(1) The impact of the East Asian economic slump on the small business sector
The East Asian currency and financial crises triggered by the transition of the Thai baht to a floating exchange rate regime in July 1997 and the ensuing economic slump has reduced imports to and from the region, thereby affecting other economies outside East Asia. Although currencies in the region subsequently stabilized, investment and consumption weakened further in 1998, and the contraction in trade increased the impact on the global economy.
The small business sector too has been affected by these developments. In the two-year period before and after the East Asian currency and financial crises, the value of exports to East Asia of machinery, electrical machinery and transport equipment (the main categories of exports to the region) fell around 1.4 trillion overall (Fig. 2-31), and it is estimated that the value-added output of SMEs in Japan fell by over 500 billion as a result of the decline in exports.
(2) Trends in imports and exports of typical SME products
An examination of trends in exports of categories of products typically made by SMEs shows that there was a particularly sharp drop in yen terms in exports of machinery. This drop appears to have been due to the effects of the economic slump in East Asia (Fig. 2-32).
(3) Settlement currency for typical SME products
Looking at the settlement currencies used for trade with East Asia in typical SME products shows that compared with imports and exports as a whole, a greater proportion of both imports and exports of products typically made by SMEs are paid for in US dollars and a smaller proportion are paid for in yen (Fig. 2-33). This means that Japanese firms trading in these products are more exposed to exchange risk due to changes in the yen/dollar exchange rate than firms dealing in other types of products.
An examination of growth in sales of overseas corporations in which Japanese companies have an equity stake of at least 50% shows that sales of subsidiaries in all regions have grown in year-on-year terms since October-December 1997, but the sales of overseas subsidiaries of SMEs have shrunk. In East Asia, the sales of both the overseas subsidiaries of Japanese companies as a whole and the overseas subsidiaries of SMEs have shrunk, due in large part to the economic slump in the region(Fig. 2-34). A larger proportion of the sales of the overseas subsidiaries of SMEs are to local customers than in the case of overseas subsidiaries as a whole, and thus they appear to have been more severely affected by the impact of the local slump in demand(Fig. 2-35). It is against this background that the proportion of two-way trade between parent firms in Japan and overseas subsidiaries has risen since October-December 1997. In the small business sector, however, the traditionally high proportion (over 50%) of imports from and low proportion (around 30%) of exports to overseas subsidiaries remains unchanged (Fig. 2-36). Although in the case of firms of all sizes the proportion of exports to overseas subsidiaries exceeds the proportion of imports from overseas subsidiaries, the reverse applies in the case of SMEs. This indicates that a large proportion of overseas subsidiaries of SMEs were established to export to the parent company.
The economic slump in East Asia has thus also had an impact upon the small business sector. However, it is important not to overlook the fact that there are also firms that are turning their sights overseas in search of an escape from their current difficulties, while others are seeking out business opportunities overseas as a means of actively developing their businesses.