COVER STORY • Global Governance at a Crossroads – a Roadmap Towards the G20 Summit in Osaka • 6Challenges & Proposals
for SME Policies inG20 Countries

By Hiroyuki OkamuroIntroduction
On behalf of the G20 Summit in 2019, 10 task forces (TF) wereestablished within Think 20 (T20), a research and policy advice
network where academic researchers and policy experts fromuniversities, institutes and think-tanks can discuss major problems
and challenges and make useful policy proposals to cope with them.
TF 9: SME Policy Faced with Development of Financial Technology isone of the task forces proposed by the Japanese side that chairs theG20 this year. As the lead co-chair of TF 9, I will present some major
challenges and proposals for small and medium-sized enterprises in
G20 member countries based on the Policy Briefs of TF 9.
SMEs have a dominant share in the number of firms andemployment in all G20 countries, and so can play an important rolein economic development and job creation in each country. In Japan,for example, SMEs (firms with either less than 300 employees or300 million yen in capital in general) account for 99.7% of firms,employing approximately 70% of the workforce. In themanufacturing sector, they produce about a half of value added.
Of course, the legal or statistical definitions of SMEs differ acrosscountries and also across sectors. Moreover, SMEs are quite
heterogeneous even within a single country. Therefore, it is difficultand even no use to propose one-fits-all policy proposals for all typesof SMEs in each country. Nevertheless, we selected major issues that
may be common challenges for SMEs in the G20 countries andproposed some policy measures that may help SMEs to play theirroles appropriately in the economy.
TF 9 for SME Policy will focus on the following six fields inproviding Policy Briefs for the T20 in 2019.
• Startups (lead author: Yuji Honjo, Chuo University)• R&D and innovation (lead author: Hiroyuki Okamuro, HitotsubashiUniversity)• Financial access (lead author: Naoko Nemoto, Asian Development
Bank Institute)• Human capital and labor mobility (lead author: Erik Stam, UtrechtUniversity)• Internationalization (lead author: Miriam Koreen, OECD)• Business transfers (lead author: Miriam Koreen, OECD)
Let me explain in detail the first three of these policy proposals(startups, innovation and financial access), which have been headed
by Japanese researchers including myself, in the following sections.
https://www.jef.or.jp/journal/

AuthorHiroyuki Okamuro

Because the topics on business transfers and human capital (labormobility) are closely related to startup support, I will briefly refer also
to these subjects in the next section.

Challenges & Policy Proposals for Startups
Startups are often expected to contribute to the development andrevitalization of national and regional economies. Some startups playa critical role in innovation and market competition, which in turncreates employment and spurs economic growth. However, many, if
not all, potential entrepreneurs face difficulties in securing various
types of resources, so that even those with high ability may lose thedesire to start up their own businesses. Therefore, public support forstartups and entrepreneurship is useful for economic development.
Specifically, based on recent research trends and empirical evidence,
we focus on the following three aspects: diversity, ecosystems, andinternational orientation.
1) Targeting various types of entrepreneurs:* Establish an environment in which potential entrepreneurs,regardless of gender, race and age, can access entrepreneurial
networks* Provide more opportunities for individuals with a wide range ofbackgrounds to acquire knowledge and skills* Deregulate for business startups to stimulate interest inentrepreneurial activities
2) Building effective entrepreneurial ecosystems:* Stimulate younger firms to develop entrepreneurial ecosystems* Develop financial channels related to private equity capital,including venture capitalists, angel investors and crowd funding* Improve access to technological knowledge, including licensingof intellectual property from universities and public research
institutes, and support for collaboration in a timely manner* Support joint research leading to commercialization of unused
technologies developed in universities and large companies* Provide effective support for high-tech startups, including
financial incentives related to tax breaks to encourage
investment* Establish governance rules to sustain vibrant entrepreneurial
ecosystems
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COVER STORY 6* Improve private equity markets to facilitate strategic exits* Reduce both exit and entry barriers for entrepreneurial recycling* Share information to develop ecosystems3) Promotion of global startups:* Ease time-consuming and costly administrative procedures* Simplify systems and procedures for business startups and taxsystems* Understand the conditions of global startups better to sustain
their internationalization through appropriate support programs
Moreover, business transfers (successions) represent a criticalstage in the life of many SMEs. With the aging of populations inmany G20 countries, the volume of business transfers is expected toincrease sharply. Successful business transfers of economicallysound SMEs are crucial to retain employment, drive businessdynamism, ensure continuity in business relations and preserve
asset values. Thus, there is an increasing need for policy support forsuccessful business transfers. In this regard, we propose thefollowing: raising awareness, increasing the number of potential
business successors, ensuring appropriate financing conditions, andconsidering tax consequences of business transfers.
Promoting startups and business transfers is closely related topromoting human capital investment and labor mobility. How can asufficiently high level of investment in human capital andorganizational knowledge be achieved, while ensuring an optimallevel of labor mobility between and within organizations? Public
policies can stimulate labor mobility between establishedorganizations, new ventures and especially young growing firms byloosening employment protection and making social security
portable over all occupations. Businesses can change their workorganization in order to enable labor mobility.

Challenges & Policy Proposals for Innovation
Innovation is a major engine of economic growth. SMEs areexpected to contribute to innovation. However, it is known thatSMEs’ contribution to research and development (R&D) andinnovation is limited, mainly due to constraints in internal businessresources (capital, human resource and knowledge), constraints inaccessibility to external resources, and difficulties in protection and26 Japan SPOTLIGHT • May / June 2019

utilization of intellectual property rights (IPR).
The most important issues in policy making for SMEs’ innovation
are the targets of such public support programs and the mostbinding constraints for them. We argue that it is important toconsider “backing challengers” rather than “backing losers” or“picking winners” and that not only capital and human resource
constraints, but also access to external knowledge and protection of
their own innovation are binding constraints for innovative SMEs.
Based on these arguments, we propose the following policy
measures.
1) Improving public support schemes for SMEs’ R&D activities:* Rebuild incentive schemes based on empirical evidence* Pay more attention to demand-side support and “soft” orindirect support for R&D including matching, networking,consulting and mentoring
2) Promoting public-private partnership for R&D investment inSMEs:* Develop human resources who can appropriately evaluate
growth and innovation potential* Build intensive networks of investors, banks and SMEs thatprovide open access to investment opportunities* Encourage combinations of public and private investments toincrease SMEs’ opportunities (matching funds and venturecapital)
3) More efficient search for potential R&D partners:* Construct comprehensive databases to link SMEs with otherfirms, universities and public research institutes* Encourage information disclosure on the market needs andscientific seeds of R&D activities and utilize networkingintermediaries4) More efficient protection and utilization of IPR:
* Improve the intellectual property literacy of SMEs and design
more “SME-friendly” intellectual property systems* Provide professional and legal support to protect SMEs’
innovation against IPR litigation* Better and easier access to intellectual property database

COVER STORY 6

Challenges & Policy Proposals for Financing

Concluding Remarks

SMEs go through several phases in their life cycles – startups,
growth, maturity and renewal/rebirth or decline – and their need forfinance varies depending on those phases. We focus on the growth
and renewal phases, although our proposal to utilize new “FinTech”
is also useful for startup firms. In general, SMEs in G20 countries
face the following problems: limited access to bank lending due toinformation asymmetry and (nevertheless) over-reliance on bankdebt. Therefore, we propose to improve SMEs’ financial accessutilizing new financial technologies in the following way.

SMEs do not only play a role in the economy, but also in society
and culture. Hence, not only economic policy, but also other types ofpolicies including social policy matter for SMEs in each G20 country.
Here, however, we focus on economic challenges and policy
proposals and discuss policy proposals based on the economic wayof thinking. Moreover, because policies are subject to resource
constraints, appropriate design of relevant policies is important tomake them efficient and effective. Therefore, we intended to apply
evidence-based policy making (EBPM) to our Policy Briefs by not
only showing data, but also (and more importantly) by referring toempirical evidence from previous research published in scientificjournals.
Our proposals in the Policy Briefs of TF 9 shall be further
discussed and presented finally at the T20 Tokyo Summit at the endof May and at the G20 Osaka Summit at the end of June 2019. We
sincerely hope that our proposals for SME policy will be seriously
considered in real policymaking and contribute to substantial
improvement in SME policies worldwide in the near future.

1) Improving traditional lending using new technology and big data:* Develop process automation including online application,automation of underwriting etc., cloud-based accounting, digital
payment etc.
* Encourage innovative use of technology and data sharing: credit
scoring, e-commerce transactions, evaluating intangible assets* Enhance credit guarantee programs
2) Broadening the range of financing:* Form special investment funds for SMEs, initiated by the public
sector* Improve SME access to capital markets (including foreignmarkets)
3) Enhancing the consultative functions of financial institutions:* Develop an effective ecosystem among public entities,
universities and the private sector more broadly* Take proactive steps to support business succession4) Designing an appropriate regulatory environment for FinTech:* Design an appropriate regulatory environment to protect against
systemic risks, ensure compliance with regulations on personal
data and maintain a fair, safe and competitive market* Run a regulatory sandbox to allow selected firms to test newmodels on the market* Share several banks’ account information with an accountaggregator

Dr. Hiroyuki Okamuro, professor at the Graduate School of Economics atHitotsubashi University, is president of the Japan Academy of Small BusinessStudies (JASBS); vice president of the Forum for Entrepreneurial Studies; vicepresident of the Asia Council for Small Business (ACSB); associate editor of theJournal of Small Business Management (JSBM); and consulting fellow of theResearch Institute of Economy, Trade and Industry (RIETI).

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