Japanese small businesses are struggling
INOUE TOYOSAKU moved to Tokyo in 1913 and apprenticed with a metallurgist. When he started his own business a few years later, he found lucrative scissors for hair salons. The company he founded, Tokosha, now sells his Joewell-branded scissors in more than 50 countries, for up to 330,000 ($ 2,900) each. “We make scissors in the Japanese countryside but export to New York, London and Paris,” boasts Inoue Kenji, grandson of the founder and current boss of Tokosha.
Companies such as Tokosha, which has around 50 employees, represent a significant part of the Japanese economy. The country has some 3.6 million small and medium-sized enterprises (SMEs), which employ 70% of workers (in Great Britain the figure is 61%). These companies are less productive than their counterparts in other rich countries. Japan’s labor productivity gap SMEs and its largest companies is above the average OECD, a club of rich countries.
In the years to come, even the best small businesses could face a settlement. Hundreds of thousands of profitable businesses responsible for millions of jobs face closure because their aging owners cannot find successors. Consolidation would make SMEs more sprites, and prevent coupons from closing unnecessarily. But efforts to encourage it are progressing slowly.
Small Japanese businesses are often family owned. But families are having fewer children than in the past, and fewer are enthusiastic about inheriting the family profession. In 2000, some 80% of management changes SMEs involving a family member ceding control to another; now it is only 34%. Committing to taking over the family business may force young people to give up their dreams of city life and work for years at their parents’ feet. âBeing a successor is lonely,â says Suzuki Hiroaki, who this year won a business competition organized for them by the government. âThere are conflicts with family members, with fathers.
Although mergers are increasingly common, many business owners remain reluctant to sell to competitors or outsiders. It is difficult to get all the decision makers in a family to agree to the terms of a sale, says Tsunoda Michie of Sapporo University: âMany miss the opportunity to sell, and so many profitable businesses close. Â»Some 60% of the 50,000 or so SMEs that closed last year were in the dark when they closed. Researchers from the International Monetary Fund and the Japan Institute for Economic, Trade and Industry Research argue that these closures also increase the likelihood of their suppliers and buyers going out of business, a domino effect with macroeconomic implications. , especially in rural areas.
As their owners age, Japanese small businesses may start to lose momentum. In 2000, some 21% of SME the bosses were 65 or older. In 2020, it was 42% (see graph). Research suggests that Japanese companies with older executives are seeing their sales and profits grow at a slower pace than those with younger ones. Older executives are less likely to seek out new areas of business, less likely to make capital investments, and less likely to foster a corporate culture that encourages trial and error.
Government policies have not helped. Japan provides generous support to SMEs by long standing credit guarantees. It helps lower performers stay alive (and three-quarters of Japanese small businesses are over ten years old, compared to half in most wealthy countries). Subsidies also dry up as businesses grow, causing them not to.
Suga Yoshihide, who stepped down as prime minister in September, was aware of these problems. His government introduced subsidies encouraging SMEs merge with each other and develop into new business sectors. He slightly increased the minimum wage, which is low by standards in rich countries, in hopes of prompting business leaders to look for ways to make their staff more productive. But many small business owners opposed these reforms.
Kishida Fumio, who succeeded Mr Suga as Prime Minister, takes a softer approach. He spoke of causes that appeal to small business owners, such as finding ways to stop large companies from bullying subcontractors. Increasing the size of firms is not necessarily the only way to increase productivity, says Okada Koichi of Meiji University in Tokyo. He says the government could do more to help SMEs invest in technology.
Companies such as Tokosha see little benefit in mergers. Given the time it takes to train artisans, âyou can’t suddenly grow these businesses,â says Inoue. Her clients are aficionados who appreciate the subtle differences between brands. âEach scissor has its own flavor,â he adds. Mr. Inoue hasn’t given much thought to buying competitors or selling his business. But he is worried about who will succeed him. He hopes his nephew will take over one day. â
This article appeared in the Asia section of the print edition under the headline “Cutting Edge”