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Points of
White Paper on Small and Medium Enterprises
in Japan, 2000


This White Paper is the first one after the total improvement of the Basic Law of Small Business. So it is based on the new ideas on SMEs.

SMEs = "Source of Economic Activity in Our Country"
New Policy Goal = "Support of various and active development of SMEs"

It was reported to the Cabinet and the Diet on April 25th, 2000.

<Recognition of Present Situation>
Though the effect of credit crunch is decreasing, the economic situation surrounding SMEs is still hard and the recovery of SMEs is slower than that of large enterprises. This may mean that SMEs are slow to react the structural change of the economy and society, due to lack of finance, human resources, and know-how.

<Reactions of Small and Medium Enterprises to the Structural Change of Economy and Society>(Part.1)

Small and medium enterprises (SMEs) are trying to overcome lots of structural changes of economy and society such as

  1. IT Revolution
  2. Financial System Restructuring (Big Bang)
  3. Change of Large Company's Custom in Employment and Restructuring

In each industry, SMEs also face lots of issues, for example,

  1. R&D, ISO (in manufacturing)
  2. Customer Satisfaction (in retail sales)
  3. Housework Support Service

[IT Revolution]

  • SME's diffusion rate of IT tools

      Personal Computer 60%
      E-mail 60%
      Web Site 40%
      Network among firms via internet 20%
      CAD/CAM(in manufacturing) 10%

  • On the other hand, SMEs, which already introduced IT tools, recognize there are some troubles in them.

  • Subject : Improvement of Employees' IT literacy
    Collection of Information on IT tools from Multi sources

Fig-1 Issues on Introduction of IT Investment

[Financial System Restructuring (Big Bang)]

  • Due to Financial System Restructuring (Big Bang) and credit crunch, the financial environment of SMEs are drastically changing.

  • Subject : Reconsideration of Financial Resources, including change of the most reliable financial institution (main bank), making of cash-flow schedule.

Fig-2 Change of Main Financial Institution by Size after 1996
Fig-3 Reason to change Main Financial Institute
Fig-4 Business Plan by Size
Fig-5 Reasons Starting to Make Business Plan

[Lessons from the bankrupt of Hokkaido Takushoku Bank]

  • SMEs' images like "Financial institutions never go bankrupt." has changed.

  • Lessons : Use of public financial institutions and credit insurance
    Dispersion of financial sources
    More attentions to cash-flow

[Change of Employment Custom and Outsourcing]

  • Large enterprises began to change employment custom, i.e. reduce fringe benefit (for example, abolition of life-time employment). The difference of working environment between large enterprises and SMEs is getting smaller.

Now it is time for SMEs to collect human resources.

Fig-6 Secure of Young Human Resource
Fig-7 Jobs of Graduates from Colleges and Universities

  • The number of SMEs entrusted by large companies with their business is increasing.

Fig-8 Fields of Outsourcing by Large Enterprises
Fig-9 Numbers of Establishment and Employees of Outsourcing Business for Enterprises

[SMEs in Manufacturing]

  • Globalization of economy accelerates competition among manufacturing firms.
    • Managerial innovation, like R&D, and acquisition of ISO, are getting more important.

  • Because of lack of managerial resources, most SMEs commit R&D with other SMEs, public laboratory, or colleges & universities.

Fig-10 Manufacturing SMEs Cooperating R&D with Other Organizations
Fig-11 Effects of R&D Cooperation ( Manufacturing SMEs )

[SMEs in Retail and Wholesale]

  • Due to deregulation etc, competition among large shopping centers and shopping streets is getting more intense.
    • Introduction of "Shopping Street Management" or "Town Management(TMO)"(for Shopping streets)
    • Utilization of POS. Data

Fig-12 Consumers' Dissatisfaction towards Shopping Streets and Large Retail Stores

[Housework Support Service]

  • The number of children is decreasing and aging is progressing.
  • The development of SMEs in nursery schools is expected. In fact, the services supplied by SMEs are more various than those of public institutions.
  • Because of the start of insurance system, there is a large possibility of development of private sector (SMEs) in nursing-care service.

Fig-13 Monthly Average Cost per Student of Nursing School
Fig-14 Constitution of Nursing Service

[Start-up and Business Innovation]

Business environments in U.S and Japan are compared.

<Business Environments in U.S>

  • Direct financial markets for SMEs are active.
  • Venture funds for venture businesses are developed.
  • Transfer of technologies from colleges and universities are active.

<Improvement of Business Environments in Japan>

  • Activation of direct financial market (Act on financial system restructuring)
  • Simplification of establishment of venture funds (Act of SMEs limited partnership on investment)
  • Promotion of Technology Licensing Organization (TLO)
  • In 2000FY, the following policies will be committed
    • Improvement of 1)Total Support Center for SMEs and Venture Business, 2)Prefectures' Support Center for SMEs, 3)Local Platform
    • Improvement of Angel tax system
    • National Forum on Start-up and Venture
    • Start-up Seminar and School
    • Venture Plaza and Venture Fair
    • Venture One-Stop Service Support

<Recent Trend in Small Business Sector> (Part.2)

  • Though business condition DI of small enterprises continues to recover from the late 1998, the passe of recovery is slower than that of large enterprises.
  • The share of firms, including small enterprises, which thinkLending attitude of financial institutions is "severe'', is getting smaller, compared to the situation in late 1998.

Fig-15 DI on Judgement of Business Conditions (Manufacturing)
Fig-16 DI on Easiness of Finance for SMEs

[Effect of Special Insurance System]

  • After the introduction of policies for credit crunch, such as special insurance system in October 1998, the number of bankruptcies declined.
  • The productivity of special insurance users is not so lower than that of non-special insurance users, and better than that of general insurance users. (This means the criticism insisting " Special insurance system prevents the exit of low-productivity firms " is not true. )

Fig-17 Forecasts and Actual Number of Bankruptcies
Fig-18 Sales per employees (Comparison of Productivity)

<Drastic Change of SMEs Policy> (Part.3)

The concept of total improvement of the Basic Law on Small Business is introduced.



Image of SMEs Bottom of Dual Structure
Weak Enterprises
Source of Dynamism in Japanese Economy
Object of SMEs Policy Correction of Difference
(SMEs and Large Enterprises)
Support of Various and Active Development of SMEs
Main Policy Modernization of SMEs 1) Promotion of Start-up, Business Innovation
2) Reinforcement of Management Resources
3) Improvement of Safety Net

Range of SMEs

Manufacturing, etc Wholesale Retail Service
Old Law Below 100 million yen
Below 300 workers
Below 30 million yen
Below 100 workers
Below 10 million yen
Below 50 workers
Below 10 million yen
Below 50 workers
New Law Below 300 million yen
Below 300 workers
Below 100 million yen
Below 100 workers
Below 50 million yen
Below 50 workers
Below 50 million yen
Below 100 workers

Fig-19 Number of firms and Workers based on New Definition of SME

For reference of SME’s management, 165 examples of SME’s including 36 examples on start-up and 37 on IT, are showed in this White Paper.