 (2) Breakdown of total cash salaries into factors of changes. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
Fig. 1-1-9 (1) Consumer confidence index .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 11
Fig. 1-1-9 (2) Consumer confidence index by component — differences from previous quarter. .  .  .  .  .  .  .  .  .  . 12
Fig. 1-1-10

Private non-residential investment and private residential investment.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 13

Fig. 1-1-11

Number of new housing starts (differences from previous quarter, total).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14

Fig. 1-1-12

Capital investment and ordinary profits. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15

Fig. 1-1-13

Indices of industrial production and indices of tertiary industry activity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16

Fig. 1-1-14

R&D expenses.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 17

Fig. 1-1-15 (1) Public demand (differences from previous quarter, total) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
Fig. 1-1-15 (2) Breakdown of final government consumption expenditure(differences from previous year). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
Fig. 1-1-16

Export and import of goods and services (differences from the previous quarter, total). .  .  .  .  .  . 19

Fig. 1-1-17

Export volume index, export cost index, and high-added-value index. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20

Fig. 1-1-18

Export volume index (regional contribution) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21

Fig. 1-1-19

Exchange rates (yen/dollar).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21

Fig. 1-1-20 (1) Real growth rate of global economies.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 22
Fig. 1-1-20 (2) Real growth rate in China .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 22
Fig. 1-1-21

Direct purchases in Japan by non-resident households (nominal GDP).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23

Part I   Chapter 2
Fig. 1-2-1

Numbers of SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24

Fig. 1-2-2 (1) Breakdown of the number of medium enterprises (2012 à 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 25
Fig. 1-2-2 (2) Entries and exits of medium enterprises by industry (2012 à 2014) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 26
Fig. 1-2-3 (1) Breakdown of the number of micro enterprises (2012 à 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 27
Fig. 1-2-3 (2) Net entries and exits (number of entries – number of exits) of micro enterprises by industry(2012 à 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 28
Fig. 1-2-4

Numbers of SMEs by industry (2012 à 2014) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 29

Fig. 1-2-5

Numbers of SMEs by prefecture and enterprise size (2012 à 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 30

Fig. 1-2-6 (1) Number of bankruptcies (long-term).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 31
Fig. 1-2-6 (2) Number of suspensions, closures, dissolutions, and bankruptcies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 31
Fig. 1-2-7

610

Business conditions DI by enterprise size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 33

Index of figures

Fig. 1-2-8 (1) Business conditions DI by region .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 33
Fig. 1-2-8 (2) Business conditions DI by industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
Fig. 1-2-9

Financial position DI for SMEs. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35

Fig. 1-2-10

Profitability (ordinary profits) DI for SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 36

Fig. 1-2-11 (1) Ordinary profits by enterprise size. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
Fig. 1-2-11 (2) Long-term trends in ordinary profits (by enterprise size). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
Fig. 1-2-12

Decomposition analysis of ordinary profits(average amount of increase for the first to fourth quarters in 2009 and 2015) .  .  .  .  .  .  .  .  .  .  .  .  . 38

Fig. 1-2-13

Sales by enterprise size. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 39

Fig. 1-2-14

Decomposition of sales by industry(average amount of increase for the first to fourth quarters in 2009 and 2015) .  .  .  .  .  .  .  .  .  .  .  .  . 40

Fig. 1-2-15

Manufacturing production indices for SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 41

Fig. 1-2-16

Management issues facing SMEs (2015). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 42

Fig. 1-2-17

Exports and sales/export ratios (by enterprise size).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43

Fig. 1-2-18

Personnel costs (by enterprise size) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44

Fig. 1-2-19

Number of non-agricultural and forestry workers by employee size. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 45

Fig. 1-2-20

Employee overcapacity and insufficiency DI for SMEs (by industry). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 45

Fig. 1-2-21

Reasons why separated workers separated from an SME (SMEs, 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46

Fig. 1-2-22

Reasons why new transferred workers separated from their previous employment(all enterprise sizes, 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 47

Fig. 1-2-23

Proportion of unemployed and employed workers among new workers, by employee size(all enterprise sizes, 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 48

Fig. 1-2-24 (1) Number of job openings offered to prospective university graduatesby SMEs and number of job seekers. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 48
Fig. 1-2-24 (2) Number of job openings offered to prospective university graduatesby large enterprises and number of job seekers.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
Fig. 1-2-25

Salaries by enterprise size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 50

Fig. 1-2-26

Wage increases (revised rate of average wage per person) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 50

Fig. 1-2-27 (1) Depreciation costs (by enterprise size).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
Fig. 1-2-27 (2) Capital investment (by enterprise size) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 52
Fig. 1-2-28

Production and operational facility DI for SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53

Fig. 1-2-29

Reasons for not making capital investments. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 54

Fig. 1-2-30

Facility ages (by enterprise size).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 55

Fig. 1-2-31

Last capital investment made by SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 55

Fig. 1-2-32

Ratio of variable costs to sales (by enterprise size). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 56

Fig. 1-2-33

Prices of primary commodities.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 57

Fig. 1-2-34

Terms-of-trade index (by enterprise size) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58

Fig. 1-2-35 (1) Necessity and status of passing through raw material and energy costs to transaction prices.  .  .  . 59
Fig. 1-2-35 (2) Measures taken in response to not being able to sufficiently increase transaction prices.  .  .  .  . 59
Part I   Chapter 3
Fig. 1-3-1

Future population projections.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 62

Fig. 1-3-2

Labor productivity and labor composition ratio (by enterprise size, by industry).  .  .  .  .  .  .  .  .  .  .  . 64

Fig. 1-3-3

Distribution of labor productivity (value added per worker) (SMEs, by industry) .  .  .  .  .  .  .  .  .  .  .  . 65

Fig. 1-3-4

Cumulative distribution of labor productivity. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 66

611

Fig. 1-3-5

Average labor productivity in the manufacturing industries(by middle industry category, by enterprise size) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 67

Fig. 1-3-6

Average labor productivity in the non-manufacturing industries(by industry, by enterprise size).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 68

Fig. 1-3-7

Cumulative distribution of labor productivity (SMEs, by industry). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 69

Fig. 1-3-8

Contributions of capital, labor and TFP to value added growth rate (SMEs, by industry) .  .  .  .  . 71

Fig. 1-3-9

TFP growth rate by industry (SMEs) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 71

Fig. 1-3-10

Distribution of capital equipment ratio (SMEs, by industry) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 73

Fig. 1-3-11

Distribution of capital productivity (SMEs, by industry). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 73

Fig. 1-3-12

Distribution of labor productivity in SME living-related and personal services andamusement services industries.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 75

Fig. 1-3-13

Characteristics of SMEs with high productivity in the living-related and personal services
and amusement services industries (average). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 76

Fig. 1-3-14

Distribution of labor productivity in the SME retail trade industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 77

Fig. 1-3-15

Characteristics of SMEs with high productivity in the retail trade industry (average).  .  .  .  .  .  .  .  . 78

Fig. 1-3-16

Distribution of the SME labor productivity and comparisons with the average laborproductivity of large enterprises .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 79

Part II   Chapter 1

612

Fig. 2-1-1

Formula for calculating recurring profit margin.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 88

Fig. 2-1-2

Dependency on principal contractors with the highest transaction volumes.  .  .  .  .  .  .  .  .  .  .  .  .  .  . 89

Fig. 2-1-3

Numbers of principal contractors with which subcontractor enterprises are doing
regular business. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 90

Fig. 2-1-4

Dependency on principal contractors with the highest transaction volumes.  .  .  .  .  .  .  .  .  .  .  .  .  .  . 91

Fig. 2-1-5

Populations of major countries (figures and estimates). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 92

Fig. 2-1-6

Proportions of elderly people (figures and estimates) in major countries.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 93

Fig. 2-1-7

Middle and wealthy class populations by region. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 95

Fig. 2-1-8

Real GDP by region (U.S. dollar equivalent) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 96

Fig. 2-1-9

Japan’s trade balance over time.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 97

Fig. 2-1-10

Numbers of overseas visitors to Japan.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 98

Fig. 2-1-11

Consumption by overseas visitors to Japan.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 99

Fig. 2-1-12

Job offers to applicants by number of employees .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 101

Fig. 2-1-13

Long-term trends concerning the working-age population. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 102

Fig. 2-1-14

Employee age distribution by number of employees .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 103

Fig. 2-1-15

Age distribution among the working population.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 104

Fig. 2-1-16

Internet penetration rates .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 105

Fig. 2-1-17

BtoB E-commerce market size and EC ratio. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 106

Fig. 2-1-18

Size of E-commerce market for individual consumers .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 107

Fig. 2-1-19

Smartphone and tablet device usage by company size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 108

Fig. 2-1-20

Companies’ usage of cloud services. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 109

Fig. 2-1-21

Telework adoption by company size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 110

Fig. 2-1-22

Global proportions of damage costs and natural disaster damage costs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 111

Fig. 2-1-23

Insurance loss, non-insurance loss, and total economic loss. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 112

Fig. 2-1-24

Attitude towards risk preparation, by company category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 113

Fig. 2-1-25

Measures against risks, by company category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 114

Index of figures

Part II   Chapter 2
Fig. 2-2-1

Relationship between business performance and presence/absence of IT investment,
by industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 117

Fig. 2-2-2

Recurring profit margin among IT investment enterprises and non-IT investment enterprises. .  .  . 118

Fig. 2-2-3

Effects of using company websites and social media services .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 119

Fig. 2-2-4

Effects of e-commerce .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 120

Fig. 2-2-5

Changes in worker numbers based on types of IT investment.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 121

Fig. 2-2-6

IT deployment by industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 133

Fig. 2-2-7

IT usage for bookkeeping at SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 134

Fig. 2-2-8

IT deployment by business domain. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 135

Fig. 2-2-9

IT deployment method by business domain.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 135

Fig. 2-2-10

Importance of IT investment at SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 136

Fig. 2-2-11

Reasons for not investing in IT among companies that have yet to invest.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 137

Fig. 2-2-12

Future investment issues to be faced by enterprises currently investing in IT, categorizedby high- and low-revenue enterprises.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 138

Fig. 2-2-13

Effects of IT investment as viewed by high-revenue and low-revenue enterprises .  .  .  .  .  .  .  .  .  . 139

Fig. 2-2-14

Actions taken that were meaningful to achieving IT investment effects, as viewed
by high- and low-revenue enterprises.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 140

Fig. 2-2-15

IT personnel sufficiency by industry .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 149

Fig. 2-2-16

Methods for utilizing IT personnel, by business domain.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 150

Fig. 2-2-17

Composition of IT personnel being utilized by enterprises, by business domain.  .  .  .  .  .  .  .  .  .  . 151

Fig. 2-2-18

Efforts to recruit IT personnel among enterprises with IT personnel. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 152

Fig. 2-2-19

Efforts to train IT personnel among enterprises with IT personnel.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 152

Fig. 2-2-20

Problems with recruiting IT personnel among enterprises with insufficient IT personnel.  .  .  .  . 153

Fig. 2-2-21

Problems with training IT personnel among enterprises with insufficient IT personnel .  .  .  .  .  . 154

Fig. 2-2-22

Proportions of external IT personnel being utilized by high-revenue andlow-revenue enterprises .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 155

Part II   Chapter 3
Fig. 2-3-1

Image of full cumulation system .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 159

Fig. 2-3-2

Examples of benefits offered by the TPP Agreement.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 160

Fig. 2-3-3

Effects of investment in overseas expansion .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 163

Fig. 2-3-4

Labor productivity for exporting and non-exporting companies. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 164

Fig. 2-3-5

Labor productivity for direct-investing and non-direct-investing companies.  .  .  .  .  .  .  .  .  .  .  .  .  . 165

Fig. 2-3-6

Changes in number of domestic workers with investment in overseas expansion(by type of investment) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 166

Fig. 2-3-7

Number and percentage of enterprises conducting direct exports(by enterprise size; manufacturing industry).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 168

Fig. 2-3-8

Composition of direct export (by industry; SMMs).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 169

Fig. 2-3-9

Changes in the number of enterprises conducting direct exports (by industry; SMMs).  .  .  .  .  . 170

Fig. 2-3-10

Ratio of enterprises conducting direct exports (by number of employees; SMMs) .  .  .  .  .  .  .  .  . 171

Fig. 2-3-11

Number of exporting companies and value of exports(by enterprise size; manufacturing industry).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 172

Fig. 2-3-12

Percentage of enterprises conducting direct and indirect exports(by enterprise size and industry; 2015).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 173

613

Fig. 2-3-13

Changes in the number of enterprises conducting direct investment(by enterprise size and industry category). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 174

Fig. 2-3-14

Changes in the ratio of enterprises with overseas subsidiaries (by enterprise size).  .  .  .  .  .  .  .  . 175

Fig. 2-3-15

Changes in the ratio of industry sectors for enterprises with overseas subsidiaries .  .  .  .  .  .  .  . 176

Fig. 2-3-16

Changes in composition of countries and regions for location of local overseas offices(by period of investment and enterprise size).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 177

Fig. 2-3-17

Ratio of enterprises responding to inbound tourism.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 178

Fig. 2-3-18

Importance of investment in overseas expansion to SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 182

Fig. 2-3-19

Reasons enterprises not conducting overseas investment are not investingin overseas expansion.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 185

Fig. 2-3-20

Problems related to exports .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 186

Fig. 2-3-21

Problems related to direct investment. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 187

Fig. 2-3-22

Problems related to responses to inbound tourism .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 188

Fig. 2-3-23

Impetus for investment in overseas expansion(by high-revenue or low-revenue enterprise).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 189

Fig. 2-3-24

Effect of investment in overseas expansion (by high-revenue or low-revenue enterprise).  .  .  . 190

Fig. 2-3-25

Status of implementation of significant initiatives for realization of effects of investment
in overseas expansion (by high-revenue or low-revenue enterprise) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 191

Fig. 2-3-26

Adequacy of number of global business-ready human resources(by type of investment in overseas expansion).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 199

Fig. 2-3-27

Employment of foreign personnel (by type of investment in overseas expansion).  .  .  .  .  .  .  .  .  . 200

Fig. 2-3-28

Business results (by employment or non-employment of foreign personnel).  .  .  .  .  .  .  .  .  .  .  .  .  . 201

Fig. 2-3-29

Status of initiatives for securing human resources(by type of investment in overseas expansion).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 202

Fig. 2-3-30

Status of initiatives for the development of human resources(by type of investment in overseas expansion).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 202

Fig. 2-3-31

Problems in securing personnel (by type of investment in overseas expansion) .  .  .  .  .  .  .  .  .  .  . 203

Fig. 2-3-32

Issues in developing human resources (by type of investment in overseas expansion).  .  .  .  .  . 204

Part II   Chapter 4614

Fig. 2-4-1

Specific examples of risks in enterprise management initiatives .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 211

Fig. 2-4-2

Risks that enterprises anticipate would make continuation of business difficult,by enterprise size. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 211

Fig. 2-4-3

Breakdown of costs of natural disasters in Japan, by type of disaster. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 213

Fig. 2-4-4

Trend in frequency of and damage from natural disasters in Japan.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 214

Fig. 2-4-5

Past entries into new business and evaluation of entry .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 217

Fig. 2-4-6

Current earnings of SMEs that have expanded into new business. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 218

Fig. 2-4-7

Items considered before expanding into new business,by whether the enterprise had established a medium- to long-term business plan.  .  .  .  .  .  .  .  . 219

Fig. 2-4-8

Benefits from considering before expanding into new business,based on type of risk management system. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 220

Fig. 2-4-9

Risk management system, by enterprise size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 225

Fig. 2-4-10

Risk management process .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 226

Fig. 2-4-11

Risk countermeasure methods .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 227

Fig. 2-4-12

Position in the supply chain, by enterprise size. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Fig. 2-4-13

Examination of alternate procurement .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 232

Index of figures

Fig. 2-4-14

Measures taken or to be taken concerning vendors.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 233

Fig. 2-4-15

Examination of customer’s alternate procurement from other companies.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 234

Fig. 2-4-16

SME risk countermeasures, by future business direction.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 235

Fig. 2-4-17

The need for BCP .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 236

Fig. 2-4-18

Benefits of establishing and using BCP .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 236

Fig. 2-4-19

BCP recognition at SMEs .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 238

Fig. 2-4-20

State of BCP establishment at SMEs, by number of employees .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 239

Fig. 2-4-21

Year BCP established at enterprises that have one (cumulative percentage).  .  .  .  .  .  .  .  .  .  .  .  .  . 240

Fig. 2-4-22

Motivation for establishing BCP .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 241

Fig. 2-4-23

Reasons for not establishing BCP, by industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 242

Fig. 2-4-24

Manuals referred to when establishing BCP.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 243

Fig. 2-4-25

Sources of advice for establishing / operating BCP.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 243

Fig. 2-4-26

Benefits of BCM prior to emergency.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 246

Fig. 2-4-27

Benefits of BCM during emergency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Fig. 2-4-28

State of BCP validation, training, and reconsideration, by whether the enterprise had
established a medium- to long-term business plan .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 250

Fig. 2-4-29

Information security measures taken, by enterprise size .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 255

Fig. 2-4-30

Trend in average cost per company for information security measures.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 256

Fig. 2-4-31

Incidence of information security troubles at SMEs, by category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 257

Fig. 2-4-32

Incidence of information security troubles at SMEs, by type of trouble.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 257

Fig. 2-4-33

Cost of damages from information security troubles at SMEs, by sales. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 258

Fig. 2-4-34

Anticipated information security troubles .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 259

Fig. 2-4-35

Information security troubles that have actually occurred. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 259

Fig. 2-4-36

Number of units of personal information handled, by industry.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 260

Fig. 2-4-37

Status of examination of impact if an information security risk were to emerge,
by amount of personal information handled . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 261

Fig. 2-4-38

Status of preventive measures taken for information security,
by amount of personal information handled.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 261

Fig. 2-4-39

Status of preventive measures taken for information security,
by status of examination of risk impact. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 262

Fig. 2-4-40

Benefits of preventive measures taken for information security.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 264

Fig. 2-4-41

Measures for when information security trouble occurs,
by status of examination of risk impact. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 265

Fig. 2-4-42

Status of usage of external resources, by amount of personal information handled.  .  .  .  .  .  .  . 266

Fig. 2-4-43

Issues with information security system.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 267

Part II   Chapter 5
Fig. 2-5-1

Cash-flow and ease of borrowing from financial institutions by enterprise size .  .  .  .  .  .  .  .  .  .  .  . 272

Fig. 2-5-2

Trends in loans from financial institutions by enterprise size. . . . . . . . . . . . . . . . . . . . . . . . . . 273

Fig. 2-5-3

Proportion of corporate loans given to SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 273

Fig. 2-5-4

Trends in leveraging. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 275

Fig. 2-5-5

Trends in the ratio of borrowings as a multiple of monthly turnover.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 276

Fig. 2-5-6

Trends in capital investment .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 277

Fig. 2-5-7

Trends in per-company balances in investments and loans for affiliated companies.  .  .  .  .  .  .  . 278

Fig. 2-5-8

Trends in inter-enterprise credit business.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 280

615

616

Fig. 2-5-9

Schematic of required working capital .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 281

Fig. 2-5-10

Trends in the site gap, etc.. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 282

Fig. 2-5-11

Balance sheet trends according to size. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 285

Fig. 2-5-12Trends in the proportions of enterprises with increased borrowings andthose with decreased borrowings.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 287

Fig. 2-5-13

Average ordinary profit rates according to changes in borrowings. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 288

Fig. 2-5-14

Profitability schematic for debt-free enterprises andenterprises with changed loan conditions.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 289

Fig. 2-5-15

Trends in the SME debt ratio distribution .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 290

Fig. 2-5-16

Proportion of debt-free enterprises according to enterprise size.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 291

Fig. 2-5-17

Comparison of the industry-type breakdown for debt-free SMEs with the breakdown
for all SMEs.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 292

Fig. 2-5-18

Situation for changes to lending conditions by private financial institutions. . . . . . . . . . . . . . 293

Fig. 2-5-19

Trends in the number of consultations with Revitalization Support Councils andthe number of revitalization plans completed.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 294

Fig. 2-5-20

Proportions of enterprises consulting with Revitalization Support Councils by industry.  .  .  .  . 295

Fig. 2-5-21

Financing methods in completed revitalization plan proposals. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 295

Fig. 2-5-22

Divergence in average entry and exit rates by industry. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 296

Fig. 2-5-23

Changes in entry and exit rates by industry (2012 — 2014).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 297

Fig. 2-5-24

Trends in the numbers and proportions of credit guarantee users.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 298

Fig. 2-5-25

Trends in credit guarantee balances and ratio of credit guarantee lending. . . . . . . . . . . . . . . 299

Fig. 2-5-26

Use of credit guarantees for new borrowings among enterprises using credit guarantees.  .  .  . 300

Fig. 2-5-27

Trends in enterprises with changed conditions among credit guarantee users .  .  .  .  .  .  .  .  .  .  .  . 300

Fig. 2-5-28

Trends in credit guarantees by region.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 301

Fig. 2-5-29

Trends in the loan-deposit ratio according to financial institution type.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 302

Fig. 2-5-30

Trends in loan-deposit ratios at regional financial institutions. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 303

Fig. 2-5-31

Trends in the non-performing loan ratio according to financial institution type .  .  .  .  .  .  .  .  .  .  .  . 304

Fig. 2-5-32

Trends in non-performing loan ratios at regional financial institutions (by prefecture) .  .  .  .  .  .  . 305

Fig. 2-5-33

Schematic of the enterprise growth stages. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 306

Fig. 2-5-34

Management issues posed by growth. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 307

Fig. 2-5-35

Average ordinary profit and debt ratios according to the growth stage of enterprises
who see their financial position as a management issue .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 308

Fig. 2-5-36

Intentions to procure funding from financial institutions to resolve growth-related issues.  .  .  . 309

Fig. 2-5-37

Sources of funding needed to resolve growth-related issues.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 310

Fig. 2-5-38

Financial institutions’ understanding of the management issues of enterprises. .  .  .  .  .  .  .  .  .  .  . 311

Fig. 2-5-39

Frequency of meetings with main banks according to growth stage.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 311

Fig. 2-5-40

Main bank types according to sales volume.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 312

Fig. 2-5-41

Face-to-face meetings with main bank management staff by bank type.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 313

Fig. 2-5-42

Frequency of face-to-face meetings with main banks according to bank type .  .  .  .  .  .  .  .  .  .  .  . 313

Fig. 2-5-43

Number of branches according to financial institution type.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 314

Fig. 2-5-44

Information gathered by enterprises from financial institutions. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 316

Fig. 2-5-45

Information provided to financial institutions by enterprises. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 317

Fig. 2-5-46

Programs by financial institutions that promote risk preparedness in enterprises.  .  .  .  .  .  .  .  .  . 319

Fig. 2-5-47

What SMEs feel is needed to deepen their relationships with financial institutions.  .  .  .  .  .  .  .  . 320

Index of figures

Fig. 2-5-48

Items other than security or guarantees that financial institutions consider and items
other than security or guarantees that SMEs want to be considered.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 322

Fig. 2-5-49

Financing methods currently used by SMEs and preferred financing methods
for future borrowings.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 323

Fig. 2-5-50

Financing methods currently prioritized by financial institutions and financing methods
to be prioritized in future .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 324

Fig. 2-5-51

Experiences of refusal by financial institutions of investment plans toresolve management issues .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 325

Fig. 2-5-52

Measures to increase capacity for making decisions on lending .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 329

Fig. 2-5-53

Outside industry and technical cooperation partners helping to
improve decision-making capacity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 330

Fig. 2-5-54

Effects of measures to increase capacity for making decisions on lending.  .  .  .  .  .  .  .  .  .  .  .  .  .  . 331

Fig. 2-5-55

Measures aimed at increasing lending decision-making capacity and their effects
according to the status of initiatives for providing feasibility assessment-based financing.  .  .  . 332

Fig. 2-5-56

Trends in SME ordinary profit rates according to borrowings status .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 336

Fig. 2-5-57

Fluctuations in ordinary profit rates according to status of borrowings
from financial institutions. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 337

Fig. 2-5-58

Proportion of debt-free enterprises according to years since establishment.  .  .  .  .  .  .  .  .  .  .  .  .  . 338

Fig. 2-5-59

Reasons why debt-free enterprises do not borrow from financial institutions .  .  .  .  .  .  .  .  .  .  .  .  . 338

Fig. 2-5-60

Rates of ordinary profit according to years since establishment and status of borrowings
from financial institutions. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 339

Fig. 2-5-61

Investment ratio proportions according to years since establishment andstatus of borrowings from financial institutions.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 340

Fig. 2-5-62

Consultation and research partners when engaging in risk-taking behavior .  .  .  .  .  .  .  .  .  .  .  .  .  . 341

Fig. 2-5-63

Frequency of meetings with main banks according to status of borrowings
from financial institutions. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 341

Fig. 2-5-64

Details of condition changes accepted by financial institutions.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 343

Fig. 2-5-65

Loan balance rankings of financial institutions who first accepted condition changes .  .  .  .  .  . 344

Fig. 2-5-66

Attitudes of financial institutions after accepting condition changes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 344

Fig. 2-5-67

Likely scenarios should condition changes not be accepted.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 345

Fig. 2-5-68

Reasons for changing conditions multiple times. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 346

Fig. 2-5-69

Status of management reform presentation and the role of financial institutions
in formulating plans.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 348

Fig. 2-5-70

Consultation partners when formulating management reform plans .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 349

Fig. 2-5-71

Business sentiment after condition changes and the reasons for its fluctuations .  .  .  .  .  .  .  .  .  . 351

Fig. 2-5-72

Wish-list of conditions and properties from financial institutions for growth investment.  .  .  .  . 354

Fig. 2-5-73

Trends in ABL lending amounts and loan numbers. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 358

Fig. 2-5-74

Proportions of ABL lending totals and ABL loans implemented
by financial institution type .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 359

Fig. 2-5-75

Issues faced when candidates for ABL financing are investigated.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 360

Fig. 2-5-76

Crowd funding process (example). .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 361

Fig. 2-5-77

Trends in the crowd funding market size in Japan .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 361

Fig. 2-5-78

SMEs actual use of crowd funding to raise funds and their future intentions.  .  .  .  .  .  .  .  .  .  .  .  .  . 362

Fig. 2-5-79

Management support services that financial institutions think customers require.  .  .  .  .  .  .  .  .  . 365

Fig. 2-5-80

Management support services used by enterprises in the maturation stage.  .  .  .  .  .  .  .  .  .  .  .  .  . 366

Fig. 2-5-81

Future management support services expected by enterprises in the maturation stage.  .  .  .  . 367

617

Fig. 2-5-82

Management support services that financial institutions supply to enterprisesin the maturation stage .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 368

Fig. 2-5-83

Status of management support service responses to enterprises in the maturation stage.  .  .  . 369

Fig. 2-5-84

Proportions of enterprises who experienced actual effects
by using management support services.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 371

Fig. 2-5-85

Effects enjoyed by enterprises through the use of management support services .  .  .  .  .  .  .  .  . 372

Fig. 2-5-86

Effects according to management support service. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 373

Fig. 2-5-87

Effects enjoyed by financial institutions through management support service programs.  .  .  . 374

Fig. 2-5-88

Management support service initiatives with the greatest effects for financial institutions .  .  .  . 374

Fig. 2-5-89

Factors seen by enterprises as barriers to receiving management support services.  .  .  .  .  .  .  . 376

Fig. 2-5-90

Issues with the promotion of management support services.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 377

Fig. 2-5-91

Systems where financial institutions are unable to provide management support services
only at branches .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 377

Fig. 2-5-92

Status of cooperation with third parties according to the status of management support
service delivery .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 378

Fig. 2-5-93

Status of cooperation in management support services. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 379

Fig. 2-5-94

Reasons for the lack of cooperation with third parties in management support services .  .  .  . 380

Fig. 2-5-95

Support sectors in which approved support agencies specialize.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 381

Fig. 2-5-96

Support content in which approved support agencies specialize. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 382

Fig. 2-5-97

Implementation status of management innovation/cooperation with other sectors
by approved support agencies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 383

Fig. 2-5-98

Implementation status of management reform support by approved support agencies .  .  .  .  . 383

Fig. 2-5-99

Status of cooperation in approved support agencies.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 384

Fig. 2-5-100

Cooperation partners for approved support agencies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 385

Part II   Chapter 6

618

Fig. 2-6-1

Schematic diagram of growth enterprise classification. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 389

Fig. 2-6-2

Distribution of sales per employee .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 390

Fig. 2-6-3

Distribution of recurring profit margin.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 392

Fig. 2-6-4

Distribution of equity to total assets .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 394

Fig. 2-6-5

Classification of SMEs based on rates of ordinary profit and equity to total assets. .  .  .  .  .  .  .  . 395

Fig. 2-6-6

Trends in recurring profit margin .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 397

Fig. 2-6-7

Trends in average sales per employee .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 399

Fig. 2-6-8

Trends in rates of equity to total assets. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 401

Fig. 2-6-9

Trends in fixed asset acquisition costs as a proportion of total sales.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 403

Fig. 2-6-10

Trends in capacity building expenditure as a proportion of total sales.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 405

Fig. 2-6-11

Trends in IT investment as a proportion of total sales.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 407

Fig. 2-6-12

Correlation between management age and enterprise categories.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 409

Fig. 2-6-13

Distribution of enterprise age according to enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 410

Fig. 2-6-14

Correlation between enterprise categories and growth stages. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 411

Fig. 2-6-15

Corporate culture according to enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 412

Fig. 2-6-16

Recognition of changes in the competitive environment by enterprise category.  .  .  .  .  .  .  .  .  .  . 413

Fig. 2-6-17

Management approaches to growth by enterprise category .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 414

Fig. 2-6-18

Risk-taking behaviors seen as important according to enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  . 422

Index of figures

Fig. 2-6-19

Factors considered important when engaging in risk-taking behavior according toenterprise category .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 423

Fig. 2-6-20

Investment activity in the last three years according to enterprise category .  .  .  .  .  .  .  .  .  .  .  .  .  . 429

Fig. 2-6-21

Most and least successful investments. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 430

Fig. 2-6-22

Time required for proceeding with the most successful investments.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 431

Fig. 2-6-23

Factors driving investment behavior according to enterprise category .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 432

Fig. 2-6-24

Reasons preventing the implementation of investment behavior by enterprise category .  .  .  .  . 433

Fig. 2-6-25

Success factors in investment behavior according to enterprise category. . . . . . . . . . . . . . . 434

Fig. 2-6-26

Failure factors in investment behavior according to enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 435

Fig. 2-6-27

Monitoring frequency according to enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 439

Fig. 2-6-28

Those conducting the monitoring according to enterprise category .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 440

Fig. 2-6-29

Monitoring outcomes by enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 441

Fig. 2-6-30

Those conducting advance risk assessment according to enterprise category.  .  .  .  .  .  .  .  .  .  .  . 442

Fig. 2-6-31

Outcomes of advance risk assessment and analysis by enterprise category. .  .  .  .  .  .  .  .  .  .  .  .  . 443

Fig. 2-6-32

Medium- and long-term business plan formulation by enterprise category.  .  .  .  .  .  .  .  .  .  .  .  .  .  . 444

Fig. 2-6-33

Differences in ordinary profit rates by enterprise category according tomedium- and long-term business plan formulation. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 445

Fig. 2-6-34

Differences in ordinary profit rates by enterprise category depending on whether
a medium- and long-term business plan is applied to investments.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 445

Fig. 2-6-35

Reasons for formulating medium- and long-term business plans .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 446

Fig. 2-6-36

Reasons for not formulating medium- and long-term business plans .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 447

Fig. 2-6-37

Distribution of SME manager ages by age group.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 454

Fig. 2-6-38

Proportions of SME managers in the 65 and older age groups according to industry.  .  .  .  .  .  . 455

Fig. 2-6-39

Proportions of SME managers in the 65 and older age groups according to
the number of employees .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 456

Fig. 2-6-40

Enterprise growth stages according to manager age.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 458

Fig. 2-6-41

Recognition of changes in the competitive environment by manager age.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 459

Fig. 2-6-42

Attitude towards growth according to manager age.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 460

Fig. 2-6-43

Appetite for risk-taking behavior in the next 3 years according to manager age.  .  .  .  .  .  .  .  .  .  . 461

Fig. 2-6-44

Appetite for investment in the next 3 years according to manager age.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 462

Fig. 2-6-45

Trends in ordinary profit rate depending on whether managers are replaced. .  .  .  .  .  .  .  .  .  .  .  .  . 463

619

National Association of Trade Promotion
for Small and Medium Enterprises
http://www.zenkyo.or.jp/